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.
Vicki@Make Smarter Decisions says
Just signed up for Personal Capital about a month ago and we LOVE it! We have never been good about tracking expenses (but pay off things every month) – so this is a great start. Strongly suggest it to anyone who hasn’t given it a look! Great overview here of the reasons we all need to take charge!View Comment
Financial Slacker says
Thanks, Vicki. Having the right information is key to making good decisions – in finance and in life.View Comment
Finance Solver says
I love it. I recently signed up for Personal Capital as well (3 days ago) from financialsamurai. I agree also if you don’t track your money, your money will make its own mind of where it wants to go and who it wants to go to. I also like to manage my own investments as well. I had mutual funds for a while but didn’t see the value in paying a fee to get subpar returns than the market. It’s the ultimate money saving tool, especially if you look at it over the long term.View Comment
Financial Slacker says
Those fees on mutual funds will kill you. Especially in a low return environment.
I’ve used other tracking software and the budgeting components are so difficult. With Personal Capital, I can do it all on my iPad sitting on the couch. So convenient.View Comment
Get FIRE'd asap says
Everywhere I’m reading about informed personal finance blogger (like us) ditching their overpaid, under performing financial planners and going it alone. I have my own tale of using a planner who was earning more than I was since his fees seemed to have no correlation to his performance.
The point is, by learning the basics of financial planning and investment, and talking to experienced people who have no financial gain in giving you free advice, you can pretty well do it yourself as i did.
And the money you save in fees goes straight back into your own pocket.
But first things first, get your budget and spending in order, as you so rightly say, Financial Slacker. Great article as always.View Comment
Financial Slacker says
I keep thinking there has to be a better way with Financial Planners. But I haven’t found it yet.View Comment
Good article to demonstrate the value of tracking. As a European, I look forward to have such services in Europe… Expected only end of 2107/early 2018 as there needs some law and technical layers to be put in place.
another value of tracking is that you become aware of what you pay for everything. In my case, it pushes me to compare services more often.View Comment
Financial Slacker says
That’s one of the great things about writing on this site. I had no idea these tracking products didn’t exist over in Europe. It’s been so prevalent in the US for so long, I just assumed it was everywhere.
And you’re right, when you start seeing these expenses right in front of you, it’s pretty strong motivation to make changes.View Comment
Those fees are so frustrating! My business account dings me so hard and their customer service is nonsense. I get so frustrated by the. Unfortunately, there is only one other option in my area. One more major mess up and I will go through the hassle of transferring that account over.View Comment
Financial Slacker says
You could try an online bank like Ally. I am not too familiar, but it might be worth looking into.View Comment