My rules to live my finances by...

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Raspberry-503
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My rules to live my finances by...

Post by Raspberry-503 »

I've seen a few threads recently about "buying the dip" (what dip? the one-day 2 percenter last week?), figuring out if it was time to stop being 100% of SP500 or instead fear of missing out by not being 100% in SP500, etc...

Many Boglehead answers were: turn the TV off and stick to the plan...

I found it's a strategy that works well for me. I wrote down many years ago my "investment plan" and it has changed relatively little over time (I adjusted the AA to reduce risks as I'm getting closer to retirement, but also close to "my number", so while I have not won the game yet, I don't need to play as aggressively. I also fairly recently decides to start building a cushion in I-Bonds as part of my fixed income).

Having a guiding document has been great to keep emotions and lifestyle creep at bay. Even if I watched in fascination the drop in 2020, and stuck to the plan, didn't give in to the fancy to take cash and buy "the sale" in March, even though hindsight says it would have been great. It could as well have been a disaster.

I've shared it somewhere else in the past and was told I was way too structured and specific, but it's what's been working for me, so I'm sharing again, not because I think you should follow the same rules (your aspirations and risk tolerances are yours) but because I would encourage you to write yours down.

Asset Allocation
- Keep overall portfolio at 60/40, including I-Bonds in the fixed income portion
- Maintain International mix consistent with the Vanguard LifeStrategy Moderate Growth Fund (VSMGX)
- Keep enough for planned large expenses for the current year in a High Yield Savings account (e.g. this year’s college tuition), anything with over 1 year horizon should be in I-Bonds
- Slowly build a 3-year living-expenses reserve by buying the I-Bond yearly limit every year until the desired target is achieved. OK to draw from brokerage fixed-income to fund I-Bond purchases. That also acts as an emergency fund during the accumulation phase. No need for a separate emergency fund since we already have over 6 months living expenses (about 10 months basic expenses) in I-Bonds. NEED RULE ABOUT WHEN TO PURCHASE I-BONDS, E.G. MONTHLY? ONE LUMP SUM AT TAX TIME?
- Use low fee index funds/ETFs, no individual stocks, crypto, etc…
- Look for opportunities to unload ESPP, RSUs, as they vest. Your salary is already tied to this company, don't add more eggs to that basket
- Practice Asset Location where possible. NEED TO REVISIT SINCE RIGHT NOW THIS IS MOSTLY ABOUT USING MUNIS IN TAXABLE

Inflow
- Max out 401(k) and HSA, with catch up, monthly, through paycheck deductions. Favor Roth when not manipulating AGI to stay in 22% tax bracket. Never ever think about not getting full employer match.
- Max out IRA and Roth IRA at tax time if possible based on AGI limits (take from brokerage if needed)
- Age money 30 days: Keep one month’s worth on expenses in checking account which acts as a buffer for month-to-month variations.
- Contribute fixed cash amount to Brokerage monthly on the same date. Amount is determined once a year at tax time by comparing yearly income to monthly expenses over the last year (“excess income”), adjusting for any differences in the coming year, and dividing by 12. Target automatic investment at 80% of “excess income”. If getting a raise mid- year, consider increasing monthly contribution to 80% of actual raise $ amount, but must increase at a minimum by the % of the raise.
- Track and maintain monthly budget after brokerage contributions. Exceeding budget this month means controling expenses next month to recover.
- Use % cashback credit card for “every” expense, makes it easier to automatically track budget from CC transaction list.
- Reinvest dividends automatically in tax-advantaged accounts and rebalance later
- Do not automatically re-invest dividends/capital gains in brokerage (taxable) account, let them go to cash and reinvest along with monthly contribution.

Rebalancing
- Rebalance as an overall portfolio due to practicing Asset Location
- Avoid any rebalancing activity that creates taxable events in brokerage
- Check Quarterly on a calendar reminder. Don’t bother rebalancing anything that is within the bounds of the 5/25 rule
- OK to check and rebalance at any other time but do not move assets unless they fail the 5/25 rule
- For Brokerage (taxable) rebalance with new money from monthly contributions and any dividends/capital gains, purchase lagging asset classes. Don’t worry if the monthly contribution doesn’t fully restore the balance, since we will rebalance portfolio-wide at least quarterly.

