What comes to mind when you think of the first quarter of each year?
What you’ve experienced in the past impacts how you view today and what you’ll think about in the future. In personal finance, it’s no different. As I look at today vs. the unknowns of tomorrow, deciding where to allocate my capital — whether time or money — is important. But it’s also helpful to look back.
Here is how I decided to allocate new capital received in the first quarter of 2018.
10 Years Ago: Reflecting on Past Experiences
In November 2017, Sam over at Financial Samurai wrote a great post on reflection. Looking from the end of 2017 back 10 years to 2007, Sam asked readers to focus on the following five areas:
- Career
- Finances
- Health
- Family
- Happiness
Regardless of the areas, utilizing this structure is helpful. Here is what I was doing and what was happening in my life in 2007.
1. Career
I just started working in financial services in July 2007 after graduating. I moved to New York on Saturday, July 7, and started work on Monday, July 9. From November 2017 during the reflection exercise, 10 years exactly would have almost been Thanksgiving.
I was still only a few months on the job at that point; I was extremely motivated and naive about the corporate world.
Impact on Today
Drink the Kool-Aid but don’t get drunk on it.
Related: 3 Lessons Why “Assumption Is The Mother of All F*ck Ups”
2. Finances
I received a $10,000 signing bonus as part of the job offer during senior year. It got paid about two months before starting work (right around graduation). *POOF* It immediately went down to $6,000 after taxes, and another ~$4500 went to the first month’s rent and a security deposit. Living in Manhattan was expensive (and remains so today).
The remaining $1500 probably sat in my checking account until I decided to buy a bed to sleep in and “grown-up” clothes for work. Some also went toward moving expenses.
Related: Tax Reform & Your PFUI: Applying the 10 Heuristics
Impact on Today
Large purchases can obviously have a significant impact on our finances, but small adjustments can make a large difference. We didn’t need to be living in both the nicest apartment AND the nicest location.
Related: (Money) Muscles Checkpoint: Six Week Spending/Saving Status
3. Health
In November 2007, I was a few months in exercising to lose weight gained during college. I was never extremely overweight, but the constant late night drinking and eating crappy food definitely impacted my body. I probably exercised two to three times as much while in college senior year than I did in New York, but cutting out much of the crappy food and drinking had a larger impact than exercising alone.
Impact on Today
I’m in the best shape I’ve been in 10 years thanks to Orangetheory Fitness. I know it’s important to take care of myself.
Related: 160,962 Calories and 209 Workouts: 365 Days Later
4. Family
Mrs. BD (my girlfriend at the time) just accepted a job in New York after working in the Midwest for several months after graduation; she was going to move to New York with me in January 2008. My grandmother — my last living grandparent — passed away a few months before. Mrs. BD happened to be already scheduled to visit when the funeral occurred.
Impact on Today
Don’t waste a single day. Why wait for tomorrow?
Related: 7 Nights, 8 Days: 33 is the New 5 & 1/2
5. Happiness
I remember being excited and overall happy. But then NYC got real lonely at times despite having lots of friends and some family nearby. A lot of factors drove this, but having a place to go to when everyone went home for the holidays or a long weekend was important for me. It’s good to be able to feel at home.
Impact on Today
It’s easier now to know what does NOT make me happy. If you’re not sure about something, give it a shot. Try it out.
Related: Self-Reflection & Motivation
Present Day: Capital Allocation Exercise
With nearly three months since my reflection, I’ve felt more prepared to deal with two expected — and one unexpected — lump sums of received capital. Mrs. BD and I thought of a couple of things we’ve been wanting to do, and we adjusted accordingly once we learned a few things. Perhaps I will cover additional details in a future post.
For the purpose of this exercise, I’ll refer to the lump sums as A, B, and C. They have been, or will be, received within approximately three weeks of each other. As usual, I like to work in terms of percentages. Actual amounts are irrelevant.
Here are the three allocations:
Lump Sum A
This is the largest of the three lump sums. It was also expected (if not the actual amount). Here is how we are planning to allocate the capital.
Rationale
We’ve shared previously that growing our taxable investments and passive income is a priority in 2018. Our growing positions in individual names will also be held in our Robinhood portfolio.
The recent decline in publicly-traded REIT prices over the last several months has made purchasing additional shares very enticing. But the bulk of our real estate exposure is held in my Roth IRA. To offset this, we’ve mad an additional investment into our Fundrise portfolio.
We also plan to travel a few times this year. Of course, O.H.I.O! is on the list multiple times again, but we also have a few other mini trips (and hopefully one larger trip) planned in 2018.
