I’ve been listening to a lot of personal finance podcasts lately. Fun for the hobby investor or those interested in learning more as an average guy guiding his retirement path. A couple I really like are Stacking Benjamins and the Dough Roller, they are both on iTunes or podcast searches.
Some of the more interesting off-line discussions I’ve had are on the personal finance topic, especially since I’ve been somewhat open on our financial past and present. If you generally like the topic or want to know more of my philosophy, check out the financial tab to the left. In general, I don’t have too many rules and hedge my bets a lot. Basic stuff like pay off credit cards. Pay yourself first. Heavily prioritize retirement over college funds. Have an emergency fund. Take as little time as possible to pay off cars. Pay for vacations in cash. Be smart with the debt you do have (make it tax deductible, or if you’re rate is lower than what you think you can get in returns, often it is better to continue paying debt service or minimum payments and put it somewhere else). But in general I have very few hard and fast rules. Rules are meant to be broken, and I’ve broken them all over the years.
Anyway, many people have many opinions on how you should allocate your free money into your buckets. Dave Ramsey says at all costs (even at the extent of starting to pay into retirement accounts even with company match) pay off high interest debt. Others argue between paying off mortgage early versus not paying an extra cent towards that endeavor. Or others who say you should not put a cent into your kids college 529 accounts until you are maxing out your retirement and don’t have debt and paid off your mortgage and maxed out your HSA and, and, and. Many different ideas.
For me, I’ve invested in my 401k while still having credit card debt. I had student loans (at 4%) for a long time while plowing money into retirement accounts hoping for a better return (while being able to get tax deductions). Probably sounds like you to some degree. I thought it would be interesting to pull back the AMD curtain about how we distribute our savings funds. Keep in mind our big expenses are primarily a large car payment (to pay off new minivan in 2-3 years), childcare to the tune of an average of $600/mo (lower during school year, higher during summer), and a mortgage. We also have a decent emergency fund, and I’d also like to say that kids are fucking expensive too (not just child care). So here’s how other savings expenses fall.
- Holly, Mrs. AMD, puts 15% into her traditional 401k to reduce taxable income with assumption that future income post-retirement will have lower taxes (plus 2% company match, for 17% of salary) – she gets additional salary put into an ESOP, but doesn’t count as savings
- I currently put 10% into my traditional 401k (plus 2.5% company match for 12.5%. Previously at last company, I was putting 20% in [plus 4% match], but had better fund selection) – I now get additional salary put into ESOP, but reason I dropped percentage is below
- Put $500-1,000/mo into saving/investment account with intention to buy back as private shareholder in my company as lump sum in a year or two (I was one before, opened up to select individuals, was previously made to liquidate per T&C when I left last time – has had a great, great track record of returns). This monthly dollar amount will drop after buy in period.
- Into our Vacation/Future Car Fund (in addition to current car payment) goes $400/month. You may think our priorities are messed based on amounts into college, but it’s our allocation, we don’t usually take big vacations and hope to pay for both vacations/cars with cash in the future.
- Currently adding $200/mo. total into college 529 funds for two kids. We’ve been bumping this up over the years with minor amounts of grandparent birthday money, but according to most publications, we are woefully underfunded. As our financial situation changes (pay off the big car payment, lower childcare expenses), we plan to funnel this surplus into college. I don’t mean to get on a tangent here, but in the not so distant future (AKA 3-4 years), we plan to lay out the plan to the oldest in that she will have skin in the game. That means she’ll be using part time jobs, college jobs, loans, grants, scholarships, whatever, to help pay her own way through school. But we’ll help as we can given those parameters. Much more to flesh out on that idea…stay tuned.
- Have started an Acorns micro-investing account (uses your debit, rounds up the change on any purchase to the nearest dollar into the account…so a $2.47 purchase rounds up to a $0.53 deposit into Acorns account – seeded with $300 of savings to lesson the impact of $1/mo fee) – deposits for us $30-40 into a low expense fee diversified taxable account which is invisible to our budget but will slowly add up over time.
- Adding $400 per month to mortgage payment, despite only 3.5% interest rate – will cut 10 years off a 30 year mortgage at this rate (will surely pay off sooner if we stay here)…payoff will be right in time for planned retirement.
Adding everything up, we save 25%, and are investing (increasing net worth plus investing in kids retirement, so subtracts out the savings for shit like cars and vaca’s) at over 22%, of gross income per year. I fully expect this percentage to go up, and also recognize we have a lot of wasted spending. But we’re mostly happy and live mostly comfortably, so life is good on the financial side.My point isn’t our savings rate, but the fact that we are spreading things around. On some income we are investing in the retirement accounts hoping they pay 7-8% returns. Other income we are paying a guaranteed 3-4% return (mortgage, accelerated car payments). We’ve already paid the high interest credit card loans, but even then took the free money where we could for taxable accounts.
For us, we feel we are in our cozy forever home and feel a lot of mentally satisfaction paying it off early. Even the Dough Roller says he does some extra payments on mortgage, but also recommends a 20% savings rate before that happens. I guess we’re there. We are also hedging our bets a little that the market will crash since we may be giving up a 3-4% return by investing back into a guaranteed low interest mortgage payoff. If you don’t understand what I’m talking about, please e-mail me. If we wanted to create more long-term wealth though, we’d likely be much better off taking our extra car payment and house payment and putting it into stocks. One day though, when the shackles of any debt are off of us it will feel so good.
So that’s our general spread-the-wealth-around strategy we have. Save more, spend less is the golden rule, besides being awesome and treating other people awesome. Peace.