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Sunday, April 23, 2017

Savings and Debt Feedback

Posted by Tim Stobbs on July 28, 2009

Well one of the little mentioned things that I do to help keep me on track with my savings goals are doing some feedback.  It’s part of the reason I calculate my net worth every two months and periodically check my account balances in between those updates.  The positive feedback keeps reinforcing my goals and keeps me on track even when I feel I’m watching a mountain slowly shift a millimeter.

So how do you create feedback?  Well some people can get by with just looking at the numbers, but I’m a bit of a visual person so I like to do graphs or charts.  So depending on the data I have available I will track my progress over a period of time so I can see that I’m actually going somewhere.  I keep calculating my investment net worth to show progress separate from the mortgage and house value changes which at times seriously outweigh my investments.

That was likely the most frustrating thing about the downturn last year.  I had to keep reminding myself to keep saving and eventually I will see progress since I felt like I was shoveling the money into a pit never to be seen again based on my account balances.

I think that is why I’ve been happy to switch over to paying down the mortgage for a goal.  It’s instant feedback and it always makes progress regardless of the market.  When you put in $400 for an extra payment, the balance goes down $400.  Simple and straight forward.

Do you suppose that is why debt repayment blogs are so common?  Debt repayment is sort of instant gratification for personal finance while wealth building takes time and can feel like your moving backwards depending on the market.  In the end both are required so even if people avoid investing at the start they are still going to have to learn how to do it.

In the end it doesn’t matter how you do it, but some sort of tracking mechanism is useful to help keep up with your goals.  It doesn’t have to be fancy for debt, but you might consider doing some accounting tricks on your investments like keeping track of your contributions rather than you account balance to help you see your progress even in a down market.  The how isn’t so important, it is the feedback that matters.

How do you use feedback on your savings goals or debt repayment?  If you want to share leave a comment.

Comments

4 Responses to “Savings and Debt Feedback”
  1. guinness416 says:

    Like all obsessive money geeks I do keep track of my net worth on a spreadsheet, and it is always encouraging. For investing I target contributions, not balances. For work I target bonuses, not raises. And for savings goals I just use ING’s inbuilt goal tracker bars. I have accounts there called Renovations, Travel, RRSP Contributions, Next New Car and Emergency Fund and each one has a little goal bar so I know I’m 20% to funding my next vacation or 50% to redoing our bathroom, for instance. You could do the same on excel but I like having the bank work it out for me. These work – when I just had one “savings” pool it was hard to stay too motivated to add more to them.

  2. That’s a good point – the easier it is to see progress the more encouragement you get. Then again with cash savings or even paying down mortgages the compounding gains may be relatively small. If your stock market investments are increasing by more than your contributions each month you might get a nice boost from that.

    Paying down debt before investing might make it a bit easier if you end up with a couple of thousand dollars to invest every month – you’ll see quick progress then, but eventually the account balance will grow to the point where it has a smaller impact.

  3. Canadian Dream says:

    Guinness416,

    Well I didn’t know ING had little bars now. It’s been a while since I’ve banked with them.

    SP,

    True. There is always the tripping point where you should switch based on the math, but sometimes we don’t do things based on the math.

    Tim

  4. There are such things as good debt and bad debt. We’ve been used to always getting rid of debt altogether, and good debt is a good way for us to function.

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