Product Management Concepts for Better Personal Finance
These 9 simple tips can make a huge difference in money management
The role of a product manager is, generally, to manage the development of a product and then maximize the revenue and profit margins that product generates for the company.
As a product manager, I tend to approach a lot of things in life the same way I would managing a product. Things like maintaining a calendar, tracking my stats on hikes and backpacking trips, and even the articles I post every week—all governed by methodical organization and efficiency (at least in theory).
So it’s no surprise that, over time, I’ve implemented some tricks of the trade to better manage my personal finances. After years of managing products, my head’s geared this way, but you don’t have to be a product manager to apply these concepts to your own personal finances.
These concepts and practices, used in my profession, can make personal finance a more streamlined and successful endeavor.
1. Understanding the User
The first and most important step in both product management and personal finance is understanding the user.
In product management, the better you understand the users and customers of your products and services, the more likely you are to create a product or service they’ll pay for.
In personal finance, the better you understand your financial behaviors, the more likely you are to reach your financial goals. Clarify what’s important to you and your family. Differentiate between “needs” and “wants.” Make sure your resources are being allocated toward the right places. Doing all these things will increase your overall happiness and peace of mind when it comes to your finances—better enabling you to reach your goals.
2. Performing Quarterly KPI Reviews
In product management, key performance indicators (KPIs) are used to measure how efficiently a product is achieving its business goals; they include engagement, profit, cost, customer retention, etc. Companies regularly review KPIs to ensure their processes are going as planned or to make strategic adjustments if the measurements seem to be off.
In personal finance, items like income, expenses, assets, and liabilities serve as useful KPIs. But simply having these measurements—without tracking their progress and comparing them quarter-to-quarter, year-to-year—undermines their potential to drive your finances in the right direction. (A great resource for personal finance ideas, including these kinds of budget reviews, is the book Rich Dad, Poor Dad.)
By making decisions after a brief, methodical reflection, you avoid making purchases based on random impulses.
Nobody’s ecstatic when the time comes each quarter to sit down for 15 minutes to look over finances. The same could be said of product teams for KPI reviews—these meetings can feel a bit repetitive and boring, but usually, they’re a valuable use of time in both arenas.
Observing the long-term trends of personal finance KPIs (like the ones mentioned above) illuminates helpful insights, like the contributors (and hindrances) to net worth or just how wide (or narrow) the current gap between income and expenses is. The more you keep track of these items, the more likely you are to foster them in the right direction, and creating simple graphs of these measurements can help further yet.
To do this, I maintain a quarterly balance sheet that reports on income, expenses, assets, and liabilities for our finances and reveals our net worth as well as our quarter-on-quarter indicators.
I’ve used Quicken, Mint, and Personal Capital to do categorization of spending over the years, and they all help get the raw numbers. But I found the only consistent tool that covers everything and presents in the way I want is a spreadsheet I maintain myself (in Google Sheets, previously in Excel).
3. Maintaining a Big Purchase Backlog
In product management, backlogs are used like to-do lists. Often, the to-do items are features a business wants to add to a product. The backlogs provide brief descriptions of the features and organize them by priority so teams have a clear picture of the past, present, and future of what they’re working on.
In personal finance, backlogs can be a helpful way to keep track of big purchases and projects. I define a big purchase as any expenditure that falls outside and above the categories of regular expenses (food, clothing, transportation, etc.). This can include household renovations, vehicle purchases, gadgets, and devices—anything that seems significant enough to record and document.
Everyone will have their own definition of a significant purchase, but the more you track and record, the more mindful you’ll be about where your money is spent.
4. Creating User Stories
The quarterly KPI reviews and the big purchase backlog both help you to understand financial behavior. To help clarify what’s important to you and your family—to differentiate between your wants and your needs—I’ve found creating simple user stories for big purchases to be a useful tactic.
In product management, user stories are brief descriptions of how you intend for your target customer to interact with your product. Writing these scenarios out, or even sketching them onto a storyboard, can help make your product better serve the user in the end and perform better in the market.
In personal finance, writing a brief user story for your big purchases can help clarify whether an expenditure is a “want” or a “need” and allow you to make a more informed decision.
For each item entered into our backlog, I write a brief user story with this template: As [user role], I want [goal] so that [reason].
For example: As kids, we want a Lego workstation in the playroom so that we have a better space to build and stay organized.
You don’t have to be a product manager to apply these concepts to your own personal finances.
This example, which we actually did (and turned out great), was certainly a want and not a need. But, it was a feasible project, and it improved my family’s overall happiness. In this case, I also insisted on an MVP first, which involved simply setting up a folding table in the room before purchasing more permanent workstation furniture.
