I used to spend a ton of time managing my finances. I would sit down every week, and because I was too messy to keep receipts or write down my expenses, I would log in to every account I had with online banking, have a look at the transactions, and write down my balance. Then I would put the whole thing into Excel, and vaguely track my net worth every month. I was afraid making automated transfers into savings would make me overdrawn, so I would do these manually every time I had a little money left over.
I then read it was the worst thing you could do. Because you would wait until the end of the month to put whatever was left in savings, chances were there would be less than expected, since you left the money there, available to spend as you please. On the other hand, if you set up a wire transfer on pay day to send $100 to your savings account, you would be guaranteed to save at least $100 that month.
Our brains are lazy, and will always follow the path of least resistance. If you see money on your account, you know you can spend it. Like you can’t really be on a diet with your cupboards stocked with junk food. You know you’ll succumb sooner or later. And then regret it. Don’t trust yourself to save or invest your money.
The best way to spend less time managing your finances is automation. It will save you hours every month. You just need to define where you want to be three months from now, then adjust your automated debits. Review three months later, and see if you need to fine tune anything. You can set longer term goals as well.
For example, I want to set away $200 every month for retirement. I will fund my 401k and take advantage of my company match to get the tax savings on top. I also want to have $500 ten months from now to go on holiday. So I will set up a debit to send $50 extra into savings with every paycheck. Because I will need access to the holiday money pretty soon, I will send the $50 to a high yield savings account. And because I am no professional investor, and even if I were one, beating the markets would be a tough full time job, I will simply invest in low cost index funds via a low fee robo-advisor. That should take care of savings for the vast majority of us.
Set a monthly amount, invest regularly so you can dollar cost average, forget about it for a couple of decades. The markets will go up and down, but you can still expect a 7-8% annual return over the long term. Taking your hands off your finances also prevents you from selling in a panic and regretting it down the road. We all get emotional when it comes to money. That is perfectly human. But if you want to be comfortable in retirement, you can’t afford to get emotional. In a crisis, you will want to sell low, and then when the markets go up again, you might buy back higher than what you sold for. That is disastrous to your nest egg. Add to that the management fees and all your hard earned cash will have an abysmal return. The less time you spend on your finances, the more your money will work for you. If you need proof, look up the average S&P500 returns over the past 50 years, and try to find an actively managed fund that consistently beat that.
Spending less time managing your finances will also free up some valuable time in your schedule. Time you can use to earn more money, or simply do something that is important to you, such as spending time with your family or working on a hobby. Right now, I have gone from obsessing over every line of expense to reviewing my finances every quarter, and my net worth had been growing much faster.
I agree that automation is needed in managing our funds. The more time we worry about our finances, the more time we end up doing unnecessary things that can ultimately waste our time.