PF #3

Automated cashflow

Managing my own budget and tracking my expenses can sometimes take a bit of time. Also, it can sometimes become a self psychological war, there are simply too many temptations to burn all the money when I just receive the fresh paycheck. It would be great to have a system that controls the cashflow between the paycheck and the budget that I have already designed.

Automations to the rescue! Here is my current automated cashflow system.

cashflow (1)

Summing it up, there are two main important points in the system: two separate bank accounts and automatic recurring transfers. Two separate accounts are needed, mainly to separate physically the money for savings and consumptions. I use my EUR savings account also to temporarily receive my paycheck at the end of the month. On the other hand, I use another bank account exclusively for all the consumptions. Automatic transfers play an important role here to allocate the budget. For example :

  • Right after my paycheck is received, the fixed portion of it will be moved from my savings account to my ‘consumption’ account. In this way, there is already a clear separation of which money I should spend and which money I should save. –> use auto top-up feature of the bank account*
  • At the beginning of the month, I need to pay the rent –> auto transfer* the fixed amount of rent fee from my paycheck
  • At the beginning of the month, I need to save the money for different budget posts (ex: annual expenses, holiday funds, charity, etc.) –> auto transfer the money to the sub-accounts or vaults* inside my EUR ‘consumption’ account. These sub-accounts, again, are made to clearly separate the money according to the budget. When the certain need comes, I just need to access this sub-account to use the money.

Disclaimer : to be honest, this automation trick is the thing I just found these days, so I cannot tell if this is a working, bug-free, system. However, I personally don’t think something will go wrong either since it is a rather simple system. It should reduce the time spent for managing the budget, since I don’t need to manually move the money between my accounts, etc.  More importantly, the automatic cashflow puts me away from that ‘self psychological war’, in other words, reducing the possibility to misuse the money that has been allocated.

*The auto top-up feature, recurring transfer order, and the sub-accounts are the features that may not be available in your own choice of bank account. I personally use Revolut**, a kind of mobile bank account, as my EUR consumption accounts. In the next post, maybe I will discuss a little bit about the advantages of using this mobile bank account.

**This is not a commercial post.

 

 

PF #2

Actual expenses

It is nonsense to have my own budget if I don’t track my expenses. Below are the recap of my actual expenses since September 2014, excluding budget posts such as holiday funds, accomodation, charity, and annual expenses. All values are normalized with respect to the allocated current budget on each posts, meaning that, ideally, I should not spend more than 100% of the budget.

expense-tr-mo

The first posts are transport and mobile plan. I would not comment much about these since it is almost impossible to reduce the consumption of these necessities.

expense-fo

From the ‘food’ post, you can see the upward trend, looking at the dashed line above.  The dashed line is the Moving Average, which basically is the average of the last 12 months expense. The averaging helps to smooth out the occasional fluctuations. Regarding that slow uptrend, I think it is still in an acceptable level, maybe I just need to cook more at home or slightly reduce the frequency of eating outside.

expense-cl

‘Personal development’ post is a relatively new post in my budget, that is why the value only increases significantly during the last year. You can see clearly those three spikes in the end, which are the language course fees. I wouldn’t mind if sometimes the expense is more than the 100% of the budget, since I believe that personal development is the best kind of investment.

expense-otAs I pointed out in the previous post, this non-productive consumption is the hardest part for me to control. Especially, the consumption started to increase from mid 2017, which was the same moment I started to get more income from the salary as a PhD student. This is the classic trend: you spend more when you gain more money.

The bottomline is that, the expense tracking really helps me identify the anomalies in my daily consumptions. If the consumption increases consistently, I can ask myself : what makes the consumption increases? is this additional consumption justified? If it is justified, then I can modify the budget, if it is not, then I need to limit myself in the next months.

Final words, I would say that the most important thing one should have in doing this is the self-discipline. It is very tempting to ‘cheat’ on yourself, for example, by modifying the budget so that you will never exceed the budget, but that would undermine completely the purpose of the budgeting : to understand and control where your money is going.

PF #1

Let me start a new mini-post series on the topic of personal finance. Why I want to do this? First, because ridiculously, I really love managing my own money and making a very nice bookkeeping out of it. By ridiculously, I mean, I can spend about 2-3 hours per week staring at and playing with the excel files containing all of my recorded financial transactions. Second, because personally, I believe that money is a very crucial tool to achieve more freedom in choosing life’s decisions, so managing personal finance is really something that we need to discuss more about. The last one, is because after several years struggling with very limited scholarship ‘income’, tackling some money problems, and securing a bit of emergency fund, finally I can make my financial balance green again and I can spare some of my ‘active’ income for savings or investments. Therefore, not only I can talk here about allocating my income and expenses, but also I can talk about my chosen investment or possible investment opportunities.