Misc
- No hurry paying the mortgage because it goes down proportionally as inflation goes up, and portfolio is growing at higher rate than paying mortgage off.
- Based on current fees for 401(k) and size of tIRA, there is very little advantage to move tIRA into 401(k) to “hide” it to do a backdoor Roth, so no backdoor (can’t do mega either)
- - Check tax outlook in October. Don't give Uncle SAM a free loan, strive for a small amount of taxes due, but look for investment income and adjust late-year paycheck deduction to stay within safe-harbor and avoid penalties.
- LBYM, evaluate lifestyle creep and expenses yearly and look for ways to cut recurring expenses, cancel subscriptions, look for cheaper cell phone or internet provider, etc…
- On the other hand, any leftover money can be “play” money (usually “experiences” like travel rather than things) or be donated, etc... It can also be invested, but we don’t have to invest every spare penny since we already save above 25% of income.
- Remain aware that life happens, jobs can be lost and hard to get again, second careers can be a fulfilling thing and that financial independence does not mean automatic retirement.
- any change to this plan should be stated then put on hold for 90 days for reflection before being put into action
UpperNwGuy
Posts: 9446
Joined: Sun Oct 08, 2017 7:16 pm

Re: My rules to live my finances by...

Post by UpperNwGuy »

That's a lot of rules. My first rule is that all my other rules have to fit on a 4x6 index card.
jarjarM
Posts: 2502
Joined: Mon Jul 16, 2018 1:21 pm

Re: My rules to live my finances by...

Post by jarjarM »

UpperNwGuy wrote: Thu Sep 23, 2021 5:43 pm That's a lot of rules. My first rule is that all my other rules have to fit on a 4x6 index card.
Love this one.
dcabler
Posts: 4482
Joined: Wed Feb 19, 2014 10:30 am

Re: My rules to live my finances by...

Post by dcabler »

Raspberry-503 wrote: Thu Sep 23, 2021 5:40 pm I've seen a few threads recently about "buying the dip" (what dip? the one-day 2 percenter last week?), figuring out if it was time to stop being 100% of SP500 or instead fear of missing out by not being 100% in SP500, etc...

Many Boglehead answers were: turn the TV off and stick to the plan...

I found it's a strategy that works well for me. I wrote down many years ago my "investment plan" and it has changed relatively little over time (I adjusted the AA to reduce risks as I'm getting closer to retirement, but also close to "my number", so while I have not won the game yet, I don't need to play as aggressively. I also fairly recently decides to start building a cushion in I-Bonds as part of my fixed income).

Having a guiding document has been great to keep emotions and lifestyle creep at bay. Even if I watched in fascination the drop in 2020, and stuck to the plan, didn't give in to the fancy to take cash and buy "the sale" in March, even though hindsight says it would have been great. It could as well have been a disaster.

I've shared it somewhere else in the past and was told I was way too structured and specific, but it's what's been working for me, so I'm sharing again, not because I think you should follow the same rules (your aspirations and risk tolerances are yours) but because I would encourage you to write yours down.

Asset Allocation
- Keep overall portfolio at 60/40, including I-Bonds in the fixed income portion
- Maintain International mix consistent with the Vanguard LifeStrategy Moderate Growth Fund (VSMGX)
- Keep enough for planned large expenses for the current year in a High Yield Savings account (e.g. this year’s college tuition), anything with over 1 year horizon should be in I-Bonds
- Slowly build a 3-year living-expenses reserve by buying the I-Bond yearly limit every year until the desired target is achieved. OK to draw from brokerage fixed-income to fund I-Bond purchases. That also acts as an emergency fund during the accumulation phase. No need for a separate emergency fund since we already have over 6 months living expenses (about 10 months basic expenses) in I-Bonds. NEED RULE ABOUT WHEN TO PURCHASE I-BONDS, E.G. MONTHLY? ONE LUMP SUM AT TAX TIME?
- Use low fee index funds/ETFs, no individual stocks, crypto, etc…
- Look for opportunities to unload ESPP, RSUs, as they vest. Your salary is already tied to this company, don't add more eggs to that basket
- Practice Asset Location where possible. NEED TO REVISIT SINCE RIGHT NOW THIS IS MOSTLY ABOUT USING MUNIS IN TAXABLE

