Personal Finance Flow Chart

Intro to the personal finance flow chart

In other words: “What should I do with my money and when, please”. I’m sure this is the same question most people are asking themselves. Everyone has money and needs to put it to use but there is no real unified plan. There is no personal finance flow chart to walk down for each stage in our life. Or is there?

I’ll admit it is kind of a misnomer to call this a Choose Your Own Adventure when we all hopefully end up at same destination in this journey: financial independence. Personal Finance might be more like a role playing game main plot in that sense but as a millennial, it made more sense to compare it to the iconic book style of my childhood.

“In this world nothing can be said to be certain except death and taxes.”

— Benjamin Franklin

The concept of death and taxes being the only certainties in life didn’t originate with Benjamin Franklin technically. He is definitely associated with the sentiment and, by extension, the notion that personal finance is something so ingrained in the human experience as to be inescapable.  

You Can’t Ignore Your Personal Finances

I’m sure we all know people more than willing to stick their head in the sand regarding their personal finances. They do so out of a lack of knowledge, fear of what it might show, or willful ignorance.  Whether we want to admit it or not, money has a firm grasp on nearly all aspects of our lives. Getting control over your personal finances has far-reaching implications worth exploring.

Poor money management means decisions in life are made for you instead of the other way around.  Maybe you want to take a vacation but can’t because your credit card bills are due soon and are overwhelming.  Perhaps you want to be a stay-at-home parent when your child is born but can’t afford to lose the income or benefits your job offers.  You finally find the house of your dreams but have no money for the down payment.  When you don’t have your finances under control and debt claims your money before you have a chance to decide what to do with it, someone else is making the decisions in your life.  It is time to reclaim the driver seat in life.

Take control of your money

Aside from the purely financial matters, finances are routinely some of the largest contributors to anxiety and stress levels.  Financial problems can be a significant source of stress in a relationship and continues to be a top reason for divorce in America.  Proper money management and creating an environment where discussion of financial matters remains honest, open, and transparent would probably reduce a lot of the anxiety and stress in life.  Even if you don’t have a lot of money, just knowing where your money is coming or going and having agency in those decisions at least provides a sense of control over your life — an amount of control that steadily grows over time as these decisions stack up. 

Researching popular Personal Finance “plans”

 In my personal quest over the years to find a good guide that would just tell me what to do with my money in a simple step-by-step plan I came across the usual plans: Dave Ramsey’s 7 Baby Steps, Suze Orman’s 9 Steps to Financial Freedom, USNews’s 7 Habits to Help You Reach Financial Independence, Forbes’ 15 Steps, and many others.  I personally didn’t like any of them and not because they wouldn’t work.  I didn’t like them because they either didn’t apply to my situation or were needlessly vague.

Almost all of the popular personal finance plans recommend the following:

1. Avoid debt or pay it down immediately
2. Spend less than you earn
3. Pay yourself first
4. Buy income generating assets
5. Keep investing
6. Success

How surprisingly generic and unhelpful…

These are all good pieces of advice but not entirely useful to most people. What does “pay yourself first” or “buy income generating assets” specifically mean?  When should I do it in the order of my money allocation?  I’m sure they keep it vague to apply as broadly as possible, casting a wide net in terms of audience.  Vague advice might sell more books, but I just wanted to know what to do with my money. I wanted to learn information more specific to my situation than what I was getting from these widely-available plans.

Ooh… a personal finance flow chart with more than 7 steps.

Eventually, I stumbled across a personal finance flow chart on Reddit in the personal finance forum. Finally, it felt like I was getting closer to what I was looking for in a path to financial independence.  The personal finance flow chart had a simple yes or no decision at each juncture designed to guide people from building their first emergency fund all the way through retirement saving. I did a quick check, running my finger down the flowchart, to find what step I was at and what I’d missed. I could clearly see where I was on the path to financial independence and where I needed to go next.

Over the years, I’ve had family and friends ask my advice on how to handle their personal finances, and I inevitably send them a link to this reference chart and page. The problem is that while a flow chart is inherently easy to navigate, the steps or decisions on this one are not self explanatory.

The page had some very limited explanations for some of the steps but assumed you had a level of personal finance knowledge many will not possess. The concepts made sense to me as a person with a degree in business and 10+ years experience in corporate finance who has spent years reading heavily on the subject.  I’m not so sure it is as user-friendly for people outside the finance or accounting arena.

Learn Personal Finance by teaching

Working my way through the flowchart, I figured the best way to learn the concepts and truly understand the path to financial independence would be to teach it to others.  The opportunity to share my financial knowledge with others and convert a relatively obscure flowchart into a simple-to-use, intuitive, actionable tool for setting oneself on the path to being financially independent and possibly retiring early was too hard to pass up. 

Once I decided to start outlining my personal take on the subject, I needed a way to logically organize the flow from one decision to another based on the reader’s needs so everyone gets the advice they personally need. It occurred to me that the personal finance flow chart was oddly familiar from childhood.

Choose Your Own Adventure for grown ups

Enter the “Choose Your Own Adventure” series of books most millennials will remember from our childhood or similarly structured role playing games like Dungeons & Dragons.  The narrative of both adventures are mapped out in advance by the author, developer, or dungeon master to be followed by the participants. It occurred to me one day that those games and books basically employ a narrative flowchart under the hood where participants actively choose the direction in which the story moves. 

Per a legal filing recently by Netflix in reference to their Black Mirror series, “ ‘Choose Your Own Adventure’ refers to any situation that requires making a series of unguided choices, or that provides an opportunity to go back and re-make a series of choices that turned out badly, or to any interactive work that employs a branching narrative style.” This seemed like a perfect mix of structure and nostalgia to lay out a series of articles on what the average person should do with his or her money to put their financial life on auto-pilot and start living a life of freedom.

How this is going to work

I plan to post an article each week as we work our way down the personal finance flow chart to the blog and archive them as I go along to the ‘Path to Financial Independence‘ page on the site.

You should expect the following from each post:

1. An explanation of the decision to be made at this step
2. The choices on where to go next
3. My advice on the step, where applicable
4. A personal anecdote on how I handled this step, when possible

Steps from start to financially independent

1. Introduction & First Steps
   1. Financials 1: Get the balances & transactions, then organize
   2. Financials 2: Balance Sheet
   3. Financials 3: Income Statement
   4. Financials 4: Set up a system to track your expenses & debt
2. Building a Safety Net
   1. Make sure you have a small emergency fund
   2. Pay all of your bills in full and on time
   3. Employer 401k Match
3. Stop Paying Others
   1. High Interest Debt pay down
   2. Increase your emergency fund to 3 or 6 months at least
   3. Mid level debt (4-8%) pay down
4. Saving For the Future
   1. Funding IRAs
   2. Large purchases coming soon?
   3. Save 15% for retirement
   4. Funding HSAs
   5. College Fund
5. End game
   1. Retire early vs other goals
   2. What does retirement mean?

Perfect. What is the next step?

Link to Step 1: Transactions