Week 2: Cashflow
The main thing we want you to get out of week 2 is the importance of tracking your spending. Do you know where your money goes each month? Are you spending money on things you don't even like or use? Are you getting value from your spending? Let's plug any leaks and have a strong finances ship. WOOT WOOT
I've written a blog post all about this: what do you spend your money on?
Week 2 homework
To get the most out of this course you must do the homework! Remember what the most dangerous words are when you're learning something? "I know that". None of this is rocket science. You might know this but are you actually doing it?! Are you implementing?
So here is the homework for week 2.... This is something you should do monthly as part of your monthly finance meeting. More on this in week 5.
1. How much did you spend last month?
If you're in the UK you might like to use money dashboard. That's the one we use but there are other tools that do the same thing. It's completely free. You link it up to your bank accounts and credit cards and it pulls through all your transactions into one place so you can see what you're spending in total. Katie and I look at our total combined spending so link all of our accounts into one money dashboard account for both of us. It's up to you whether you do this individually or as a household.
If you're in the US there's mint or personal capital
We don't care how you do it. You might already have a spreadsheet that does this! Just do it!
2. Work out your savings rate for last month. What percentage of what you earned did you save?
At a high level this is simply the amount that you saved divided by how much you earned after tax to give a percentage of how much you kept/saved. There were a few blank faces when Katie was explaining how to work out your savings rate so she's made a spreadsheet template you can fill in each month that will automatically work out your savings rate for you. The template is included in my blog article: how do I calculate my savings rate.
Why bother?!
Your savings rate is directly linked to how long it will take you to get to retirement. We'll cover this more when we come on to FIRE principles in week 7. If you'd like to read ahead now check out this article by Mr Money Mustache
Optional additional homework.
For the keenos amongst you there is some additional optional homework. Feel free to do as much or as little as you want. Pick and choose which exercises are most meaningful for you.
3. Categorise your spending for last month
For each item you bought/spent money on in the last month, categorise it so you can see what areas you're spending your money on. Money dashboard has its own categories that you can use or you might like to come up with your own. I've listed the ones we use below. Choose categories that are meaningful to you, ours are particular to our lifestyle and what we typically spend money on. By all means use ours as a starting point but you'll probably need to adapt them...
• Accommodation - Airbnb and hotels
• Eating out - Restaurants and discretionary naughties
• Groceries - Food we buy to cook at home
• Education - Books, courses, videos
• Transport - All car costs (insurance, services), flights, train, public transport, car hire
• Clothes - Clothes, footwear
• Entertainment - Cinema, shows, cooking courses, spas, fun stuff, renting movies, Thai massages
• Health - Prescriptions, gym, CrossFit, dentist, optician
• Misc - Cash, gifts, other random stuff, cleaner
4. Did you get value from what you bought last month?
Look down the list of what you bought/spent money on. Did you get value from it? Was it a waste of money? No judgement here, just noticing and this is your chance to change things if you want to.
5. Did you spend in line with your values last month?
What do you value in life? What do you get joy from? Does the money you spend bring you joy? What brings you happiness that you could spend money on if you wanted to?
6. Work out your real hourly wage
In the course we talked about how you exchange your time to earn money which in turn you use to buy things. If you skip out money as the middle person, you are using your time to buy things. Are you conscious of how much of your time you're spending on your purchases? Work out your real hourly wage to do this! There's an online calculator to help you do this.
Ask for help
Remember to reach out in the Facebook group with any questions you have or if you get stuck. Don't let confusion be an excuse for not progressing with this stuff. We are here to support you!
I've written a blog post all about this: what do you spend your money on?
Week 2 homework
To get the most out of this course you must do the homework! Remember what the most dangerous words are when you're learning something? "I know that". None of this is rocket science. You might know this but are you actually doing it?! Are you implementing?
So here is the homework for week 2.... This is something you should do monthly as part of your monthly finance meeting. More on this in week 5.
1. How much did you spend last month?
If you're in the UK you might like to use money dashboard. That's the one we use but there are other tools that do the same thing. It's completely free. You link it up to your bank accounts and credit cards and it pulls through all your transactions into one place so you can see what you're spending in total. Katie and I look at our total combined spending so link all of our accounts into one money dashboard account for both of us. It's up to you whether you do this individually or as a household.
If you're in the US there's mint or personal capital
We don't care how you do it. You might already have a spreadsheet that does this! Just do it!
2. Work out your savings rate for last month. What percentage of what you earned did you save?
At a high level this is simply the amount that you saved divided by how much you earned after tax to give a percentage of how much you kept/saved. There were a few blank faces when Katie was explaining how to work out your savings rate so she's made a spreadsheet template you can fill in each month that will automatically work out your savings rate for you. The template is included in my blog article: how do I calculate my savings rate.
Why bother?!
Your savings rate is directly linked to how long it will take you to get to retirement. We'll cover this more when we come on to FIRE principles in week 7. If you'd like to read ahead now check out this article by Mr Money Mustache
Optional additional homework.
For the keenos amongst you there is some additional optional homework. Feel free to do as much or as little as you want. Pick and choose which exercises are most meaningful for you.
3. Categorise your spending for last month
For each item you bought/spent money on in the last month, categorise it so you can see what areas you're spending your money on. Money dashboard has its own categories that you can use or you might like to come up with your own. I've listed the ones we use below. Choose categories that are meaningful to you, ours are particular to our lifestyle and what we typically spend money on. By all means use ours as a starting point but you'll probably need to adapt them...
• Accommodation - Airbnb and hotels
• Eating out - Restaurants and discretionary naughties
• Groceries - Food we buy to cook at home
• Education - Books, courses, videos
• Transport - All car costs (insurance, services), flights, train, public transport, car hire
• Clothes - Clothes, footwear
• Entertainment - Cinema, shows, cooking courses, spas, fun stuff, renting movies, Thai massages
• Health - Prescriptions, gym, CrossFit, dentist, optician
• Misc - Cash, gifts, other random stuff, cleaner
4. Did you get value from what you bought last month?
Look down the list of what you bought/spent money on. Did you get value from it? Was it a waste of money? No judgement here, just noticing and this is your chance to change things if you want to.
5. Did you spend in line with your values last month?
What do you value in life? What do you get joy from? Does the money you spend bring you joy? What brings you happiness that you could spend money on if you wanted to?
6. Work out your real hourly wage
In the course we talked about how you exchange your time to earn money which in turn you use to buy things. If you skip out money as the middle person, you are using your time to buy things. Are you conscious of how much of your time you're spending on your purchases? Work out your real hourly wage to do this! There's an online calculator to help you do this.
Ask for help
Remember to reach out in the Facebook group with any questions you have or if you get stuck. Don't let confusion be an excuse for not progressing with this stuff. We are here to support you!
