More is not always better. Sometimes less is more. Keeping things simple(r) can help with many things in life. From time and stress in making decisions, to doing more instead of only planning, simple can be good.
It’s like a good burger or sandwich. Sometimes you only need a bun or bread, a protein, and a few basic condiments and/or add-ons to make it your own. I really do enjoy a good specialty burger – something different, complex, and exotic. Other times, give me a classic cheeseburger, and I’m happy.
Like a burger or sandwich, your money system should be no different. It needs to work for you.
Your tastes and needs might also change over time, too. Here we’ll review how my system has evolved since the launching of Balanced Dividends.
The Original System – A Fancy, Complex Burger
Last year, we explored the Balanced Dividends (Semi-) Automated Ecosystem. A combination of banking, investing, and other accounts, the system had many components. Let’s revisit a few of those here.
Banking
The system had two checking accounts – one for spending and one for funneling savings. The original acted as a multi-threading pipeline. Cash could be automatically or manually be directed.
I usually automated bill paying. Even if not ALWAYS turned on, the pipes existed. Since all the accounts were interconnected, I did have the ability to adjust cash flow, too.
Sometimes, I’d temporarily suspend savings toward a specific goal; other times, I might have increased retirement contributions or make an additional lump sum investment. It wasn’t static – the ecosystem continued to evolve to find the right balance.
Investments
Things got complicated here. Too complicated. Multiple account types play an important part of my investment plan. However, I started to have overlap in the type of assets across accounts.
Overall, the old system had over 10 investment accounts across retirement and non-retirement. This did NOT include the number of underlying holdings or funds.
Related: Passive Income Engine: Building a Balanced Dividends Portfolio
The New System – Not a Classic, but a Simpler Burger
While still not a handful of accounts, I reduced the overall number of accounts. Additionally, I placed a number of accounts “on hold” in order to focus on my current key savings and investments goals.
Another factor contributing to a changing of account types had to do with interest rates and the current state of the economy. We’ll cover this in further detail in a moment.
But first, let’s review key highlights of the new system here. I’ll also emphasize important aspects that are still applicable from the original system.
1. Paying Myself First
The primary source of my income still comes from my “real job.” On pay-date, I automatically have pre-tax contributions invested into my current 401(k).
In addition to reducing gross taxable income, the money gets invested directly and never hits the bank account in the first place. If I don’t see it, I don’t spend it.
My employer does offer a Roth option, but I currently utilize the traditional pre-tax account types.
While not a current focus, my Roth IRA at Vanguard is the primary accounts utilized when I wish to make Roth contributions (see point #4).
Related: 5 Ways to Balance Account Types To Balance Life’s (Un)known Milestones
After some other pre-tax deductions from transit, insurance (including Health Savings Account contributions starting in 2019!), the federal and state governments take their share.
My net income is then direct-deposited into my bank account.
2. A Single Checking Account
I’m just keeping things simple here. This is where the 100% of my net pay initially shows up.
I pay credit card bills in full each month, as well as to pay rent and a few other reoccurring expenses that are not placed on a credit card.
Ally Bank does offer competitive rates for checking and savings accounts, but this account balance virtually goes flat each month; I’m trying to not keep too much excess cash sitting in this account.
A few hundred dollars that do linger between pay periods gradually get transferred elsewhere.
3. Qapital (On Hold for Now)
This is a big change for me now. My use of Qapital is currently on hold due to raising interest rates offered on Savings and CDs at Ally Bank.
A separate tool that automatically transfers cash from my checking account based on rules I create, Qapital enables users to save effortlessly to various goals that you create.
I thought of items that cause some level of pain or anxiety each year – primarily annual expenses and/or items you encounter on an ad hoc basis. A few examples follow.
Holiday Gifts
Whether end-of-year or sometimes birthdays and anniversaries, I set aside a fixed amount each week.
I’d typically find myself using the bulk of the funds in late November through early January.
Renters Insurance
A relatively fixed cost, I currently pay my annual premium in June.
I got tired of forgetting to set aside cash for this important item and then stressing about having to pay a larger than usual expense that month.
Doggie Vet
While I do have pet insurance (a topic we’ll cover at a later date), even just my dog’s annual vet visit costs a substantial amount (let alone an actual doggie emergency!).
Not seeing this expense from month-to-month is another item that had caused a bit of stress.
Annual Income Tax
I do try to ensure we have an appropriate amount (not too little and not too much) withheld from each paycheck, but I’ve owed much more than I anticipated in the past come tax time.
If I don’t owe, then great – I invest the cash I had set aside.
Moving Expenses
While not always utilized or planned, I found it helpful to set aside some cash to offset the costs of moving – whether hiring a crew, fees for a new apartment, or anything related.
This does not include savings for a down payment some day, but it does help when needed.
4. Mid- to Long-Term Investments
The vast majority of my net worth (tax-sheltered retirement accounts, as well as taxable accounts) is invested with Vanguard (mainly in their index funds, but some actively managed funds, too).
