How I manage my finances (from a financial planner)
Have you ever found it easier to give advice than to take that advice yourself?
Me too.
My work centers around helping others make goal-aligned decisions with their money.
As an unbiased and independent third party, I can more easily identify where poor decisions are being made and provide advice and tools (& sometimes many calls and emails) to help nudge actions back into alignment.
But that begs the question:
How well do I take that advice myself?
“What you do speaks so loudly, I can’t hear what you’re saying”
In other words:
Show, don’t tell.
So do I eat my own cooking?
In short, yes; and I wanted to provide some insight into not only how I manage my own finances, but how I go about making decisions surrounding money.
To understand my thoughts about money, it’s important we go directly to the source of my actions, which stem from my beliefs.
The collection of all my habits and thoughts form my relationship with money (or any life category, money is just in discussion today).
My relationship with money was heavily influenced by my parents' relationship with money (which was influenced by their parent’s relationship with money, & so on).
My Dad was raised by two hard working parents who taught him lessons such as, “we’re too poor to buy cheap” & whose father bought the family sweatsuits in the winter because the house was too expensive to heat (which he just viewed as normal). Early in High School his Economics teacher taught the benefits of compounding interest and that has stuck with him ever since. He went to a Military college, majored in mechanical engineering, then served in the Army with 2 active duties in Hadi and Kuwait. His engineer-mind translated over to his money habits with meticulous tracking in Excel.
My Mom was raised by a single mother (her Dad passed away when she was 10) who was a child of parents from the Great Depression. My grandmother worked 3 jobs to support 4 children. My mom worked to pay her way through college and throughout her childhood quickly realized the importance of discipline with spending.
These lessons were then passed on me.
It wasn’t until I picked up my second major in college of financial planning & wealth management, I started asking more money related questions, which opened my eyes to the world of personal finance.
I personally am very vigilant with my money.
I know exactly what I make, how much money comes in each week, how much I’m spending, where I spend, why I spend, how much I save, why I save, and where I save it (details on this later).
Today, we have a better understanding on how our relationships around money impact our ability to build (& sustain) wealth (just read Dr. Brad Klontz and Ted Klontz 2011 research in the Journal of Financial Therapy on money scripts).
I’ve always thought people are funny about their money & Dr. Klontz’s research (& much of the developing research in the behavioral finance space) confirms my hunch.
So with a relationship (or money script) of money vigilance aside, how do I manage my finances?
To begin, I’m a believer in reverse budgeting.
Traditional budgets look at determining monthly income and calculating expenses. Then after netting the two, you hope that you have more money coming in versus going out. If so, you’d likely create a plan to save it. Or, if you’re like most people, you’d just spend it.
Reverse budgeting flips traditional budgeting on its head.
Rather than trying to live within your means, then save the rest, save what you need first, then spend the rest.
This small adjustment offers a powerful psychology paradigm shift.
For me, I look to save 32%+ of my income (net of taxes).
Why 32%+?
The future benefit of having more than enough saved for my retirement (or future uncertainty) outweighs my short-term desire to spend money today.
With a future inflation adjusted income goal of $100,000, I met that level of spending around age 55; at which point, I have the flexibility to use my time as I wish (which to me, is a big contributor to how I view success).
Some years I’ll save more and some years I'll save less - that’s what makes personal finance personal.
How my savings is allocated is as follows:
First, to my Roth 401k - ~40% of total savings
Contributions are made systematically biweekly that are invested in a 100% stock-based portfolio (I contribute more than enough to get my employer’s match).
Holdings:
$DGEIX, $DFEV, $DEMSX, $DFSV, $DISV
Second, to my Roth IRA - ~25% of total savings
My Roth is made up of stock-based ETFs (95%) and I own 5 individual stocks (5%) Apple, Amazon, Starbucks, Crispr Therapeutics, and Virgin Galactic (this was a dumb IPO purchase that I haven’t sold because it’s down -85% & I’m praying it goes back up… this is anchoring bias at its finest lol).
Holdings:
$DFAC, $DFAX, $VNQ, $DSFV, $DISV
Third, to my brokerage account (remainder of savings) - ~35% of total savings
My brokerage is a 100% stock-based ETF portfolio.
Holdings:
$DFAC & $DFAX
Full transparency, I used our firm's ETF tax-loss harvesting strategies until I purchased a minority interest in our firm's commercial office in 2022 (that I pulled from my brokerage to fund).
