• Jung-Eun Lee

Your retirement planning begins with tracking your financial data

Updated: Oct 26, 2020

No. I'm not talking about "big" data here. It is personal data that we have not been claiming enough ownership of. While it is important to protect it from its misuse, we don't want to miss opportunities to use it in our favor. Unknowingly, I hired my own data five years ago for the first time to improve my finance. It has become my life coach ever since.

Often, we underestimate how much we can accomplish with what we already have, especially when we don't see a clear path to get to where we want to be. I spent most of my career in academia, making less than the average income. Picturing my life that would not rely on salary seemed pointless five years ago. I have always been saving however little money I could spare in the certificate of deposit or savings accounts. But you won't see much growth in your savings at a 1% annual interest rate.

A cat with a lion's shadow, which symbolizes one's untapped potential

(Image source: Media Assets Repository System)

So, high paying jobs seemed like the only answer to my financial independence. But what if my dream job does not pay me much? Would I always remain poor? Even though I was trained to be a critical thinker as a scientist, I had never questioned this hypothesis until I learned about the compounding effect five years ago.

It turned out that I could have grown my savings at least 70% more if I had started investing just six years earlier when I finished my education, thanks to the compounding effect [1% (bank accounts) vs. 8% annual interest rate (investment return); see the graph below]. Historically, total stock market index funds have provided an 8% annual return, which is why I used an 8% annual interest rate as a benchmark for the investment return.

Compounding growth of $1000 for 30 years

The compounding effect tells us that even small savings would end up making a big difference in the long run if we can secure a substantial interest rate. It was such a revelation that I decided to go over my expenses and savings, looking for ways to re-route as much spared money as possible to investment accounts.

That is when I realized the importance of tracking my expenses, savings, and investment. Being familiar with excel files, I created a spreadsheet that tracks my expenses and investment return (see the screenshot below). It took me some time to get used to recording daily transactions, which can be tedious at first. What I did not immediately realize then was the power of insights I could gain from analyzing these data.