Inflow
- Max out 401(k) and HSA, with catch up, monthly, through paycheck deductions. Favor Roth when not manipulating AGI to stay in 22% tax bracket. Never ever think about not getting full employer match.
- Max out IRA and Roth IRA at tax time if possible based on AGI limits (take from brokerage if needed)
- Age money 30 days: Keep one month’s worth on expenses in checking account which acts as a buffer for month-to-month variations.
- Contribute fixed cash amount to Brokerage monthly on the same date. Amount is determined once a year at tax time by comparing yearly income to monthly expenses over the last year (“excess income”), adjusting for any differences in the coming year, and dividing by 12. Target automatic investment at 80% of “excess income”. If getting a raise mid- year, consider increasing monthly contribution to 80% of actual raise $ amount, but must increase at a minimum by the % of the raise.
- Track and maintain monthly budget after brokerage contributions. Exceeding budget this month means controling expenses next month to recover.
- Use % cashback credit card for “every” expense, makes it easier to automatically track budget from CC transaction list.
- Reinvest dividends automatically in tax-advantaged accounts and rebalance later
- Do not automatically re-invest dividends/capital gains in brokerage (taxable) account, let them go to cash and reinvest along with monthly contribution.

Rebalancing
- Rebalance as an overall portfolio due to practicing Asset Location
- Avoid any rebalancing activity that creates taxable events in brokerage
- Check Quarterly on a calendar reminder. Don’t bother rebalancing anything that is within the bounds of the 5/25 rule
- OK to check and rebalance at any other time but do not move assets unless they fail the 5/25 rule
- For Brokerage (taxable) rebalance with new money from monthly contributions and any dividends/capital gains, purchase lagging asset classes. Don’t worry if the monthly contribution doesn’t fully restore the balance, since we will rebalance portfolio-wide at least quarterly.

Misc
- No hurry paying the mortgage because it goes down proportionally as inflation goes up, and portfolio is growing at higher rate than paying mortgage off.
- Based on current fees for 401(k) and size of tIRA, there is very little advantage to move tIRA into 401(k) to “hide” it to do a backdoor Roth, so no backdoor (can’t do mega either)
- - Check tax outlook in October. Don't give Uncle SAM a free loan, strive for a small amount of taxes due, but look for investment income and adjust late-year paycheck deduction to stay within safe-harbor and avoid penalties.
- LBYM, evaluate lifestyle creep and expenses yearly and look for ways to cut recurring expenses, cancel subscriptions, look for cheaper cell phone or internet provider, etc…
- On the other hand, any leftover money can be “play” money (usually “experiences” like travel rather than things) or be donated, etc... It can also be invested, but we don’t have to invest every spare penny since we already save above 25% of income.
- Remain aware that life happens, jobs can be lost and hard to get again, second careers can be a fulfilling thing and that financial independence does not mean automatic retirement.
- any change to this plan should be stated then put on hold for 90 days for reflection before being put into action
Good set of rules. As somebody with a 10 page IPS in Word, I can relate. But mine is more than an IPS. Has info about all of our finances, including investment philosophy, different accounts and why they exist and what will ultimately happen to each one of them, insurance info including agent contact info, how we will perform our withdrawals, TLH partners and backup plans should I drop first and DW doesn't want to deal with what I put together.. and more. I'd rather be as complete as possible. I look at it and update it whenever something major changes or at least 2X per year.

Cheers.
toomanysidehustles
Posts: 585
Joined: Tue Oct 06, 2020 10:09 am

Re: My rules to live my finances by...

Post by toomanysidehustles »

UpperNwGuy wrote: Thu Sep 23, 2021 5:43 pm That's a lot of rules. My first rule is that all my other rules have to fit on a 4x6 index card.
Love it. I really just have three...

MAX out my SEP contribution each year
Buy a rental house a year
Never finance something that depreciates

(I'm not all in on index funds, I am about 50% rental real estate)
ThankYouJack
Posts: 5704
Joined: Wed Oct 08, 2014 7:27 pm

Re: My rules to live my finances by...