I also own 1% of my investable net worth in both Bitcoin and Ethereum that I’ve purchased directly on Coinbase.
With much of my liquidity invested into an illiquid private investment I’ve spent the last few months aggressively replenishing both my cash reserves and my brokerage account so I can resume my normal cushion.
Having an emergency fund is vastly underrated (& can be a lifesaver).
Outside of day-to-day expenses, my current remainder of my 3-month emergency fund is invested in Vanguard’s money market fund ($VMFXX) earning 4.14%.
My investment philosophy is aligned with those who I work with:
Keeping investment costs as low as possible (outperformance is unlikely)
Reduce volatility & increase expected returns (broad diversification)
Buy low & sell high (systematic rebalancing)
My added personal beliefs about investing are as follows:
All my ETFs have dividends being reinvested (tilting toward dividend paying stocks is a flawed investment strategy).
My savings are automatically pulled from my accounts and invested (automation = effortless discipline).
I don’t try to pick stocks or time the market (this is how investors fail → also, the individual stocks I own only make up 1.56% of my total investment portfolio).
My 100% stock portfolio is market capitalization weighted, meaning, I own each stock, sector, region, and country in accordance to it’s percentage weighting relative to the global investable market (ex: if Apple makes up 5.71% of the total US market then I would own 5.71% of apple stock in my portfolio of US-based stocks).
I do believe in factors-based investment strategies, the idea that systematically following rules that construct a diversified portfolio of stocks sharing well-defined characteristics are associated with drivers of expected returns (such as smaller stocks, profitable stocks, and cheap stocks). I do this through Dimensional funds.
I don’t use leverage when investing. While leverage can magnify returns, it can also destroy your portfolio.
I dollar-cost average. If stocks go up - I buy. If stocks go down - I buy. Time in the market > timing the market.
One under-discussed asset is how I use my time.
Warren Buffet is 91 years old and worth over $100 billion dollars. If he had 5 years left to live would you trade places with him?
No.
Why?
Time is the one asset we can’t make more of.
Time is worth more than money when money is in the absence of time.
I personally invest the majority of my free time back into my education & I’m a firm believer that this investment will have the highest return over all the assets I’m currently invested in.
In addition to serving those who I work with & growing that base of individuals over at Blue Rock Financial Group, I am looking to build a cohort-based course as an offering to those who have an interest in building their own financial plan, but aren’t ready to pay to work with someone full time.
All my time is devoted to best serving those who I work with and developing the skills required to build something that I’m proud of.
As for my liabilities, outside of my percentage of debt from my minority interest in the commercial property, I don’t have any other outstanding debt.
I have a paid-off used car with over 165,000 miles, rent, don’t have any credit card debt, or student loans.
I’m fortunate to have as little debt as I do because it affords me the flexibility with my cash flow to be able to save.
My spending is all done on a Chase Sapphire Credit Card where I collect points that can be redeemed for travel benefits, cash back, etc. (get 60,000 points, ~$600, when you sign up HERE).
I’m aware of credit hacking through multiple credit cards to combine the points for further benefit but to this point, I haven’t been persuaded that the reward is worth the hassle (at this time).
Because I implement a reverse budgeting approach to my savings, I’m indifferent to where my spending is going.
My personal spending philosophy is embodied in stoic philosophy, which is built upon building an excellent moral character.
Consider the stoics take on wealth:
“Whenever externals are more important to you than your own integrity, then be prepared to serve them the remainder of your life.”
“You ask what is the proper limit to a person’s wealth? First, having what is essential, second, having what is enough. ”
“It is not the person who has too little who is poor, but the one who hankers after more.”
I could care less about designer clothes, a new car, or a nice house.
But a Joov, ice bath, Berkey water filtration system, large computer monitors, chilipad, or a tempurpedic bed are things that I believe are aligned with my values to help me forge my character, improve my health, and live a great life of impact.
It’s all about balance.
You can buy all the fancy things you want just so long as you’re saving what’s needed for future uncertainty.
I follow my own advice as best as I can but I’m not a robot and can occasionally get derailed as personal finance is both personal & subject to change.
Above all, I will continue to learn from others and improve my system. Nothing of what I do is set in stone and remains flexible.
The best ideas win & I’m open to what those might be with time.