Monthly budget

First mini-post is about my monthly budget. Monthly budget (and of course including the bookkeeping of all expenses) is a very important tool for me, simply because I don’t want to burn my money, the money that I have made from at least 40 hours a week of my life (a quarter of total hours per week), into something that I actually don’t value that much. I haven’t disclosed the nominal amount of the budget, since somehow I am not sure if it is safe for me to do it on the internet. So, I disclosed only the percentages of each expense posts, which is still sufficiently clear to elaborate the idea.

daily-expense-budget

One wise guy told me that 50/30/20 is a simple, neat rule to allocate the personal budget : 50% for the basic necessities, 30% for personal expenses, and 20% for the savings or debt. I initially used this rule, but over time, it is actually more comfortable for me to define the expenses in a more detailed way.

  • Transportation and mobile plan. Probably, the amount will slightly increase next year, since I am getting old and eventually I cannot use the public transports with reduced price for young people anymore…
  • Food. Including groceries and restaurant-made foods.
  • Accomodation. I considered myself quite lucky to rent my current double-room apartment, cheap compared to average Milan rent pricing but still pretty comfortable for a single man like me. Although, it is a little bit smaller and a bit far from my office, but hey there are prices for everything.
  • Annual expenses. At this time, this includes predictable expenses such as medical emergency insurance, student registration fee, and residence permit renewal fees.
  • Personal development. This counts into ‘productive’ form of consumption, which may include something like : enrollment to a language course, buying sport equipments, buying books, etc.
  • Others. Which is a pretty vague expense post. I will put here some random expenses like : one-day hiking trips, impulsive Amazon shopping, going to barbershop, buying stuffs for someone, transaction fees, some unpredictable bureaucracy fees, Spotify subscription, etc.  I actually really want to reduce these kinds of consumption, but even until now I find it very difficult.
  • Holiday fund. I need to exclusively allocate this mainly because I plan to go back to Indonesia occasionally every 1-2 years and it is indeed expensive return trip. This fund can be used also for long-duration holiday trip.
  • Family & charity. Sometimes I need to send some money to my relatives back home. I need also to donate to the charity, preferably to be paid in a lump sum each year.
  • Savings. After settling a 6-month-living worth of emergency funds in my bank account, I plan to put maybe 90-100% of the money here to investments, either liquid or non-liquid investments.

One time I thought also to add wedding funds because I know that ‘thing’ will be weirdly expensive (even I really want it to be as cheap as possible). However, unfortunately (or fortunately?) in my circumstances, the idea about when and how I am going to do that thing is still unthinkable, so I don’t think I need to allocate this for this moment.

If we use again the 50/30/20 division rule, first four points on the above bullet list can be categorized as basic necessities, something that I need to stay alive and function properly as a modern, legal foreign student. The next four points, therefore, can be categorized as personal expenses. This results in a budget with 39/25/36 ratio. Currently, I am still not satisfied enough with this ratio, since I need more savings rate to increase my first investment capital faster. But at this moment, with my current active income and necessities, maybe it is possible to occasionally increase up the savings rate by 5%, for example, by reducing the expense from ‘Others’ or ‘Holiday Funds’. But, I think it is almost impossible to increase it more than 10%, unless I have additional source of active income. Nevertheless, I am glad that it is a relatively healthy budget, from my perspective.

TIL #100

A woman’s deepest fear is that she doesn’t deserve to be loved. The feeling of unworthiness generates fear of needing or trusting others to support her.

A man’s deepest fear is that he is not good enough. The feeling of incompetency generates fear of failure to give and care about others.

Taken from ‘Men are from Mars, Women are from Venus’ by John Gray.

TIL #99

Some deterministic problems are more efficient to be solved by introducing randomness, rather than exploring all possible deterministic solutions.

quoted from The Algorithms to Live By : The Computer Science of Human Decisions by Brian Christian and Tom Griffiths

TIL #97

With great responsibility comes great power. The more we choose to accept responsibility for in our lives, the more power we will exercise over our lives. Accepting responsibility for our problems is the first step to solving them.

Quoting from The Subtle Art of Not Giving A F*ck by Mark Manson

TIL #96

Passing each day, the more I have come to realize that the ‘Piled Higher and Deeper’ is not just a comic or meaningless jargon, but it is actually a real thing.