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how I mindfully watch my finances

Updated: Feb 25, 2022

"With mindfulness, we are learning to observe in a new way, with balance and a powerful deidentification" -Jack Kornfield.

I would always entertain the idea of transferring the principles from my mindfulness practice directly into my personal finances. During meditation, I observe my mind without judgment. I wanted to apply that same principle to different areas of my life, starting with my finances.

I had to first recognize what was going on with my finances. I needed to understand what all of these numbers meant and how to manage them better. In the early stages of my personal finance lessons, I found myself understanding the basics of corporate finance.

In addition to the complex human that I am, I started to see myself as a business that earns income from operations (working). A lot of the terminology, methodology, and equations we use to assess the health of a company could be used to help me check the health of my finances.

Before I gained exposure to FinTech, I had a manual process of comprehending my financial world. I discuss a FinTech approach in my video, but I would like to describe a manual system in this article.

understanding how FinTech works can help you feel safer

Some people may find issues sharing their information with an application, so I wanted to offer an alternative approach. At first, I also did not trust many of these companies, but I began to dig into what made them work. This also increased my technical understanding of the world, which was extremely rewarding.

A majority of these companies transfer data thru an extremely safe third party (Plaid). I recommend looking into the company and the underlying technology to see if it adds to your feeling of security (it indeed helped mine)

start by collecting your financial data

I originally wanted to spread information through a complex budgeting tool that delivered information to you as you needed it. I decided against that route, but it gave me something I can use as an example with this article.

Budget Worksheet
Download XLSX • 51KB

I started with looking at all of my financial statements to get an understanding of how much money I spend each month. The excel sheet I am sharing with you was significantly more complex than it needed to be, but it does make sure you are not missing a single thing when dissecting your spending habits. It is also a good starting point for terms that can be understood when learning finance.

create something that works for you

I was consuming the information, but at the same time creating something, and I think that was extremely helpful in my understanding the information deeper. It also helped me craft my own finance philosophy that I am now sharing with you.

I encourage you to create your own, too, using your information. Your dashboard should display information that helps you make financial choices that are aligned with your goals.

calculate your inflows

While creating your tool or filling in the numbers on my sheet, it is essential to understand the concept of "inflows" or "income." Inflows can be simplified to money entering your financial picture. This can be from work, refunds, side hustles, or whatever you do to make money.

and calculate your outflows

"Outflows" or "expenses" are crucial to creating your financial tool or using mine. This would be the money you spend on rent, car expenses, groceries, clothing purchases, etc. These can be further classified by categorized such as housing, discretionary, mandatory, health, leisure, personal care, and transportation.

these two numbers can be used to calculate cash flow

The first piece of information I began to understand in my finances is Net Cash Flow. This seems like such a simple number, but I have spent so much time avoiding actually calculating it. That is 100% because it is such a powerful number in your financial world.

Again remember receiving the number should be seen as simply observing that it exists. It is very easy to get tied up in a narrative about how you are not enough because you are not saving enough. The overall goal is to have this number be positive in value. This represents the fact that you can make progress to improve your financial world.

using this following equation

Net Cash Flow (or Savings) = Inflows - Outflows

cash flow can be used to calculate other ratios

If your Net Cash Flow is negative, this is just an indication that you are most likely building more debt as you progress financially. Calculating the number and seeing it now, gives us the opportunity to make changes before the situation gets out of hand. This is why it is important to have access to a tool at which you can see your financial health at a glance.

Net cash flow can also be used to calculate many different ratios that help you understand other personal finances philosophies.

such as calculating your savings rate, the backbone of your finances

Savings rate = Net Cash Flow/Total Inflows

When working with your finances, percentages make the process a lot smoother. Utilizing a percentage of your savings rate you can begin to incorporate lessons from things like the 50/30/20 rule that were created to give you a rough outline for your budget.

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