In the Lean Startup book by Eric Reis, he suggests a cyclical process called the Build-Measure-Learn cycle. Very similar to the Scrum Framework that calls for an iterative process for improving a product, Eric Reis applies that idea to domain of building a startup business.
I would like to attempt the application of the process to the domain of personal finance.
The following would be the actions you would take in a personal finance iterative cycle:
Build
- Identify and review your values
- Setup and review your long term goals
- Setup and review your S.M.A.R.T. short term goals
- Setup a target budget sheet (money + time) that aligns to your S.M.A.R.T. short term goals
- Status check for net cash flow of target budget sheet
Measure
- Daily recording of expenses
- Measuring current budget sheet (money + time)
- Check net cash flow of current budget
- Check emergency fund size
- Listing out assets and liabilities
- Calculating net worth
- Calculate true hourly wage
When you do not have any records, then you start by estimating:
- Current incomes and expenses in budget sheet
- Current incomes and expenses in cash flow sheet
Learn
Domain topics
- Defensive strategies: Expense decrease
- Offensive strategies: Income increase
- Collaborative strategies: With friends, family, partners
- Income sources: Earned, portfolio, passive
- Credit
- Insurance
- Investment
- Charity
- Movements like FIRE, Financial freedom
- Emotions, psychology, mental health
- Community learning
As an overall process, anyone who is focused on their personal finance journey should adopt this iterative process of improving their personal finance situation, so that they can reach their financial goals more efficiently.
Essentially, we should measure our current financial situation so that we understand where we are. Based on our current financial standing, we should learn and expand our practical knowledge on how we could improve that financial standing so that it moves one step closer towards our financial goals. Then, based on the personal finance knowledge that we have gained, we should build a S.M.A.R.T budget sheet that is aligned with our values and goals.
Based on the changing economic situation and even our own dynamic nature as human beings that may change our goals, we iteratively adapt our personal finance plans and strategies. With this process in place, we would temper a resilient personal financial framework that is unique and always aligned to our values and goals.
Ruiz