Thursday, January 3, 2013

4 Easy to Use Tools to Automate Your Finances

It is that time of the year again when we are at the heights of optimism and are confident that we can turn over a new leaf and better ourselves. Sadly, after just a little time, most of us find that we simply don’t have the willpower, energy, or resources to stick to our goals. 

Most of us simply quit at this point, but this year, let us break our past patterns, and as a nation, stick to our financial resolutions. To help us do that, I want to highlight some online tools that will make it easier for us to track our spending, monitor our credit score, and invest in the stock market.

The stepping stone to financial freedom is automation and these tools are a great starting point to get you on the right track.

Track your spending:

If you are just beginning your journey to financial freedom, the first step is to keep track of your expenses and create realistic budgets to keep you on track. Back in the old days, this involved keeping track of your receipts but with the advent of PFM software, this can be done automatically for you using tools like PowerWallet and Mint.

These tools allow you to connect your online financial accounts (checking/savings, CDs, credit cards, mortgages etc.) so that you can see the history of all your accounts in one place.  In addition to automatically pulling all your transaction data, they will also automatically categorize the transactions so that you can better understand your expenses and present the information in easy to understand charts and graphs.

Once you understand how money is being spent, you can now setup monthly budgets for each category and track your actual spending against those categories.  
PowerWallet goes a step further than most PFM software and will help create a budget for you based on your expenses.

We cannot change our behavior without first understanding it and PFM software give you the power to plan and the power to organize.

Monitor your credit score:

By now, we are all aware that our credit score greatly impacts our ability to get the best rates on credit cards, mortgages, and auto loans.  A conservative estimate is that lower credit score costs the average consumer $4,500 - $6,000 per year due to extra charges that are assessed solely because of a low credit score.

It is time to fight back and become smart about managing our credit.

With an increase in ID theft, most financial institutions now bundle credit monitoring services as part of their offerings. However, these services generally only monitor for new credit activity and do not give the consumer access to their credit score.

A better and free solution is CreditSesame – a great tool that gives you a complete picture of your credit and loans in one place.  Through their partnership with Experian (one of the 3 credit bureaus) and major financial institutions, they also offer credit score, credit monitoring, and loan and savings recommendations that will save you money.  They also provide great tips on ways to improve your credit score.

Invest in the stock market:

Trying to time the market is the most common approach of many investors. With most
amateur and novice investors losing money in the long run, this strategy is dangerous and costly. A more conservative way to invest is to use an investment strategy called dollar cost averaging, that is, investing the same amount on a regular basis over a specific time period.

The best tool I have found in this regard is Betterment, which allows you to use this approach to invest in a diversified portfolio of Treasury Bond ETFs and Stock Market ETFs while giving you the control over your level of risk.  Betterment allows you to set up multiple savings goals (retirement, college, down payment on a house, etc.) and for each goal, set your level of risk.  The site also offers useful charts to track your progress and gives advice on the best ways to reach your goals.  This is very much a hands free solution for those who want to take advantage of the profit potential of the stock market with as little complication or intervention as possible.

For those who want to get their feet wet trading individual securities, I would recommend a low cost broker like OptionsHouse.  Despite having one of the lowest rates of any online broker, OptionsHouse has an award winning trading platform - ranked by Barron’s as #1 for mobile trading - that includes innovative risk management tools such as the probability calculator (find the likelihood of a stock reaching a specific price) and volatility charts. 

By far the best feature they offer is their virtual trading platform which allows you to use virtual dollars to enter virtual orders, track the simulated performance of your account, and experiment with new strategies in order to hone your trading skills.  This is a great tool for the novice investor who wants to build their trading confidence before putting real money to work. 

I will leave you with this quote by Dave Ramsey:

“Financial peace isn't the acquisition of stuff. It's learning to live on less than you make, so you can give money back and have money to invest. You can't win until you do this.”

Best of luck on your journey to financial freedom in 2013!

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