GTD principle: Don’t burn unnecessary cycles.

GTD is about efficiency. You ideally should only have a thought once before it’s stored in your trusted system. Otherwise you’ll burn unnecessary psychic energy thinking, worrying, stewing, or remaking decisions about the item. Make a decision once and then take action at the appropriate time and place.

Personal finance principle: Make decisions once and keep a record of them

One mistake couples make is that they burn unnecessary cycles talking about the same topics and making the same decisions over and over again. Not only is it unproductive, it’s emotionally draining and taxing on the relationship.

To remedy this situation I recommend setting up a financial binder (a standard three-ring binder will do) and keeping a record at each financial meeting about what you discussed and what decisions you made. Whenever you have a “didn’t we already talk about this” moment, you can refer to your notes. Your notes don’t need to be long and can often take the form of a simple list of decisions.

Here are some of the decisions (and lists) my wife and I record.

• The situations that we have agreed count as emergencies and would justify using our emergency fund.
• A list of large purchases we’d like to make. This makes it much easier to negotiate when we receive a windfall.
• Our previous months’ budgets for reference
• Net worth statements (updated quarterly)
• Outlines of major discussions and decisions made
• Travel plans and budgets
• Gift giving plans and budgets
• Record of how we used bonuses, tax returns, or other windfalls
• Prioritization of high-level goals (save emergency fund first, pay off debt next, etc.)

Paper vs.digital records

I am a big advocate of keeping a paper binder in addition to a digital copy of these records. Once you’ve printed out a spreadsheet or document, it doesn’t change and acts as a stake in the ground. At that particular point in time, that’s that decision you made. By keeping a digital record, you’re never quite sure if anything was modified since you last looked at it. Did your spouse make any modifications? Did you to into the file to play around with different scenarios? This is particularly a problem with keeping budget records which tend to always be in flux.

Of course if you have a good way of keeping digital records and tracking changes, go ahead and do so.

GTD principle: The power of the “next action”

Many people get stuck on projects because they simply don’t take time to determine the very next step. Instead, they get overwhelmed by the enormity of the task. Or worse, they simply don’t take the 30 seconds it requires to get enough clarity about what to do next, even if the task and project are relatively simple. By determining the very next step, you gain enormous clarity and momentum. You can clear the log jam and get a project moving again.

Personal finance principle: Focus on one financial goal at a time; your “next goal”

There is tremendous power in determining a list of your financial goals and attacking one at a time. It’s so easy to get overwhelmed with your finances trying to decide which of the many goals to go after. Instead of attacking them all at once, choose one at a time and focus only on that until it is accomplished. This applies more to short-term goals but can also apply to long-term goals.

Many people have heard about the debt snowball which happens to apply this very principle. Rather than trying to pay all of your debts down a little every month, choose one debt to pay down (the one with the lowest amount left to pay off) and focus all the money you can on just that debt while paying the minimum payment on the rest. Once the first debt is paid of, apply all the funds that were going toward that debt and add them to the next largest debt. As you pay off each debt, the total amount going towards the next debt continues to increase or “snowball” until all debts are paid. By following this principle you can pay off all of your debts much faster than if you simply paid a little extra to all your debts every month.

But don’t let it stop there. Once you pay off all your debts, take the total that was going toward paying them off (which could be quite a large chunk) and start putting the entire amount towards your next goal be it saving for a large purchase, a vacation, or your kids college education (notice how I put that third). Chances are with such a large focused amount you could achieve these secondary goals in a few months or less.

Of course, this principle doesn’t apply so much to retirement savings where the whole idea there is “slow and steady wins the race.” But for finite goals this focused approach works great. Speaking of which, you should already have a list of your goals, along with priorities, printed out and sitting in your financial binder, right?

GTD principle: Viewing all your projects in one place makes it easier to make priority decisions

One of the benefits of keeping a project list and reviewing it regularly is that it’s so much easier to make priority decisions when you can sit back and take a high-level view of all your projects. That way you can compare one against another. Some projects may seem incredibly vital when seen individually but, when compared to other projects, should take a back seat.

