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Your Financial Network Map

Posted By Jim On 12/01/2008 @ 7:40 am In Personal Finance | 14 Comments

Have you ever drawn a financial network map?

A financial network map is a one-page diagram that shows the links and relationships between each of your financial accounts, which include but are not limited to bank, brokerage, mutual fund, retirement, credit card, and service accounts.

How to Construct Your Financial Network Map

Let’s take a look at an example network map – I drew it up based on my own financial links map.

An Example Financial Network Map

Here’s how I approached drawing my map:

  1. I started by listing our jobs, it’s the “origin” of funds but interacts with little else.
  2. List of my bank accounts on a separate sheet.
  3. Now begin linking them together, indicating what type of link it was. Most of the time I had to log into my account to confirm the links, hopefully this will be the last time you ever have to do that! Since we have our paychecks direct deposited, the paycheck is linked to the checking account.
  4. Now list all the investment related accounts you have, adding the links in as needed. This includes taxable brokerage accounts, IRAs, 401(k).
  5. Now list all the credit cards you have, linking to the banks that are used to pay the bills.
  6. Now list all the service accounts you have (electricity, cable, internet, Netflix, etc.), link them to the proper credit card or bank account bill pay.

Make up your own legend, but here is what I used. On the map, you’ll notice arrows. The head of the arrow indicates where a transaction can be initiated frum. As you can see, FNBO Direct has an arrow drawn to the checking account. That indicates that if I want to transfer funds, in either direction, it must be initiated from FNBO Direct. I can’t initiate a transfer from the checking account. My original version didn’t use arrows, it used lines with O’s or X’s at the end indicating what was an “origin” and what was a “terminal.” I’m not sure which is better as arrows can be misinterpreted to mean funds can only transfer in one direction. Use whatever works for you.

You’ll also notice the map lacks color. I think using a highlighter to color in the types of accounts (yellow for checking, green for savings, red for credit cards, blue for service accounts, etc.) would be valuable in giving the map something extra.

You’ll also see letters A, DD, BP, etc. Those indicate the type of link and are less important. A stands for ACH, which is the typical electronic transfer; DD stands for direct deposit and BP stands for bill pay. The type of link isn’t significant but it’s better to have more information than less and be forced to search for it later.

Analyzing Your Map

In this case, I’ll look at the example map above. You’ll see that the center of our entire financial world is a checking account. It’s linked to basically everything else on the map, with the exception an example bill payment. In reality, there are very few things not connected to the checking account.

The vast majority of accounts on that map are high yield savings accounts, that’s because I open up a lot of accounts for the sake of reviewing them here and because I like to have my funds transferred to the highest yielding account at the time. As that changes, where I move the funds will change. That’s also why all the savings accounts are linked to that checking account.

I try to avoid rate chasing, transferring from one high yield bank account to another, unless the two are linked. That’s why you’ll see some of those accounts linked together. If I have to transfer the funds to the checking account and then over to the high yield savings, that’s a week of travel I’m not willing to deal with.

You can glean similar nuggets of wisdom about your approach when you read your own map.

How To Use Your Map

This is valuable because it, in a second, tells you what you can do without having to log into your accounts. Besides that, there are other ways the map can be useful:

  • Identify weaknesses. As you construct the network map, you’ll discover any weaknesses you may have in your set-up. One example would be if you have an account that is accessible only through one link. In the drawing, Emigrant is linked to the primary checking account but only Emigrant can initiate the transfer. Should Emigrant’s website go down, you’d be at their mercy. How do you mitigate? Figure out how to link to Emigrant through another bank and add redundency to your network.
  • Discover workarounds. If you’re in a financial bind, this map may reveal how you can go about working around your problem. Let’s say, for whatever reason, a bank’s website goes down and you need access to your funds. Rather than log into all your other accounts to try to figure out which one is linked to the downed bank, you can open your financial network map and see which accounts can initiate a transfer.
  • Assist in account simplification. It can identify unnecessary accounts that you can trim to simplify your situation. For example, my Emigrant Direct account has out-lived its usefulness and will be trimmed as soon as my CD matures in January 2009. I know that nothing else will be affected by the closing of that account since it does nothing but act as a storage account for savings.
  • Explains why banks offer bonuses for bill pay, direct deposits, etc. Many banks will offer deposit bonuses if you initiate bill pays, direct deposits, and other additional “links,” as described by our map. That’s because the more interconnected an account is, the harder it is for you to disconnect it or replace it. My main checking account in the above example has eight links. That’s eight different things I have to set up again if I want to replace my utilitarian checking account (where there is little differentiation), which means I probably won’t change it unless I have a compelling reason.

Has anyone constructed something similar and have additional insights to share?

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