A number of personal finance bloggers write about making a plan–an Investing Personal Statement (IPS)–to keep you from doing dumb things with your money.
With a plan in place, you have guardrails for when your finances aren’t doing their normal thing. The stock market is falling and you aren’t sure what to do with your investments? Your IPS should address this. Your bonus was much bigger than expected, and you aren’t sure what to do with it? Your IPS should address this too.
I don’t have an IPS myself, at least not nearly as detailed as the ones other bloggers have published, but I have had a road map for years. Every year, at the beginning of the year, I look at my financial goals for the last year, and update them for the year to come. I decide what my goals are and decide how to send the money I (will) have to achieve them: save up a house down payment, pay off the mortgage, pay off the car, always max out retirement accounts, put aside money for travel and house repairs, etc.
Lately, however, I have been distracted by the changes in my household finances, and I realize I should probably check my map. I am still pretty sure I know where I am going, but my eyes keep straying to some of the road side billboards.
Simplification
One goal I have been contemplating more seriously this year is reducing the complexity in our finances. I noticed that I need to go through more accounts this year than ever before when I was calculating our net worth in January. Gathering up all the paperwork to do our taxes this year was even worse.
Too Many Investment Accounts
Last year we opened 7 accounts: 2 traditional IRAs (required to do a Backdoor Roth), 2 Roth IRAs, 1 brokerage account (I decided to buy in to the Doximity IPO, which required an account at a new firm), a donor advised fund, and a Treasury account to buy I-bonds.
That’s a lot of paperwork to keep track of, and it is on top of the other accounts that I have used for years.
This might be the year to close and consolidate some of accounts that haven’t been active for years.
Credit Cards and Travel Hacking
Not only do I need to have fewer bank and brokerage accounts, I need fewer credit cards. Accounts need to be paid on time, with periodic monitoring to make sure nothing funny is going on. Some of the cards have annual fees, which add up once you have more than one or two.
And yet… some of the ads are so enticing!
Get a Hilton credit card and you get a free night each year (which is probably more expensive than the annual fee).
Do we stay at expensive Hilton properties? Not that often. The overnight stops by the highway at a Hampton Inn don’t cost that much more than the annual fee, maybe it’s not worth the effort for a new card.
Had I signed up for a Southwest Airlines credit card before the end of February, I could have gotten a companion pass for 2023. For a married couple, that’s gold. Except… how often do we fly Southwest?
Capitol One has a new card being touted on travel blogs: it gives you back most of the full annual fee in travel credits, and lets you get into an awesome lounge. Plus pays for all sorts of other things. This sounds really tempting. I might regret passing it up.
But… I am 100% sure they won’t be putting a fancy lounge in our local airport, at least not for many years.
I am not sure if I am going to cancel any of my old cards this year, but I definitely need to think twice (or maybe three times) about applying for new reward cards. I love to read about success stories with credit card points, but for the next year or two, I think this is not something for me to pursue.
Plans for Extra Money
For many years, my financial plan was simple:
- Contribute the max to retirement funds.
- Save up money for short term goals: vacations, house bills, a new car.
- Pay off the credit cards every month.
- Before I bought a house, I put extra money in the stock market.
- After I bought a house, the goal became paying off the mortgage.
Between one goal and another, we really never had extra money in the checking account. It was all accounted for.
Last month, finally, our bills were much less than our paycheck. Kudos to Mr. PiN for his efforts to take it easy with the shopping.
It helps that we paid off the mortgage, the car payment, and our 6-month auto insurance bill recently, and don’t have any more big bills expected for a few months.
The question is: what should we do with the extra money?
Refill our emergency fund? Fund our house repairs account a little more aggressively for the month? Put it in a taxable investment account?
This begets other questions: Will we have extra money every month? How much? If we will reliably have extra money, should I automatically invest it, and if so, where? After-tax employer fund (but it would be locked up there until I retire)? Or taxable account at the brokerage?
Or should I be using it for things now? College funds for my niece and nephews? More luxurious travel? An addition to the house so we can age here in place?
This is too much to deal with every month, especially when work gets busy. My default is to leave extra money in the checking account, which probably isn’t the best move. I need a plan, preferably with some automation, to deal with money that is left over after paying the bills. Some of the money, at least, should probably be invested rather than saved in a bank account.
Investment Plans
For many years, my investment allocation was simple: buy stocks.
I was young, with many years to work and earn income before retirement. I had plenty of risk tolerance to deal with the stock market swings.
As I think more about retirement, I realize that, whether I retire early or not, I no longer have multiple decades to ride out stock market volatility. It’s time for me to start thinking about changing my asset allocation, so that I don’t find my portfolio dropping 30% a few weeks before I plan to retire.
However, buying bonds, or CDs, is even less appealing right now. I am pretty sure that all these options have a return that is less than inflation; which means I am basically losing money by investing in them.
I know that the purpose of bonds is to dampen volatility–to keep me from losing more money–rather than to make me tons of money these days. But it’s hard to think about putting that money away knowing it will be worth less in a few years.
It might take me a while to decide who much (or how little) in bonds I am comfortable with in my portfolio.
Back to the drawing board
I think it is time to go back to my written plan, that loose one I make every year in January.
Many of my old savings goals have been met, and the ones that aren’t funded yet need some scrutiny.
Will we remodel the house so that we can stay here when we are old? Or sell the house and move somewhere more friendly to people who may have arthritis or poor balance? Will we buy a vacation home? Offer larger aunt-and-uncle college scholarships?
Or should I just sock away more money for retirement without earmarking it for something in particular?
If I’m not sure what to do with extra money, I need a more formal investment plan. Getting lured in by one product or another leads to an untidy portfolio–which might not actually get me where I want to go.
Same for credit cards. I don’t have a real plan for them, but it’s time that I did. I just can’t manage 11 cards (3-5 sounds best), and getting a clear idea of why I have each card might be helpful for going forward.
I love chasing shiny things, but I am more comfortable if I have a plan. It’s time to clarify when new accounts are bringing me value, and when they are just too much.
How about you? Do you struggle with sticking to your financial plan when circumstances change, or an attractive deal crosses your path? Do you have a written plan?