After reading a few reviews and recommendations, I started using Personal Capital a while back and immediately realized what a great product it is. If you are not doing so already, I highly recommend that you start tracking your expenses right away. And Personal Capital is a great tool for this purpose.
While there are other products on the market that provide similar functionality, I haven’t yet found one that works as well.
Personal Capital was co-founded by Bill Harris, formerly CEO of PayPal and before that Intuit (Quicken) and there are four things to know about the service:
- Simple to set up
- Easy to use
- Incredibly helpful
- It’s free
As you can probably tell, this article is an endorsement of Personal Capital. I will say that I was using the service and a big proponent long before I signed up to become an affiliate. And while I wasn’t paid to write this review, the article does contain affiliate links. If you use a link to sign up for the free service, I will receive a small fee. This fee does not impact your service in any way, but does help fund the cost to run this site. As such, I appreciate your support.
Tracking your expenses
Over the years, I have used different products to track income and expenses. Income is relatively easy – unless you have a business in which case tracking your income may require a little more effort. But tracking your expenses can be more challenging.
Some of you are too young to remember, but there was a time when you had to manually enter credit card transactions and bank transactions. With Personal Capital, whether you charged something on a credit card or paid for it directly from your bank account, all your expenses are automatically downloaded and categorized.
With graphs, charts, and tables, you can quickly and easily see where you are spending your money. And knowing how much and where you are spending is the first step in taking control of your own finances.
When you first start tracking your expenses, you may notice a few things as I did. I had the expected spending on my house (including mortgage, taxes, insurance, utilities, and maintenance). And there were the normal expenses associated with our cars (insurance, gas, and maintenance). And of course, groceries, household goods, and other miscellaneous items.
But then I saw the problems. Everything else. The list of everything else was long. It included cable television, cell phones, going out to dinner, memberships, services, and on and on. This was where my spending was a problem. And because these were discretionary expenses, this was where I could focus my energy to cut my spending.
Personal Capital provided me with the information I needed to start cutting my discretionary expenses and begin preparing us to live on less income. The good news is that our income hasn’t fallen off, but because we’ve cut out a significant portion of our expenses, the surplus can be contributed to our FIRE accounts. These are the after-tax accounts we use to bridge to gap between active income and passive income.
Cut your fees
Once you start tracking your expenses, you will see that there are fees everywhere you look.
In addition to the fees you may be paying on your investments (more on that below), just the other day, I was on the phone with my bank. I never understand why a business who takes your money and pays you only slightly more than 0% interest income yet charges you $25 per month for a checking account can treat you so poorly. I won’t mention the name of the bank, as it really doesn’t matter because I have dealt with the same issues from multiple banks over the years.
In addition to banks, my list of companies that I hate dealing with because their customer service is so bad includes cable companies, cell phone companies, and insurance companies (including auto, homeowners, and health insurance).
This latest interaction with my bank was to see about getting the monthly fee removed from my business account. I’ve been keeping a low balance in the account because there is not much expense that gets paid for my business. So any income in the account gets automatically swept.
I have had this account for many years. And when it was set up, there weren’t any fees. Somewhere along the line that changed. Now there is an account maintenance fee that gets added as well as an online business banking fee for a grand total of $25 per month. WTF?
Honestly, I tend not to look too closely at the statements because as I said, there isn’t much activity in this particular account. But because I use Personal Capital to track the account, I happened to see these crazy fees.
Had I not been tracking the account, I may have gone for a much longer period before noticing. But because I found the problem quickly, I got the bank to waive a portion of the fees and got the account changed over so there will not be any fees going forward.
Manage your own investments
Most recently, I took back control of my own investment portfolio. Rather than paying a third-party advisor to manage the funds in our IRAs and after-tax brokerage accounts, we are now making all the decisions on our own.
I have not been pleased with the performance of our advisor. In addition to the fees paid for an actively managed account, we were invested in over 30 mutual funds which themselves had relatively high fees. All-in, we were paying thousands in fees no matter how the portfolio performed.
And it did not perform well at all. Over the past three years, our advisor had an overweight allocation in international equities. And after years of underperformance and even when the advisor himself felt the international overweight was not a sound choice, the asset managers maintained the allocation.
But despite this, I continued with the advisor and continued with my portfolio invested in the high-cost mutual funds. Eventually, I took a look over the prior three-year period and compared the performance of my portfolio with a comparable allocation of ETFs over the same period.
The results were clear. I was giving up a substantial portion of my gain through the fees I was paying. Do the math yourself. If you are generating a 6% return, and paying 2% in fees, you are essentially paying 33% of your profit to an advisor. And it’s even worse when your portfolio underperforms.
One of the reasons I was comfortable taking over management of my portfolio was because of the information available in Personal Capital. Using the investment dashboard, I was able to determine my portfolio allocation by account and see exactly how much was allocated to the different asset classes as well as within each sector of the economy.
With this information in hand, it was relatively easy to recreate the “professionally managed” asset allocation using much lower cost ETFs. And from there, I could adjust the allocation as I saw fit. Very simple. Lower cost. And better results.
Readers, if you are not yet using Personal Capital and tracking your expenses, please consider signing up for the free service and giving it a try. You will be very pleased. And if not, I would love to hear back from you as to why the product didn’t live up to your expectations.