Vanguard is well-known for their low costs and extensive offering of funds and ETFs. My accounts at Vanguard include the following.
Roth IRAs
I have Roth accounts with Vanguard. As mentioned, my current employer does offer Roth 401(k) options.
But any Roth contributions I make go toward my Roth IRA.
Rollover Traditional Pre-Tax IRAs
If and when I ever switch employers again, I will likely roll or transfer funds from my existing employer-sponsored 401(k) accounts to Vanguard.
Taxable Account
I had been invested in one of Vanguard’s balanced funds within a taxable account. This fund was allocated toward a down payment on a future residence.
I considered leveraging contributions made in my Roth IRA as a potential option toward a down-payment, but I’d strongly prefer to not raid retirement accounts – even if considered a qualified withdrawal.
I’d also previously leveraged an investment-grade bond fund for a portion of my emergency savings.
With check-writing capabilities, this fund is very liquid but still offers some potential upside to ensure our emergency fund at least keeps up with inflation and also offers a slight amount of growth (if not all capital preservation).
However, at the moment, I’ve placed these accounts on hold.
5. Monthly / Annual Spavings Savings
What the hell are SPAVINGS? Google it, and you’ll find out. A few different definitions might pop up, but I view it as two things:
- Money saved when spent; and,
- Saved money put aside for spending.
Related to item 3 (Qapital) above, I use these two savings accounts to allocate cash toward the anticipated expenses highlighted.
6. Monthly 1 Year CDs
I plan to initiate a monthly Certificate of Deposit (CD) each month for 1 year. I plan to allocate $1,000 per month toward each 1 year CD. The goal will be to renew annually and keep rolling the CD.
Why? I’ve been far too light on cash for a long time. A handful of personal circumstances have drained certain savings. It’s time to firm-up the baseline. I already started for Nov 2018.
Also, with interest rates rising further, I find it very enticing to get a somewhat decent rate of return without any risk to capital.
7. Side Hustle Income
New from the past system, I hadn’t had a side gig previously. With the recent focus on side hustles, any income earned on the side is getting immediately allocated toward acquiring additional passive income assets.
I only started a dedicated focus on this in November; it has been slow but it’s starting to show gradual results.
Related: November 2018: Income & Expenses
8. A New Addition to Existing Players – M1 Finance
M1 Finance is great. I’ve nearly doubled my initial position in a matter of weeks.
After constructing the first version of the Monthly Balanced Dividends portfolio, I’m very excited to continue to learn and leverage M1’s great product and platform offering.
A Call-out to a Retired but Good Player – Acorns
An app that helps you automatically invest your spare change into a portfolio that you chose, Acorns has a beautiful interface and very helpful features.
I’d been using Acorns since late 2016, and I love watching the account balance slowly increase each week with money I barely noticed coming out of our checking account.
Due to a number of other investments accounts I’d been using, I closed my Acorns account in Q3 of this year.
Still a Stalwart – Robinhood
A free equity or stock trading app, Robinhood enables you to open a brokerage account with no trade commissions or fees. I invested a reasonable portion of my bonus the last 2 years so far.
As I’m currently invested in limited individual stocks, I’m not looking to add too much more to existing holdings – or am I? More to come soon.
As mentioned, I invest primarily in broad-based, low-cost index funds along with some actively managed funds, so I’m still easing into individual securities (and only intend for a limited percentage of our net worth to ever by invested in a single holding).
The Popular New Kid? Fundrise
My initial investment was only $500. The balance is nearly $13,000 after adding to my position over the year.
A newer online real estate investment platform, I’d originally been just exploring some alternate investment options beyond the traditional REIT Fund currently held in my Roth IRA.
Related: Land(less) Landlording: How and Why We Use REITs
Fundrise will continue to be a key part of my diversified portfolio.
Looking Back – and More Importantly – Ahead
Similar to 6 months ago, I still have more goals than available capital. At least now.
The new system enables me to stay disciplined while also dynamic when necessary. Overall, it’s about finding balance – and it’s never-ending.
Readers, what does your account ecosystem look like? How do you observe and manage your cash flow and related activity? How has your money system evolved over time?
Related:
Conducting You Own Risk Control Self-Assessment (RCSA) – Part 1
Fundrise Passive Income Review: 12-Month Update
Qapital 18-Month Update: (Non) Passive Income Review
Our favorite free financial tool is Personal Capital. We use it to track our net worth, manage our spending & savings, and to monitor our investments. It’s simple and free to use.
This is a very smart idea. I will go through this cycle and perform this exercise every few years. I simplify, reduce my number of accounts. There is a nice promotion here, nice promotion there, high savings rate to the left, free toaster to the right. Before I know it, my money is flying all over the place and it becomes burdensome to manage. Then, I create a simple burger like yourself, settle down, enjoy the simplicity. And the cycle slowly starts to repeat. One of these days I’ll learn haha Enjoy the simpler structure BD!
Bert
Thanks for the comments, Bert!
Yes, build a simple burger! But do enjoy a splurge every once in while, too. – Mike