Written by Cathy
I use mind maps frequently in my work as a software automation developer. They are extremely powerful and useful tools to quickly sketch relationship diagrams and to figure out where there is redundancy and inefficiency. It is an excellent note taking method with a variety of applications as well.
I also find it useful for plotting financial relationships between bills and income. This is gaining popularity as a budgeting tool called a Financial Network Map.
One of the trickiest things about getting your finances together is getting a grasp on all of the different income and bills. Financial planners and bloggers always recommend budgeting software or excel spreadsheets.
Budgeting software and excel spreadsheets are a staple of any financial toolbox. You MUST have at least one of them. The problem that I find is they are linear. They don’t show you relationships.
A financial network map gives you another view that a pie chart and graphs won’t give you. Pie charts and graphs are only a hammer in the toolbox.
What else do you need in a toolbox? You also need screwdrivers. You need to know how all your accounts are connected.
Here is an example of how my accounts are related.*
I get paid bi-weekly. The number in the large bubbles are the monthly totals needed. The numbers in the linked trees are the per check totals. Because I get 26 checks per year, that means a little extra will fall into the account. That’s ok – we want a little padding.
Now I can SEE how all my accounts are related. I can find where there are inefficiencies and reduce and eliminate them. You’ll notice that savings in this example includes retirement funds and savings goals, and totals a little less than half the total amount allocated with a fully funded Roth IRA and Health Savings Account for an unmarried filer. This is with a ‘debt free’ plan. If you have debt, you will need to cut back on your savings and retirement goals. It seriously sucks. That doesn’t mean you need to cut out everything, just prioritize aggressively.
If I was trying to fund an emergency account (called Cash Reserves), how would I figure out how much I need?
I would try to prioritize only absolutely critical expenses. If I lost my job, this is about survival. This means cutting almost all savings and retirement goals.
I eliminated all retirement contributions and most savings goals (except for paying my 6 month insurance premium). I cut back on dining, fun, groceries and spending cash to half. I calculated 3, 6, and 12 month totals, plus a 5% buffer.
Notice I did not cut out Netflix and World of Warcraft. While these are not food, water, shelter, if I didn’t have something fun to do, I would go crazy and be more inclined to seek out a bar or club, which are definitely out of the picture for a little while. I also include fun, dining and spending cash here. There’s a little bit of leeway for me to go out and have a tear in my beer (a cheap American beer – not cocktails or wine).
This does not include unemployment checks. Any unemployment checks I receive would be stashed in one of the reserve accounts that would be available in dire, dire emergency. This might pay for any interview clothes I might need in a pinch, or a taxi ride to an interview if the car suddenly breaks down. It gives me a little bit more independence rather than relying on an unemployment check to get me through.
A few excellent mind mapping software are rounded up at LifeHacker: Best Mind Mapping Applications. There are excellent free choices, however, all you really need is a piece of paper and a pencil. Just start drawing the relationship of your bills and see how they all connect.
* The numbers here are for example purposes only, and are not necessarily my real numbers.