Care about your money because no one else will do!
Some people like bankers or insurance brokers claim to care about your money. What they really care about is how they can make as much as possible of your money their money.
When I started working at my first job I made the mistake to sign a whole bunch of life insurance contracts as well as income protection, accident insurance, household protection and so on and so forth, without informing myself about the costs. I felt quite save and then I wondered why I wasn’t a millionaire by the age of 30 🙂
Jokes aside, I gave the control over my money away to some folks I barely knew. (Besides investing by buying some shares in a randomly fashion)
I cannot remember how I came across this book but Ramit Sethi’s
“I Will Teach You to Be Rich” was some kind of revelation because it showed me how bad the return on investment from my pension insurance really was going to be.
The insurance companies are taking huge fees to sell you managed funds with high front-end load and total expense ratios. Meanwhile 96% of all managed fund perform worse than the market itself.
The other big takeaway was the “CEO” rule. I will ponder on that later
But it actually took me a couple of years until I acted upon those tips. Some of the reasons might have been that you couldn’t map the advice to the situation in Germany. E.g. in Germany you cannot get saving accounts with sub-saving accounts for free. Another reason might be that admitting you made a wrong decision is really hard mental work.
In 2015 I started to track my spending. The trigger for that was that my wife and I started looking for real estate. I tried some classic apps for housekeeping books. And then I stumbled upon “YNAB – You need a budget”.
Their concept got me hooked!
Instead of only tracking how much you spent on things, you have to figure out how much you really want to spend on a category like eating out, vacation, gifts and so on. With this app I could finally map most Ramit’s concepts to my situation.
I logged all my saving accounts, share portfolio and so on into the app to get a complete overview of my financial situation.
Then I created categories for every major spending area and started tracking. I knew from the beginning I had to do a complete one year roundtrip to know exactly how things would work out, because many payments like car insurance and maintenance or house contents insurance will only occur once a year.
Here are our main categories:
- Daily Expenses
- Monthly Bills
- Rainy Day Funds
- Saving Goals
These are the things You buy from day to day in Germany still mostly with cash. My wife and I came out with:
- Lunch J
- Lunch M
- Eating out
- Spending Money J
- Spending Money M
Eating out: We love ordering pizza and eating steaks or going to a Greece restaurant. But we decided as well that we don’t want to spend more than
100 50 bucks per month.
Spending Money: this category is meant as guilt-free, no justification category. If I spent it on black jack and hookers, it’s ok 🙂
These are the costs that appear every month. When these appear only once a year you have to budget the amount divided by 12.
- Side costs (heating, garbage collection)
- Electricity bill
- Internet provider / telephone
- Accident insurance
- Household protection
- Third party insurance
- Car insurance
- Car service
Rainy Day Funds
This one is an important one. I know many people who don’t save for emergencies. What is an emergency? We defined it as: “things which need to be replaced immediately when broken”. Washing machine, tumbler or an unexpected car repair.
- new car
- equity capital
- new furniture / renovation
Money – Master the Game
To become wealthy – according to Ramit Sethi – you can do three things:
- C – Cut costs
- E – Earn more
- O – Optimize spending
Where do I cut costs?
- Cancel unused internet domains
- Cancel magazine subscription of magazines I barely read
- Cancel gym membership
How do I earn more?
- eBay auctions
- negotiate salary
Stuff that I haven’t used in the last two years can still do some good when you give the money to charity.
How do I Optimize spending?
- Negotiate car insurance fees
- Change power provider
- Cancel live insurance
- Switch bank accounts and share portfolio to direct banking
Last year I bought Tony Robbins’ book “Money – master the game” and it helped me crossing the Rubicon regarding my life insurance contracts by showing again how senseless these contracts are.
To underpin my decision I opened an excel spreadsheet and went through the pain of calculating my loss of my life insurance contracts. After crying about my stupidity for several days I wrote the cancellations. After I received the repayment of what was left I put the money into low TER ETFs.
Money and Partnership
When you set up your goals and budget it makes sense to do it together with your significant other. The worst case scenario is when one is planning and the other one is spending disregarding the budget altogether. My wife and I always kept separate bank accounts with one common account for the rent and everyday expenses. We figured out how much we spent on things we profit from together and transferred money to the common account relative to our income.
But as soon as you’re going to purchase bigger items like a car you have to put your money in one basket. So today we are more like keeping virtual accounts via YNAB.
The truth hurts a bit:
You have to dedicate a good amount if your time to manage your finances!
But it will save You a lot of trouble and sleepless nights. After You budget all your costs and long term saving goals you can be frustrated that your spending money is sometimes not much more than pocket money. But in the end budgeting helps you focusing on your financial goals and priorities.
I wrote the article in 2017. Fast forward to 2022 the system still works in general. We still track our expenses and plan our budgets with YNAB.
It now takes us approximately 1h a week to “synchronize” our accounts with YNAB and plan ahead the next couple of weeks. I use the iOS app when purchasing with cash.
Here are some lessons learned:
We renamed a few categories because our children are now diaper free. But they both started to play instruments and need stuff for school etc.
So we made a broader category Spending A+L
Rent was replaced by mortgage and we don’t track lunch money separately anymore. It’s all groceries by now.
Cash vs Debit Cards
YNAB showed us that we often didn’t know where our cash went. So we decided to pay more purchases with debit card which brought more clarity into our budget.
Some may argue that you spend less when paying cash but we for us knowing where the money goes is more important.
Guilt free spending money
The guilt free spending money categories helped us a lot to de-stress our relationship money-wise.
Having the same amount of money available per month though earning differently helps us to avoid haggling over purchases which solely benefit one of us.
When you want to check out YNAB I would be pleased if you used my referal link
When your friends use your link to subscribe, you both get a free month of YNAB!