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You know that we’re all about hacking the system — figuring out the best way to do something to shorten our path to retirement, help us travel, and ultimately live a life that we love.
Part of that comes with knowing the best tools to use. One that we use frequently is Personal Capital.
Why use Personal Capital?
When it comes to keeping track of your money — all of your money — there are few tools that do that well.
When you’re working towards FIRE, knowing where your money goes is important. Personal Capital does have a built-in budgeting tool, but it takes some time to get it set up and running optimally. Once you get the hang of it, the tool works like other budgeting tools — it shows you where you’re spending your money each month.
It works by pulling transactions from your connected accounts (bank and credit card). Each time you log into Personal Capital, the budget tool is front and center on your dashboard.
While being on top of your budget is awesome, we’re here to retire early. What better way to plan for that than a retirement planning tool. The Personal Capital retirement planning tool helps you build a forecast for your retirement and you can run different scenarios.
What happens if you retire five years earlier than your plan? What if you buy that rental property and have cash flow coming in? Or what if you want to help your kid out with college tuition? You can input all of that into the retirement planning tool and Personal Capital will help you forecast just how likely you are to have enough money for your plan.
To be totally transparent, this tool isn’t built specifically for FI. So you will need to adjust some of the assumptions to make it work for your situation.
Most people on the path to FI are looking at low-cost index funds to invest for retirement. But there is an investment tool within Personal Capital that is worth a second look: the fee analyzer.
The fee analyzer will show you exactly how much you’re paying in fees. You may know what your index fund fee is, but there may be hidden fees in your retirement account that you’re not aware of. Personal Capital shows you those fees and exactly how much your retirement account is suffering as a result. This is one of many reasons why pursuing FI has NEVER been easier!
Getting started with Personal Capital
Personal Capital is truly easy to use, but here are a few steps you can use to get started.
Step 1: Sign up and connect your accounts
Head to Personal Capital and click “getting started.” From there you’ll be prompted to create an account and connect your bank accounts. You can do that from this page. If you skip this, it’s easy to connect them once you’re logged into your account.
Step 2: View your current net worth
Once you’ve connected your accounts, you’ll be greeted with your net worth front and center on the dashboard. This is the net worth tracker, which will show how your net worth is trending over a period of time. This makes it super easy to track your progress (and stay motivated).
Step 3: Review your expenditures
Just under the net worth tracker you’ll find your budgeting widget. This snapshot will show you how much you’ve spent and how that compares to the same time last month.
Click on the budgeting widget to get an even deeper look into your spending. You can click on your spending amounts and set a spending goal and Personal Capital will start tracking your monthly budget against your goals.
Step 4: Check in on your investments
Now that budgeting is done with, we can get into the fun and powerful features of Personal Capital. Under the investments tab you can check out all of your holdings. Track your investment balance over time or dive into your allocations. Personal Capital lets you zoom in to look at your investments in as much detail as you need.
Step 5: Plan your retirement
The retirement planning tool is probably the most popular feature. As we mentioned, you can plan different scenarios and see how they affect your ability to retire. With this tool you’ll be able to see if you’re on track for your retirement goals (and yes, you can change the retirement age from the default!).
Using Personal Capital for FI
Personal Capital is a powerful tool for everyday use, but it can be so much more to someone who is on the path to Financial Indepedence.
Have you ever wondered how buying that bigger house would affect your FI goals? Or if investing in rental properties would really help you hit FI faster? You can do those calculations in the retirement planning tool. You can create and save multiple scenarios. With each scenario you can add an event like “buy a home”, where you would input the additional expense you’d incur. Or you can add an income event like proceeds from rental property income or an inheritance and see how that changes your path to FI.
Seeing scenarios mapped out can help you make a good decision about what path to take on your journey to FI.
Have productive conversations
If you’re on your FI journey with a partner, there’s a chance that you might not see eye to eye...especially at the beginning. Personal Capital makes it easy to share the numbers of your situation.
For example, you can talk in real numbers about how much you’re spending on certain areas, like eating out. Or you can work together to see what impact going down to one income would have on your FI goal.
Rather than having discussions that aren’t necessarily based on the facts (and might be more emotional in nature), using Personal Capital helps you break down the reality of different situations so you can have productive conversations.
Don’t love updating spreadsheets? That’s where Personal Capital comes in. Rather than manually updating a net worth tracker each time you want a snapshot of your current situation, you can log in and get the information from your dashboard in seconds. Because it pulls from your accounts automatically, you’ll always have the most up to day information.
Every few months you may have to go through the process of re-connecting an account. It can take a couple of minutes and is slightly annoying, but the benefits of the tool outweigh this drawback, by a mile.
Ready to take it for a spin? Sign up for Personal Capital and get started using our favorite tool for FI.