Timeboxing is a concept normally used in project management, especially software development. Don’t worry though. This post is not about software or coding. Rather, this post is about breaking down a large task into smaller tasks and giving each one a due date.
Usually, a schedule is broken into various timeboxes, or chunks of time. Each timebox can be days, weeks or even months. The point is to find a way to create manageable tasks or projects, prioritize them and then execute.
Timeboxing and your finances
So let’s talk about how this relates to financial planning. For our example, let’s say that you have debt. A lot of debt. Something in the ballpark of $20,000 across three credit cards. You also have a goal to save money for retirement. Eliminating debt and saving for retirement can feel like conflicting or daunting tasks. That’s when timeboxing comes into play. Break it down and make it specific and manageable.
Eliminating debt is a series of steps.
- Create a budget
- Eliminate excess spending
- Pay more towards your debt
- Use the snowball method
Saving for retirement is also a series of steps.
- Create a budget
- Create an investment plan
- Eliminate excess spending
- Eliminate debt
- Put money into retirement accounts
- Put more money into retirement accounts
You’ll notice that some of the steps for both goals are the same. And eliminating debt is really a step towards the larger goal of saving for retirement. So let’s put timeboxing to work for you. Get out a piece of paper (or do this in Word, Excel, etc) and create a series of boxes.
- Box 1: Create a Budget
I’m not going to cover how to create a budget in this post (though you can read this post on how to budget to learn). Creating a good, realistic budget should take 1-3 weeks depending on how complex your finances are. So write “Create a budget” in the first box and give it a due date of 1-3 weeks from today.
- Box 2: Create an Investment Plan
You can work on goals concurrently or at the same time. For example, you can work on creating an investment plan at the same time as you are working on creating a budget. But a good investment strategy may take longer to develop. So we’ll write “Create an Investment Plan” in this box and put a due date of 1 month on it. For overlapping goals or tasks, you can put the goals on top of each other to visually show that you have multiple things you are working on. A word of caution though – do not give yourself too many tasks to work on at the same time. That will in part defeat the purpose of timeboxing. Don’t overwhelm yourself. Make things simple and manageable.
- Box 3: Eliminate Excess Spending
As you create your budget, you’ll find areas where you are either overspending or you just don’t need to be spending. For example, Dining Out could be reduced from $200 to $100 a month. You can cancel monthly subscriptions to magazines, newspapers or other media. Canceling and making final payments may take 1 month. So write “Eliminate excess spending” in the second box and give it a due date of 1 month after the Create a Budget due date. You can later add to the box, as a checklist of sorts, the specific expenditures you are going to eliminate.
- Box 4: Pay More Towards Your Debt
With the additional money that you are able to save from eliminating excess spending, start paying as much towards the debt with the highest interest rate. In our example, let’s say that one of the credit cards, a Capital One card, has a balance of $2,000 and an interest rate of 24.99%, and you can now pay $400 towards that balance. So in this box, write “Pay Down Capital One” and give it a due date of 5 months (assuming you can pay $400 a month towards it). Though, please don’t forget to keep paying the minimum on the other cards.
- Box 5: Use the Snowball Method
Once you have the first card paid off, you can take that $400 and put it towards another credit card (learn more about the snowball method). So write “Pay Down Credit Card #2” and its due date in the next box. Hopefully you are getting the point. Make as many boxes as you need for each debt that you plan to pay off.
- Box 6: Put Money into Retirement Accounts
With the dent eliminated, you’ll be able to put all of that money towards your retirement accounts. For our example, let’s assume that it will take 18 months to complete the first four boxes. So in this box, write “Contribute to 401k” or “Contribute to Roth IRA”. You’ll probably not have a due date in this box since you should be saving until the day you retire.
- Box 7: Put More Money into Retirement Accounts
Rinse and repeat. Once you’ve reached this point in your life, you’ll want to re-evaluate your budget and look for all new ways to save money or make more money. Actually, you should be doing this all along the way. So write in this box “Find New Ways to Save”.
Nothing that I’ve presented above is new or revolutionary. Rather, timeboxing is just a way of making a plan. It’s about taking the big task of saving for retirement and breaking it into specific, actionable goals with due dates.
Benefits of timeboxing
The immediate benefit is the value of having a plan. Instead of feeling frustrated or powerless, you’ll feel empowered by your plan to reach your goals.
The bigger benefit, in my opinion, is what I’m calling the halo effect or the rush of excitement you get when you successfully finish a task or goal. Crossing a finish line gives you energy to continue towards the next finish line. So with each box that you complete, you can pat yourself on the back and feel good about what you’ve accomplished.
What other planning techniques have you tried and found successful? And for more money saving ideas, follow Rabbit Funds on Twitter.
Also, this post was featured in the Carnival of Personal Finance #329.