Personal finance principle: Keep a list of your financial goals and major purchases and make decisions based on the big picture

Having a trusted, complete financial system allows you to take a high-level view of all your goals and priorities and make the best trade-off decisions about where to spend your money. Sometimes I get fixated on buying a particular item and it seems like that’s the only thing I want. But when I take a step back and review my list of goals, I realize that there may be 2 or 3 things that I want even more but had forgotten about. I’m able to readjust and refocus my spending to maximum effect.

Even on a monthly level, this principle works. By switching to a cash-based budget, we saved a significant amount of money but perceived absolutely no decrease in our standard of living. That’s because we had been spending a lot of money (small amounts here and there that added up) on things that seemed alluring or attractive at the store but, once bought, went virtually unused. Sometimes these were small grocery items, and sometimes larger household items. Because we didn’t put a cap on our spending with clear cues when we reached the cap, we just relied on our impulses.

GTD principle: Operate from a zero base

David Allen mentions in his audio series “Getting Things Done FAST” (not currently in publication) that he operates from a zero base. Every day he completely empties and processes his in-boxes to “zero.” Doing so helps him maintain a squeaky clean system and make sure all open loops are dealt with.

He goes on to share a story of one executive he worked with that had a psychological resistance to getting his email to zero. He had processed everything up to that last email and then stopped. David had to coax and convince him until he finally succumbed and processed the last email, taking his email inbox to zero. Suddenly a light turned on in the executives mind as he experienced the freedom of a zero inbox.

I’ve personally experienced this release of a zero inbox. All of a sudden, you are no longer subject to constantly checking your email and being controlled by what others are sending you. When I get to zero I have the feeling of “wow, now I can do what I think is most important rather than what others think is most important.” It allows you to operate by your priorities rather than urgency. It inspires tremendous creative energy and freedom.

Personal finance principle: Use a zero-based budget and zero-based accounting

Zero-based budget

The obvious application in your finances is to operate on a zero-based budget. In other words, assign every dollar of income (your inbox) before you spend it. Ensure that there is no dollar without a “name.”

By operating on a zero base, something magical happens. Suddenly your finances become a finite thing. It’s surprising how many people never have this experience. They never are able to pin down their finances but rather feel out of control. Using a zero-based budget you have a sense of control and empowerment. The first time you operate on a zero base can be shocking. Sometimes you don’t see a pretty picture. But the good news is, by using a zero-based budget, least have control to fix your financial problems.

Operating on a zero base means operating within the bounds of the hard facts of your financial situation. You’re no longer dealing with rough or theoretical amounts but in hard income and expense figures. But even more important, it empowers you to take control of your finances and reach your financial goals. It allows you to make trade-off decisions based on your higher-level values.

Zero-based accounting

A second application to the concept of operating on a zero base is zero-based accounting. This concept may be a little confusing so stay with me. Zero-based accounting means that every dollar of income recorded in your financial management tool of choice (Quicken, MS Money, or a spreadsheet), must be allocated to a category bringing your “virtual balance” to zero. Conversely, every expense must be allocated or “come out” of one of your categories.

It’s like using virtual cash envelopes. With a completely cash-based budget, you would receive income (in cash) and divide the income up, putting the cash into envelopes with each envelope representing a category. When you spend funds, you must decide which envelope or category the funds come out of. Zero-based accounting is doing this exact thing, only instead of being cash, you’re tracking things virtually or electronically.

Another way to look at this is that the total sum of dollars in all your financial accounts minus the total funds that are allocated to categories (in a spreadsheet or other tracking tool) must equal zero.

