(verb) balance – to
offset or compare the value of (one thing) with another
The next article on our Financial Balance series is focused on investing.
The first article in the series focused on preventing financial disaster. The second lesson helps you understand and manage your student loan debt. The takeaways from the first two articles were don’t OVER-SPEND and don’t OVER-BORROW.
In this article we will focus on smart investment strategies, ie. don’t OVER-SAVE.
As Dr. Ulbrich pointed out in The Path to Becoming a Millionaire, leveraging investments and the power of compound interest is key in building your retirement savings to a comfortable level without sacrificing a “normal” life.
But what should you do if you’re “prn” or otherwise not eligible for FTE benefits like 401k?
I am by no means a financial expert, but so far my journey has been all about balance. If you have no idea where to start go pick up a copy of The Automatic Millionaire. It is one of the first financial books I ever read and its teachings still guide my daily life. I feel comfortable in knowing that we are prepared for an emergency and prepared for living a long-healthy life.
Here is the secret: don’t OVER-SPEND, don’t OVER-BORROW and don’t OVER-SAVE.
But how exactly can you SAVE RESPONSIBLY for retirement without a company 401k?
Here is a look at our family’s strategy:
- Maximize my husband’s 401k to receive company match (6%)
- Fully fund my IRA at Betterment ($6000 per year)
- Save 10% of our income in a Betterment taxable investment account
- Keep only a “paycheck to paycheck” amount of money in our checking/savings account at our local bank
- Pay off all debt by 2025
- Invest any extra in REIT’s through Capital One Sharebuilder
Why does this work for us?
Because we are constantly trying to spread our funds across different mediums and limit our personal risk as much as possible. We strive to live comfortably and well below our means.
For us, it meant buying a smaller, older home than we could afford. Driving used, paid off cars and being totally happy to drive them till they quit. And limiting the amount of “shopping” and lifestyle upgrades that we buy into.
As an investment nerd, I used to manage all of our taxable stock investments myself using Sharebuilder. It was fun, but even a good investment manager can’t beat automated software that automatically tax-loss harvests and reduces “drift”. So admitting defeat, I sold all of my investments and put all of our “savings” into a taxable investing account at Betterment (except for the REIT, Betterment doesn’t use those in their portfolio).
Now, I can speak highly of the “robo-advisor” investing companies that use software instead of high-paid SALESMEN disguised as financial planners to manage our funds.
I have not personally used WealthFront, but it has essentially the same features and structure as Betterment, so I feel confident recommending them as well.
No matter which investing options you choose one thing is sure, you should have a large portion of your retirement savings invested in the stock market in order to leverage your dollars and build compound interest.
Remember to achieve balance you must offset one thing with another. Essentially you need to decide the correct RATIO for SPEND/SAVE/BORROW for you and your family.
Having the right Financial Balance will help give you the freedom and the ability to do the things you really want to do like learning how to start your own MTM consulting business!
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