Chapter 20: Organization and Practice
A financial plan includes a budget, different accounts, multiple investments and more. These all require organization and occasional monitoring to confirm you’re on track. Therefore, there’s a need for a central point of reference to manage your finances and ensure you’re not missing anything.
To do this, you can use a combination of websites, apps or software. A common approach is to use a website that collects all your account information from your different online profiles. It then presents your whole financial picture and tracks your progress over time. You can set up a budget and monitor your spending through one of several popular apps. Future goals can be listed in a word document, and you can plan how much you’ll need for each in a spreadsheet. Find a system that’s simple to follow, and experiment with different tools over time to see what works best for you.
Simulations in Place of Practice
A common way to learn is through experience. You can try something new and see what works, then ensure that past mistakes don’t repeat themselves. However, the opportunity to practice getting a mortgage isn’t always an option. As a result, it can be helpful to go through simulations ahead of time to see what different choices may lead to. Simulations include making calculations for different scenarios and seeing what would happen. For instance, you can calculate how much you can afford to pay each month toward a mortgage if you or your partner lost your job. You could also see how much your mortgage payment would increase if interest rates went up. By looking at different calculations, you can make an informed decision and minimize the chance you’re caught off guard.
You’ll also benefit from seeing how much you need to save each month for retirement given different scenarios. We’ll cover this in the Appendix when we discuss the question of how much to save for retirement. Without running multiple calculations, you may over or underestimate the amount of money needed. And in the case of retirement savings, there’s no going back for a second chance.
To help, there are calculators online from sites like the OSC’s Get Smarter About Money. These calculators cover topics like the growth of savings over time, mortgage affordability and insurance requirements. You can compare the expenses of owning a home to the costs of renting without having to do either. By changing the assumptions for important inputs, you’ll see a range of scenarios that may take place and the impact each would have on your financial plan.
Key Takeaways
Find a set of websites, apps or software to help track your progress and spending over time.
Use calculators to see what the future could hold and prepare for different outcomes.
This blog is a duplicate of the recently self-published book The Snowman’s Guide to Personal Finance available for purchase here.