Related: Passive Income & Portfolio
Lump Sum B
This is the middle-sized lump sum. It was unexpected — both the amount and actually getting it. Here’s the expected allocation of capital.
Rationale
Similar to lump sum A, we kept our same 2018 goals and objectives in mind. But we also decided to balance things out a little bit. We purchased a new couch that we’d been considering getting for a while. We’re also investing more than 50 percent of the capital.
We didn’t go crazy, but Mrs. BD and I are trying to “act like grown-ups” (of course, in our own special way). Plus our couch has seen better days since initially living in New York +10 years ago. Our dog has also hid inside it before.
Related: Just a Pet? Why We Spent $10,000 In 10 Days
Lump Sum C
The last and smallest of the lump sums, we did expect to receive this one via planning. Here is our anticipated allocation of capital.
Rationale
We were able to meet most of our objectives. Plus we don’t know what to expect for the rest of the year. We’re comfortable with holding onto some of the cash for potential travel costs. Some is still getting invested though.
Lump Sum Summary
Here is an overall view of the three amounts and expected allocations together.
Financial / Portfolio Investments = ~62% of all new allocated capital
Non-Financial / Non-Portfolio Investments = ~38% of all new allocated capital
Overall, these allocations are also composed of after-tax figures (if applicable for the respective lump sums). Some capital NOT reflected here already made its way to Uncle Sam; other capital made its way to our pre-tax investment accounts.
Related: 5 Ways to Balance Account Types To Balance Life’s (Un)known Milestones
Wrapping It Up
Whether you have a lump sum of capital or are thinking what to do with your next pay check, it’s important to balance today’s vs. tomorrow’s needs and wants. How you invest your time is also just as important.
Remember – everyone has 24 hours in a day. It’s just that no one knows how many days we’ll get.
Related: My 20 Year Addiction – 9 Things I’ve Learned
Looking Back and — More Importantly — Ahead
Reflection is a helpful exercise. Planning also helps. But we still can’t predict the future and life’s unknowns. Overall, we’re still working to find our balance — and it’s never-ending.
Readers, do you ever reflect on your past and apply your experiences to today or tomorrow? How do you plan to invest your capital — whether time or money? What are your thoughts?
Related:
Balanced Dividends Shopping: 4 Considerations for February
Balanced Dividends Passive Income Analysis: 2016 vs. 2017
2018 Goals Overview: What Do You Want To Do This Year?
FTW! Is it Possible to Invest for Today AND Tomorrow?
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Mr. BD, nice approach to investing and, more importantly, living. Especially like the 24 hours in a day is known but the # of days you have is unknown. (And they said disco was dead!..boy, I sure hope so).
Hi Mike, I have a similar approach to capital allocation. I lay it out just like you to answer the questions what’s coming in and where am I going to put it. Good problems to have. Tom
Hi Tom – thanks for the feedback. And agreed – they are good problems to have. – Mike
i just got a little bonus. i put half in the vacation bucket and gave half to mrs. smidlap (we’ve always had a chunk of our own $). she hasn’t been working in awhile and she might need some capital to enjoy the unemployment period doing whatever the hell she wants. just got back from ohio too, chagrin falls.
Nice Freddy! It’s nice to get a lump sum every once in a while. We’ve been to Chagrin Falls multiple times over years. Mrs BD. Still has family on the east side of Cleveland. We’re frequent visitors of Yours Truly – good place to grab a bite.
Very nice! We receive bonuses and are working on building up our taxable investment account. We also plan on setting aside a bit of this for a car and small home improvements.
Setting a plan BEFORE receiving the money always helps.
This is a great approach. I haven’t spent much time reflecting on my past financial choices, but a couple small things stand out. I never worked at a place with bonuses or large payouts.
Or maybe because I have such a defined plan for that money now I don’t even realize when I get a big payout!
1. I love to cook and randomly decided one day to buy a $70 food processor. It was the most expensive thing (other than our computers) in the apartment, but it saved me so much time as a grad student. It still works great seven years later. I’m glad I didn’t buy the $20 model and just bought the good one.
2. My first real summer internship paid amazingly. $19/hour + housing + relocation from my school 500 miles away. I used most of that extra money to reduce the student loans I took out my junior year, but I also treated my friends to dinners and drinks a few times. I was super generous with my money, which I don’t regret, but I probably blew $2,000 on silly things. I definitely wish I would have set up a Roth IRA with that money. But I learned my lesson and got that started in grad school when I started having a surplus of cash.
I’m no small government fanatic, but honestly taxes kill. And to look at the amount of money the government wastes on useless stuff just makes me want to move to a low tax place like Singapore. Imagine the amount of money we’d save if the upper tax rate was 20% instead of 50%.