Using zero-based accounting can be done fairly easily using spreadsheets or even in Quicken using the “savings goals” feature (I will go into much more details on this in a coming post). It’s a little more work as you go since every incoming and outgoing flow must be decided upon and allocated accordingly, but doing so allows you to see instantly your whole financial situation. It’s much easier to spot trouble areas (do you have enough saved for your next yearly insurance payment?) and track your progress towards your goals. If you’re not sure where to allocate funds, you can temporarily put it into a “decide” category and then address those funds at your next budgeting meeting.

GTD principle: Organize from the bottom up. You have to first know where you are to get to where you want to go.

The GTD system is a bottom-up approach. By getting control over the runway-level actions and projects you can then more easily and effectively achieve your higher-level goals and objectives. David Allen doesn’t say you can’t think about higher-level goals before you get your day-to-day operations under control. But it’s harder to achieve your high-level objectives if you can’t get a grip on your actual next steps.

Personal finance principle: Manage finances from the bottom up. Getting control over the details accelerates reaching your high-level goals

Managing your finances from the bottom up means getting total control of your month-to-month, “runway-level” spending and directing your money powerfully and effectively toward achieving your high-level goals.

I used to think that saving 10% for retirement was the ultimate in financial responsibility. I could spend how I wanted as long as I was saving for the high-level goal of retirement. Over time I’ve come to realize that by taking that approach I wasted thousands of dollars on frivolous spending that I really didn’t value as much as the other financial goals I neglected. By approaching finances from the bottom up I was able to still set aside some “fun” money while optimally directing other funds towards the goals I really care about.

Most people never get a clear picture of where they are financially on a nuts and bolts level. There’s always some element of mystery. By creating net worth statements and using a zero-based budget, you can get a solid grip on income and expenses to help you make solid decisions to meet your higher-level goals. Once you really see where you are, it makes it easier to get to where you want to be. Oftentimes it’s painful to see where you are but if you never do, you’ll end up arriving at an unwanted destination years down the road.

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By applying David Allen’s personal productivity principles to personal finances I’ve been able to make some vital distinctions that have helped me manage my money more effectively. Some principles have a very general application like “use a trusted system” while others have a very direct application like “operate from a zero base.” Here is my take on how you can apply GTD principles to your personal finances. It’s ok if you don’t know anything about GTD. These principles will still make sense and are sound principles to follow.

GTD principle: You must have a trusted system to achieve a “mind like water”

To achieve stress-free productivity, you need to have a system you can trust 100%. If you have any unresolved items not in your system, you will never be able to trust it completely and always have some degree of worry, anxiety, or concern that you’re “missing something.” When you have a trusted system, you can achieve a “mind like water” in your personal productivity. You will respond in perfect proportion to the inputs in your life.

Personal finance application: You need a financial system you can trust

In order to achieve a “mind like water” in your personal finances, you must be able to totally trust your system. Every time you spend money, you need to know that you have it and won’t need it for something else. You need to know that you’re saving according to your priorities and values in relation to other possible goals.

People make false starts in managing their personal finances all the time. You start budgeting and tracking your spending in Quicken or MS Money. But if you don’t have a pre-defined plan, things can start getting complex and out of control. Before you know it, you’re not sure if you can trust the data in Quicken because you don’t have an accurate way of reconciling accounts. The data in Quicken just doesn’t seem to match what’s in your bank account. You’re not sure if your spreadsheets are accurate. You’re not sure if your budget reflects reality. As a result, you lose confidence and throw all your efforts out the window. You end up discouraged and pessimistic, feeling that you’ll never be able to get your finances figured out. You return to negative spending patterns and go deeper into debt.

Those who trust their financial management system, have a completely different outlook. They spend confidently knowing they have the money and that it’s set aside for that purchase or category. There are no holes in their budget. They are moving forward and are on track to reach their financial goals. They know from month to month that all their money is accounted for and being used exactly the way they want. There is no anxiety or nagging feeling in the back of their mind, fearing they might miss a bill payment or that they “missed something” in their finances.