Post by ThankYouJack »

I can see this being helpful for some starting out and others to stay the course but I like my investment plan to be so simple that I don’t need to write anything down. So even a 4x6 index card is too big for me :)
Broken Man 1999
Posts: 8620
Joined: Wed Apr 08, 2015 11:31 am
Location: West coast of Florida, near Champa Bay !

Re: My rules to live my finances by...

Post by Broken Man 1999 »

Mine are pretty simple:

-Keep a watchful eye on portfolio withdrawals. Don't dwell on the "one-of" expenses. Expenses will be lumpy. Watch the regular and recurring expenses.

-Rebalance as needed.

-Enjoy retirement.

The end.

Mine are not written down. I still have enough memory to avoid forgetting them.

Honestly, we didn't have anything written down for our working career, and made it to retirement just fine.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go." - Mark Twain
dandinsac
Posts: 282
Joined: Sat Jul 30, 2016 8:34 am

Re: My rules to live my finances by...

Post by dandinsac »

Raspberry-503 wrote: Thu Sep 23, 2021 5:40 pm Max out 401(k) and HSA, with catch up, through paycheck deductions.
This is the most important in my opinion.
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8foot7
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Re: My rules to live my finances by...

Post by 8foot7 »

Lots of rules and words. I try to

Earn more each year.
Spend less each year.
Grow that delta as much as I can.

The rest takes care of itself.
pkcrafter
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Re: My rules to live my finances by...

Post by pkcrafter »

Raspberry, well done. :moneybag


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
forkhorn
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Re: My rules to live my finances by...

Post by forkhorn »

Fine rules for accumulation, but my impression is the denizens of this forum are more in need of guidance about when to spend more! We have the accumulation side down.
VanGar+Goyle
Posts: 597
Joined: Sat May 29, 2021 1:31 pm

Re: My rules to live my finances by...

Post by VanGar+Goyle »

forkhorn wrote: Thu Sep 23, 2021 10:13 pm Fine rules for accumulation, but my impression is the denizens of this forum are more in need of guidance about when to spend more! We have the accumulation side down.
There is no rule for stopping work, retiring, or achieving your number.
You have many steps, but no goals, tactics but not strategy.
“Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.” ― Sun Tzu

I have also heard that accumulating money is the simple part. De-accumulation is harder.
Well, you pay a little bit, we're a little bit tough. | You pay very much, very much tough. | You pay a too much, we're too much a tough. | How much you pay? ... Well, then we're plenty tough. - Marx
Stoic9
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Re: My rules to live my finances by...

Post by Stoic9 »

forkhorn wrote: Thu Sep 23, 2021 10:13 pm Fine rules for accumulation, but my impression is the denizens of this forum are more in need of guidance about when to spend more! We have the accumulation side down.
Agreed, learning to save and adapting a minimalist lifestyle where we focus on experiences over materials was easy. I had a recession proof job with plenty of advancement. Now retired I have more passive income (before SS and RMD's even start) than we can spend. Nice portfolio (AA 81/19) and plenty of real estate. I've always been a student of philosophy and am now trying to use it to discover worthy causes to channel our spending.
Call_Me_Op
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Re: My rules to live my finances by...

Post by Call_Me_Op »

UpperNwGuy wrote: Thu Sep 23, 2021 5:43 pm That's a lot of rules. My first rule is that all my other rules have to fit on a 4x6 index card.
He can do that; the writing is just really small.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
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bertilak
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Re: My rules to live my finances by...

Post by bertilak »

Call_Me_Op wrote: Sun Sep 26, 2021 1:50 pm
UpperNwGuy wrote: Thu Sep 23, 2021 5:43 pm That's a lot of rules. My first rule is that all my other rules have to fit on a 4x6 index card.
He can do that; the writing is just really small.
Maybe UpperNwGuy should elaborate his first rule to say "written with a Sharpie."

My rules are pretty simple:
  1. One must take investment risk to get investment return. Control that risk with diversification and asset allocation.
  2. Avoid clever schemes to "beat the market." Keep it simple.
  3. Don't chase new ideas. Stay the course.
  4. Costs matter. Use low cost index funds and don't pay for those clever schemes and new ideas.
I might be able to fit that on an index card if I use a brand new, fine point, Sharpie!

