Photo: A beautiful sunrise from the top of Lookout Mountain in Phoenix, AZ. Photo taken January 2016.
Over the weekend, I was checking my Personal Capital dashboard to see how bad the down market has hurt our net worth. As you would imagine, our net worth took a hit, just like everyone else. This does not mean that I am running to the hills and selling everything. We have to remember that retirement investing is an investment for the long haul and we can't get scared by a dip in the market. It is always important to remember this fact whenever the nightly news scares you into thinking that this is the crash to end all mankind. Don't worry, the market will recover and we will be better off than we were before.
While I was on this website, I noticed that personal capital had sent me a notification. Their notifications give tips on all kinds of things financial, so I checked the notification. It stated:
This statement was very similar to something that I had read in Men's Health. A money expert was giving advice on how to save for retirement and his advice was to set up your 401K investments and just forget about it. In 20 years, check your statement and you will be amazed at how much you have. His advice was to basically forget about it.
We live in an automated society and I love the features of automatic bill pay and automatic investing. It is a great option, because you will automatically invest monthly and pay your bills on time, every time (without having to think about it). Both my wife and I have set up our automatic investing into her 401k and my 403b. The only issue with automated investing is that you can forget about the investments that you are making and not pay attention to how much you are saving.
You can't just automate everything and then forget about it. You still need to be on top of all things with your finances. This includes bills and investments. To do this, you need a monthly budget that allows you to track all expenses. You need to track your savings rate and spending rate. And we all need to keep track of our net worth on a regular basis. I do all of these things, because it is important to see where you stand at all times financially. Rob Berger from doughroller.net, calls the net worth a scoreboard of your finances. It shows you your financial score and how you did each year. If it increased, then you had a successful quarter and if it decreased, then you had a unsuccessful quarter. By setting a budget and telling your money where to go, then you should be increasing your net worth each month (barring any downturns in the market).
The main point that I am trying to make with this article is that you can't just luck into reaching financial independence, retirement or anything else successful with money. You have to be very detailed and understand where your money is going every month. I was a complete mess financially, before I began doing very detailed tracking. I was worried about other things in life and making sure that I was staying in budget was not one of them. I didn't know how much I was spending and I didn't know my net worth. Before my marriage two and a half years ago, I had a negative net worth, and when my wife and I got married, we had a net worth just barely above zero. Since, our marriage we have been tracking spending, net worth, and savings rate and our net worth has grown exponentially.
Another great example can be found in this article from Mr. Money Mustache, where he talks about the importance of keeping track of your finances. He uses an example of a 33-year old guy with a $250,000 salary, but this guy only has a net worth of $56,000 at age 33. How can someone with that large of a salary have so little to show for it? Because he spends more than he makes and does not know where all of his money is going. This guy has an issue with tracking his finances and therefore, will be stuck working his job until 65. Read more about Joe, in the article linked above.
My last example comes from Dave Ramsey, where I have heard him multiple times talk about the importance of budgeting. He states, "Budgeting means spending every dollar on paper on purpose before the month begins." Doing things on purpose with your finances is the only way to be successful. You can't go on trip without a plan and you can't go through life with out a plan for your money.
So, by all means enjoy the ability to automate all things with your finances, but don't let this automation make you lazy. You still need to track spending, saving, and net worth, because it will benefit you in the future.