This principle has implications throughout the other principles below. While this article won’t go into great detail about how to create a trusted system, some of the keys to trusting your system include creating an emergency fund, having an accurate way of reconciling your budget, using a zero based budget, keeping track of all your money in all your accounts, and reviewing your finances regularly (at least monthly).

GTD principle: Collect everything in your system

This principle ties directly into the first. In order to have a trusted system it must contain everything. In regard to personal productivity, all your open loops — anything that is an incomplete action or project — must be collected and organized into your system.

Personal finance application: Account for every dollar

To apply this principle to personal finances, we must determine what our “open loops” are. In this case, every dollar you own is considered an “open loop.” If there is any dollar unaccounted for, ignored, or forgotten, you will never have peace about your finances. There will always be questions in your mind as to whether you’ll meet your financial goals, or even if you’ll have enough to pay next month’s bills. I like the way Dave Ramsey puts it–you have to “give each dollar a name.”

There are two ways to track open loops and assign each dollar a purpose. First, use a zero-based budget. By definition, a zero-based budget requires you to allocate every single dollar of income so that income minus expenses equals zero. Doing so forces you to make conscious decisions about all your money, even if you have discretionary funds left after allocating your living expenses.

The second way to collect your open loops is what I call zero-based accounting. Zero-based accounting means that you assign every dollar in all of your financial accounts. If your checking account has $1,200 in it, write down what these funds are allocated for ($600 are for this months budget, $500 to pay the next credit card bill, $100 is part of my emergency fund, etc.). You can do this in a spreadsheet or even within Quicken (I’ll write about this in more detail in a later post). This is easy for IRA, Roth IRA, and 401K accounts since the purpose of those funds is clear. However, most people don’t clearly assign the funds in their checking or savings accounts and just whittle them away on unplanned purchases. By assigning those funds, you take a critical step that will allow you to consciously obtain your goals rather than just optimistically hope to achieve them.

Look at the funds in your checking account right now. Do you know exactly how they will be used? Are they there to pay your next credit card bill? Are they to be used as an emergency fund or cushion? Are you planning on spending them on a big-ticket purchase? By making and tracking decisions about how the funds will be used, you’ll ensure that they won’t be unintentionally wasted or spent in some other way.

GTD principle: If you’re feeling out of control, do a “mind sweep”

The “mind sweep” is a process David Allen suggests to ensure that everything is in your system. You essentially go through every possible aspect of your life (aided by a list of triggers) to see if there’s anything lurking in your subconscious mind. You gather any missed items and get them in your system. This ensures that your system is as complete as possible and helps give you peace of mind that you’re not missing anything.

Personal finance application: Conduct a “reality review”

Sometimes even the most refined systems have hiccups. Human error or complex software can cause situations in which you’re not sure your system is accurate or comprehensive. The personal finance equivalent to the “mind sweep” is what I call the “reality review.” Every personal finance system needs to have a way to quickly do a reality check to ensure the mass of spreadsheets and financial software actually match reality.

There have been many times when I simply haven’t trusted Quicken. Despite the slick syncing functionality, I just don’t always trust that what I see in Quicken will equal what is actually in my bank account. In minor instances, a simple trip to my bank’s website is all I need to confirm or deny my suspicions. The problem is that an updated Quicken account will show all transactions up to today, whereas my online account may lag a few days. In such instances, you can simply look at the date of the last transaction online and refer in Quicken to the entries for that date. The running balance in Quicken for that date should match your online balance.

Some cases require a more in-depth review. You may need to compare your savings account balance with a spreadsheet of how the funds are allocated. It’s hard to give a specific process for a “reality review” since situations and ways of managing finances vary so widely. But everyone should have a documented procedure they can go through to compare what’s really in your accounts to what your accounting systems say. You should be able to go through your “reality procedure” quickly, so keep it as simple as possible. You’re looking for the shortest most efficient way to achieve the desired result.

