What is Mint.com you ask? It’s a free service that, simply put, tracks your money. Mint links to your bank, credit cards, and other money related accounts and puts together a comprehensive overview of your finances. It shows you how much you spend, how much you make, total assets and debts and puts all the numbers in one place where you can see them. This is good information to have, even if you don’t know what to do with it right now, and the longer you have the account the better you can appreciate your financial trends in the long run.
There are Four main things that a Mint account will do for you.
It will show you exactly there you spend your money by categories, such as how much you spend on groceries, eating out, gas and transportation, shopping, or any other category you want to make. This is useful if you want to make a budget (which Mint will automatically do for you) because it gives you a real number to work with. Most people who make a budget for themselves tend to pick random numbers for how much they would like to spend in the future on a given category. But don’t know how much they are currently spending so the number they pick is often unrealistic and then they end up abandoning the budget altogether. But if you know your average spending you can build a budget that is actually realistic for you. Personally I’m not a big fan of budgets, I just make a point of considering every purchase and if it is worth it. But say if I’ve been eating out a lot, it’s nice to know how much that is costing me, and then knowing that I might try to cut back a little. Either way, Mint is a useful tool for budgeting and saving money.
Mint makes finding your savings rate easy. A savings rate is the percent of what you make that you save. Mint will give you both these numbers, all you have to do is divide saved moneys by your income. Knowing our savings rate is the single most important number when it comes to planning for *financial independence and retirement. This number is important because when it comes to gaining your financial independence, it’s not about how much you make, it’s about how much you save. The relationship between how much you make and how much you need to live on is more important than having a high-income job. For example, if you could live on 10,000$ a year and your take home pay was 40,000$ your savings rate would be 75% and you could retire in under 7 years. But if you made 80,000$ and live on 40,000$ a year your savings rate would be 50% and it will take 17 years! Think of it in years, at a savings rate of 75% you are saving 3 years living expenses for every 1 year worked, and at 50% savings rate you are saving at a 1 to 1 ratio. So knowing your savings rate tells you when you could expect to have financial independence and retire.
Mint calculates your net worth. Net worth is the total value of all your money and assets, minus debts. This a useful number in determining how far your are from being financially independent. A road trip is a good analogy when talking about financial independence, your savings rate is how fast you are going, and your net worth is how far you have to go. To determine how much you will need to reach your destination of financial independence take your total annual living expenses and multiply them by 20. For example, if you live on 18,000$ a year then you will need 360,000$ to be financially independent. This is based on a 5% ROI (Return On Investment), meaning that you live off the interest of your principle (5% of 360,000$ is 18,000$). You can calculate your net worth without Mint to be sure, it’s more useful the more complicated your finances become. Check out Mr Money Mustash for more on this topic.
Obsessing about net worth seems to be a growing theme in the world of finance and money talk. It’s irrelevant to spray about how much your net worth is; because that’s not the number that will buy your freedom from the rat race. To me, Financial independence is about how little you can live on.
Note: If you’re following the dirtbag dream and living hand to mouth out of your car, then you should ignore things like financial “net worth”, there is a time to make and save money, but I’m glad I spent most of my twenties broke sleeping in the back of my truck.
Mint allows your to make better more informed decisions and be financially literate*, not just with spending, but with all aspects of your finances because it allows you to look at “the big picture” so to speak by putting all the numbers in one place for you to see without you having to log into a bunch of different accounts, for which you may or may not remember the passwords, to see what your student loan balance is, your next credit card payment, your phone, utility bills, and how much actually have in the bank. With all the options of credit and financing out the and all the student loans, it’s good to know if your spending more than you are making, and if the latter is the case you might need to make some changes. Mint also makes suggestions on how to manage your money, some of them are good, others may not really be relevant, but at least it gets you thinking about it.
* “Financial independence is generally used to describe the state of having sufficient personal wealth to live, without having to work actively for basic necessities. For financially independent people, their assets generate income that is greater than their expenses.” AND THAT PRETTY MUCH SUMS IT UP…ACCORDING TO GOOGLE
** “Financial literacy is the ability to understand how money works in the world: how someone manages to earn or make it, how that person manages it, how he/she invests it (turn it into more) and how that person donates it to help others.” GOOGLE
Disclaimer: Mint is free and offers no affiliate incentives, which means there is no money to be made in promoting their services.