By making these decisions after a brief, methodical reflection, you avoid the habit of making purchases based on random impulses. This is especially helpful for the lesser purchases we don’t normally think much about—the ones that add up over time and eat away at cash flow.
In any case, whether a purchase is deemed a want or a need, it helps to reflect on the why and avoid impulse purchasing.
5. Estimating with T-Shirt Sizes
In product management, T-shirt size estimation is used to gauge the scope of a project or task when it’s entered into a backlog, so that it’s resource allocation requirements (time, money, team members) can be readily understood. To avoid spending too much time and energy, gauging the scope of a project or task, general measurement levels (like T-shirt sizes) are applied as a basic estimation. A low-intensity task would be labeled with “S” for “small,” whereas a more complex project might be labeled “XL.”
In personal finance, when entering a future expenditure into your big purchase backlog, it helps to visualize the scope of that project or task. Before it becomes necessary to get a formal bid for things like renovations or an exact price for items like a new device, decide on a scale to use for your expenditures and use it to make general estimations of their resource requirements:
T-shirt sizes: S, M, L, XL
Dollar signs: $, $$, $$$, $$$$
Choose whatever works for you and then add these to the items in your big purchase backlog so you can quickly visualize the scope of your past, present, and future expenditures.
6. Planning for the Unexpected
In product management, “operational hygiene” is embedded into a product to best ensure it operates the way it’s intended. This can come in the form of staging environments, backups, monitoring, etc.
Often, the practices of clarifying roles and avoiding technical debt go hand in hand.
In personal finance, it is paramount that precautionary measures be taken early on to ensure your overall short- and long-term financial security. Items like life insurance and establishing a trust: You can’t wait until you need these types of things to secure them because it will be too late—and not having them in place can be incredibly damaging financially. I’ve also added likely replacement items to my backlog for things like our aging air conditioner or backyard fence.
7. Competitive Benchmarking
In product management, competitive benchmarking is the process of periodically measuring a product or business against its competitors to gauge performance.
In personal finance, it’s important to periodically reevaluate your financial tools and decisions. A solid investment decision you made 10 years ago might appear to become a poor position in the coming year, and it would be wise to seek out more competitive options available. Now, this isn’t to say you should be emotional or reactionary in your investments, but you should be responsive and proactive about your positions. Whether with insurance plans, investments, or your advisers.
Keep tabs on each of your financial vehicles and assets as frequently as befits the item itself.
8. Clarifying Roles and Avoiding Buildup
In product management, it’s extremely important that each team member has a clear definition and understanding of their role. It is also important to avoid “technical debt”—the cost of choosing the easy way out when approaching a task and then having to go back and fix it later—that slows down the development process. And often, the practices of clarifying roles and avoiding technical debt go hand in hand.
Simple concepts seem to make big differences in personal finance.
In personal finance, clarifying financial roles within a household can help avoid actual financial debt. When my wife and I were first married and our finances were merging together, it was often unclear who was supposed to be doing what. Household bills would get lost. I would think she had paid them, while she was thinking I had paid them. In the end, we started racking up late-payment fees for bills we had the money to pay for but just weren’t because of disorganization.
With personal finance, you want to limit the amount of debt residing in your quarterly statements. The less debt buildup you have, the more free cash flow you have to repurpose into investments or purchases.
By getting more organized and clarifying roles and processes, we avoided further debt buildups and made our overall process more efficient—which brings me to my next and final point.
9. Leveraging Cloud Services
In product management, leveraging cloud services like Trello and Google Docs can help teams collaborate more efficiently.
In personal finance, leveraging cloud services can help members of a household manage their finances more efficiently.
To improve our bill-paying process, we turned to Paytrust, which virtualizes your billing address so that all bills are sent to a personalized Post Office box that the service manages for you. This way Paytrust handles paper bills for you as well as your eBills (by scanning to a PDF and extracting the key bits of data like biller name, payment amount, and due date).
Rules can be set up to automatically pay bills, and an online queue is shown for those you have yet to pay. They handle payments through electronic funds transfer or cutting a paper check and mailing it to the biller. Everything is tracked and stored online so when you have a dispute with a biller, you can easily pull it up online. It’s well worth the $10 per month to avoid late fees and have peace of mind.
Other product managers have drawn insights from their professions to try to improve the experience of personal finance for others. Product manager-turned-CEO Adam Nash teaches a class on the subject at Stanford University: Personal Finance for Engineers. The class educates and prepares budding engineers for the financial decisions that await them in their competitive careers. Nash’s perspective is invaluable to young professionals and certainly benefits from his industry-specific professional experiences.
In the end, simple concepts seem to make big differences in personal finance: clarity, organization, comparative analysis. Once these habits and way of thinking form, the more nuanced tricks and practices make the whole process more painless and enjoyable.