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When I was at my 20s, I was living paycheck to paycheck. Late payment fees for phone bills and credit card repayments were a regular occurrence. I tried tracking my daily expenses, and it was incredibly helpful! But, unfortunately, I couldn’t keep it up for more than a few months before gradually slacking off.

I’m the type who occasionally gets a burst of motivation but most of the time lying flat. Over time, I figured out a pain-free way to save and spend money that works for people like me.

Rough Budgeting

I mentioned this in my earlier post on family financial management. I use a simple spreadsheet for rough budgeting. While keeping detailed expense records is a great habit, I find it hard to maintain consistently. So most of my expense calculations are based on estimates.

I periodically review this budget spreadsheet and compare it with our actual household income and expenses to see if there are significant discrepancies, then make adjustments and reflect on the differences.

Find the Magic Number

The key here is one thing: savings rate. The purpose of budgeting and tracking expenses is to ensure I can meet my target savings rate. Why is savings rate so important? There’s a famous calculation in FIRE: the relationship between your savings rate and the time needed to achieve financial independence.

Ideal retirement age, the cash flow needed for retirement, and large expenses such as children’s education can all be roughly calculated. By factoring in inflation, expected investment returns, current income, and future income projections, I can calculate the savings rate required to hit my financial goals by my target age.

To do this, I wrote a script that allows me to adjust various variables and calculate my expected financial targets. The more I save, the fewer years it takes to reach my goal. Save less, and I’ll need to work longer or increase my income. If I can’t earn more, save more, or delay my retirement, I’ll have to compromise on retirement quality or reduce financial support for my children. If I aim to increase my investment returns,I’ll need to take on more risk, which introduces significant uncertainty into my financial plan.

The sweet spot lies in balancing these variables:

• Investment return rate (which depends on investment duration and risk tolerance)
• Expected retirement duration
• Desired passive income cash flow (adjusted for inflation)
• Actual living expenses (to maintain my desired lifestyle, reference to my budget in part 1).

This balance determines my target savings rate.

Automated Dollar-Cost Averaging (DCA)

Once I have this magic number, the next step is to automate everything. At specific times each month, I set up automated processes for everything: bank account transfers, deposits into investment platforms, and purchases of investment products. Once it’s set up, I don’t touch it and make adjustments only once or twice a year.

Our brains work in interesting ways. Once money is deposited into an investment account, the thought of having to go through the trouble of trading, selling, and waiting a few days to withdraw makes me too lazy to touch it. This inertia also discourages tapping into the funds for large expenses like buying a house or a car, naturally reducing the budget and final cost of such big-ticket purchases.

Meanwhile, the money left in my daily account is what I can “spend freely” without guilt.