I have wanted to write this post since launching my website. It’s similar to my “Financial Planning for New Parents” post from earlier this year. I often talk to clients about how I invest personally or the financial choices that I am making for our family. It helps to be reassured that the advice I am giving them is what I implement in my own life.
I recently read Ben Carlson’s similarly titled post, which was inspired by his colleague Josh Brown’s new book, How I Invest My Money. I look forward to reading that book in the new year. I’ve always enjoyed these posts to see how other investment professionals manage their finances and secondly to get new ideas. A few others in the financial community have put together similar posts over the past few weeks. I really enjoyed Peter Lazaroff’s post as well. As you can tell, both Ben and Peter are seasoned financial writers.
The title of the post includes the word “our” because 1) I am married, 2) we are a dual income household, and 3) we combine our finances. Cameron is aware of our financial situation but leaves most of the day-to-day and long-term planning responsibility to me.
With that introduction, below you will find a rough guide to how we allocate and invest our money.
First, and most important – retirement savings. We both have 401(K) plans which we contribute to throughout the year. Both of our companies contribute to the accounts on our behalf as well. We do a combination of Pre-Tax and Roth contributions. This allows us some tax benefit now (pre-tax money) and some benefit in retirement with the Roth money. We both have a high tolerance for risk, so these accounts are 100% equities (US and International). I typically log in once or twice a year to review and rebalance these accounts. I also have both a Traditional and Roth IRA account that are used for additional retirement savings and investing. These accounts are great retirement savings vehicles but come with a number of guidelines and limits to eligibility and funding.
After the monthly retirement savings, most of our savings either goes into a savings account or an investment brokerage account. These accounts hold the majority of our non-retirement, liquid assets. The saving account serves as an emergency fund and to hold cash for debt payments (detailed below). The cash, while it earns little interest, has a high optionality value. This means it’s readily available if we need it or if opportunities arise. In my opinion, this is very valuable. The investment account is for medium to longer-term goals and is typically in a mix of stocks or ETFs.
We have a 529 plan for Gaines that we contribute to monthly. The account is through the NC 529 College Savings Program and is invested in a globally diversified portfolio of funds. I also have Custodial account for him that is funded periodically and invested for the long-term in a mix of dividend paying stocks and ETFs.
We also have a Health Savings Account (HSA) that was funded when we had a high-deductible health insurance plan. Since we are no longer eligible to contribute, we contribute to a Flex Spending Account and Dependent Care Reimbursement Account. These are all available through Cameron’s employer and are designed to help offset some of our current costs plus they provide a great tax benefit.
We purchased our house in 2016 and carry a 30-year mortgage. We have a relatively low interest rate (as I’m sure many of you do) and I don’t mind holding debt (especially at low interest rates). We make our standard monthly payments and have no intention of paying down the mortgage in less than 30 years. The main reason being that I believe that I can find better uses for the money. While our house is technically an asset and investment, I really view it as just a place to live.
In 2019, I purchased an equity ownership in my employer, WMS Advisors, LLC, as part of an internal succession plan with my partner. I am also scheduled to purchase additional equity in the firm next year. This ownership interest, while a large part of our assets, also comes with liability in the form of a business loan that I took out (or will take out) to purchase the equity. The business (asset) and loan (liability) are a big part of our balance sheet and financial picture. While we still save for retirement and maintain our lifestyle, pretty much every dollar of excess cash goes to paying down (and eventually off) the business loan. Once this is paid off, it will free up additional cash flow that can be reallocated to other areas. My experience being involved in a small business has allowed me to relate to and advise our clients, many who own or work for small businesses.
A few other tidbits:
Tracking Income and Expenses – I regularly track our income and expenses in order to manage our cash flow. I typically update our cash flow spreadsheet a few times a year, but next year I may switch to software to better track the expenses on a monthly basis.
Personal Balance Sheet/Net Worth Statement – I also update a spreadsheet throughout the year that tracks our assets and liabilities. It helps me to see the assets growing (mostly) and liabilities decreasing. This motivates me to stay on track and see how the plan is progressing over time. Peter explains this concept well in his blog post.
Credit Cards – We use several credits cards and pay off each one each month. We mostly do this to maximize the points and other travel benefits that these cards provide.
Risk/Leverage – As I mentioned above, we/I have a fairly high tolerance for risk. I also don’t mind using debt/leverage with our finances. This is not the case for a lot of people, or they aren’t in the financial shape to take advantage of this.
Other Assets – I have avoided investing in real estate, crypto currencies, art, venture capital, or other alternative asset classes. These asset classes have become popular investment vehicles over the past few years and could offer many benefits. I just haven’t had time to research these in enough detail to justify an investment.
Goals – I think it’s important to set and monitor short-term, medium, and long-term goals. These will change year by year or even during the year so know they will need adjusting.
In finishing, it would be a good idea if I threw in a disclosure that this information is not investment or planning ideas or advice. The above is a high level view of our personal finances. I am sure there are items I missed so maybe I’ll do a follow up post next year.
If you have questions or want to speak to me about how you invest your money, send me a message anytime.
In the interim, Happy Holidays!