I actually have those in my IPS but take a few paragraphs to express each one. It is a section called "Investment Principles."
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
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arcticpineapplecorp.
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Re: My rules to live my finances by...

Post by arcticpineapplecorp. »

Rule #1: Don't lose money.
Rule #2: Don't forget rule #1.
--Warren Buffett
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
Triple digit golfer
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Re: My rules to live my finances by...

Post by Triple digit golfer »

arcticpineapplecorp. wrote: Sun Sep 26, 2021 2:45 pm
Rule #1: Don't lose money.
Rule #2: Don't forget rule #1.
--Warren Buffett
The two most pointless, non-actionable "rules" of personal finance I've ever heard, and they get repeated so much.
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bertilak
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Re: My rules to live my finances by...

Post by bertilak »

Triple digit golfer wrote: Sun Sep 26, 2021 2:51 pm
arcticpineapplecorp. wrote: Sun Sep 26, 2021 2:45 pm
Rule #1: Don't lose money.
Rule #2: Don't forget rule #1.
--Warren Buffett
The two most pointless, non-actionable "rules" of personal finance I've ever heard, and they get repeated so much.
I think Buffet's "Don't lose money" rule actually makes sense in his overall investment strategy. He (or Munger) has emphasized how many opportunities they pass up because those opportunities require too much knowledge or skill to evaluate. Also, they only invest where they think they have a large margin of safety. I think that's what is meant by Rule #1. Oh yeah, and don't forget it!
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
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GerryL
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Re: My rules to live my finances by...

Post by GerryL »

Broken Man 1999 wrote: Thu Sep 23, 2021 6:33 pm Mine are pretty simple:

-Keep a watchful eye on portfolio withdrawals. Don't dwell on the "one-of" expenses. Expenses will be lumpy. Watch the regular and recurring expenses.

-Rebalance as needed.

-Enjoy retirement.

The end.

Mine are not written down. I still have enough memory to avoid forgetting them.

Honestly, we didn't have anything written down for our working career, and made it to retirement just fine.

Broken Man 1999
This is pretty much my case: In my head. Not so complicated that I can't remember them ... for now.

But I am facing the task of writing down my investment plan as well as my distribution and spending plans -- in very clear language -- so that if I go into cognitive decline and my successor trustee (either my nephew or my close friends) needs to take over running of my affairs, they will have an easy-to-follow roadmap of how I do it. I anticipate that the exercise itself will be helpful for me as well as for my successor trustees. And yes, I will review it with them.

Reading the draft POA document that will be part of my estate plan was probably the most shocking part of the process. I had them take out several paragraphs, including one about the ability to hire an agent who can execute transactions without having to check in with the attorney-in-fact.
Broken Man 1999
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Re: My rules to live my finances by...

Post by Broken Man 1999 »

GerryL wrote: Sun Sep 26, 2021 3:09 pm
Broken Man 1999 wrote: Thu Sep 23, 2021 6:33 pm Mine are pretty simple:

-Keep a watchful eye on portfolio withdrawals. Don't dwell on the "one-of" expenses. Expenses will be lumpy. Watch the regular and recurring expenses.

-Rebalance as needed.

-Enjoy retirement.

The end.

Mine are not written down. I still have enough memory to avoid forgetting them.

Honestly, we didn't have anything written down for our working career, and made it to retirement just fine.

Broken Man 1999
This is pretty much my case: In my head. Not so complicated that I can't remember them ... for now.

But I am facing the task of writing down my investment plan as well as my distribution and spending plans -- in very clear language -- so that if I go into cognitive decline and my successor trustee (either my nephew or my close friends) needs to take over running of my affairs, they will have an easy-to-follow roadmap of how I do it. I anticipate that the exercise itself will be helpful for me as well as for my successor trustees. And yes, I will review it with them.

Reading the draft POA document that will be part of my estate plan was probably the most shocking part of the process. I had them take out several paragraphs, including one about the ability to hire an agent who can execute transactions without having to check in with the attorney-in-fact.
I think many of us struggle with our plans as/if we decline. My father was sharp until age 89, then the decline was very rapid the last two years of his life, from 89 to 91.

We are fortunate to have a daughter in the business environment who has done a very good job of building her portfolio. We are talking specifics now, so I am confident she will be the right asset as we age.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go." - Mark Twain
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