Perform a mind sweep on your finances

There’s actually an obvious second application of this principle and that is to do a mind sweep for finances. Brainstorm all of the possible financial issues you need to address and make sure you have plans to deal with them. Make sure you’ve allocated all your funds (did you miss that old savings account you never closed?). Do you need to review your investments or insurance? What are your long-term savings goals? What are your short-term savings goals (purchases, vacations). Do you have all your goals properly documented for regular review and adjustments?

You might want to have David Allen’s system in place before doing this so you can deal with all the open loops it creates.

GTD principle: Don’t keep open loops in mental RAM. Keep them in your system.

Mental RAM is like the memory in your computer. Just as the RAM in your computer can only hold a limited amount of information for short-term retrieval, so your mind can only hold so much in its sub-conscious before it overloads. Rather than keeping everything in mental RAM and being constantly distracted and overwhelmed, keep everything in your system. That way you can trust that you’re not missing anything. You can “load” only the project you’re working on into your conscious awareness.

Personal finance application: Don’t keep track of your spending in your mind. Use cash or a spending notebook

Don’t keep track of your spending in your mind. Not only is it next to impossible to keep track of all your purchases throughout the month, but if you have a spouse, you won’t have an accurate accounting anyway since he or she may have spent funds in that category as well. Instead, use cash or carry a spending notebook (or some other way to track your spending on paper).

The most common financial anxiety I hear about is that people are not sure if they have the money they are about to spend. Or they’re not sure if they have spent over their budget for that category. This uncertainty results in that pit-in-the-stomach feeling and is one of the leading disruptors of financial peace.

Credit cards don’t help you track real-time spending

Many people mistakenly think that spending with credit cards alone solves this problem because they can download their transactions at the end of the month. But having data after the fact does not help you control your spending in the moment. You need real-time data. In fact, credit cards can exacerbate the problem because you’re spending money that won’t actually be paid until next month. This time-shifting effect can muddy the question “do I really have the money to buy this?”

Use cash in your budget to track spending where needed

My preferred method for tracking day-to-day spending in problem categories is cash. It has an advanced instant feedback mechanism that is always accurate, requires no batteries, and I don’t even have to carry a pen. I never think twice about if I have the money or not because I always know. I never worry about spending outside my budget.

Use a spending notebook for debit card, credit card, or check spending

A spending notebook is slightly less convenient since you have to take the time to record your transactions but is equally effective. Just make sure that you and your spouse decide how much you each can spend in the same category so you don’t go over. If you insist on using a credit card, you can also track those expenses with a spending notebook.

GTD principle: The weekly review

One of the most important parts of David Allen’s system is the weekly review in which you review your whole system. Empty your inbox, review your lists, review your open loops, update your projects. This process is critical in keeping your system up to date and in helping you trust its accuracy.

Personal finance principle: Regular budget meetings

Reviewing your finances on a regular basis is crucial to maintaining your system. The typical review period is monthly, but if you’re just starting to budget or are in a tight financial situation, you may want to review your finances daily or weekly. Your periodic review should include:

• entering receipts into financial software
• reconciling your financial software with your paper statements
• reconciling last month’s budget
• creating next month’s budget
• determining how much cash to withdraw for the period (if you use cash)
• ensuring all automatic payments were made as planned
• ensuring all automatic payments for the next period are set up properly
• reviewing your short-term savings goals

About once a quarter you should also:

• review your long-term savings goals
• update your net worth statement to see your overall financial progress
• plan for upcoming vacations or major purchases

Becuase finances are so in flux, it’s impossible to maintain a working, accurate financial system without a regular review. Schedule a time every month to sit down and review your finances.

GTD principles for personal finances part 2

Ready for more? Check out GTD principles for personal finances part 2.

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• Applying GTD principles to your personal finances – Part 2 | Getting Finances Done
• 3 reasons most budgets don’t work and how to fix them (a.k.a. How to create a budget that works)
• How to become a personal finance “black belt” | Getting Finances Done