Photo Cred: Sarah Andersen
Like many people, I wasn't educated about finances when I was a child-ling. As a result, I made many haphazard decisions with my money early in my twenties, and they nearly put me on the street, if not for friends and family helping me when I needed it the most.
Still, my approach to personal finance was akin to sticking my head in the sand. The money comes in, and it goes out. As long as I can pay for my needs, we're cool. Except we isn't cool.
Regardless of how you feel about capitalism (I feel like it's sending the world to ruin if you care to know), we have to pay to live on this planet. That's the way it works. So I knew that I needed to be more mindful about the future and live like there would be a tomorrow.
Then I read this tweet a few years ago from my friend/colleague, Scott Bolinger, and it sent me.
I had nothing saved for retirement. What would I do when I got to that age? Keep working? There's no family wealth to tap into. I have no inheritance coming to me. And that's okay, but also it means that I need to handle my financial situation.
My Financial Situation in 2017
It wasn't great! I didn't own any assets and, again, no savings. I had a car that was nearly paid off. I had a good chunk of tax debt that I'd been paying off since forever, it felt like—it was from my late twenties and early thirties, and things were pretty bleak, financially.
- No assets
- 30k in IRS Tax Debt (back taxes).
- Two liens from above debt.
- No savings.
- No retirement.
- 6k in investment accounts held with a financial advisor. It had been nearly 30k at one point, but I dipped into a few times when issues came up.
In 2017 I turned Forty. YES, FORTY!! I was no longer a spring chicken, I wasn't quite old, but neither was a young; you get the point, though.
Something drastic needed to change. So a few changes I made!
What I did
I didn't research things as well as I could have, and maybe I could have paid things off sooner or made my life a little easier? Probably. Definitely. ¯_(ツ)_/¯
While I had a large amount of debt (from my perspective), I knew that I was lucky as it could have been much more than that!
So it begins…
One of the resources I found was Reddit's PersonalFinance sub which provided me a basic framework to reference as I prioritized my attack on my debt and begin building a nest egg.
I was able to look at my age bracket and get a good sense of where to start.
One of my friends, who led me to a financial advisor ages ago, where I held money, mentioned he'd moved all of his money away from his advisor and was managing it himself. I looked at him funny and asked why.
He explained that he was incurring unnecessary (advisory fees) fees to have someone manage his money which would never care about it as much as he would. The financial advisor in question was a nice person and super sharp with money, but I saw that if I wanted to right my finances, I would need to learn how to manage it.
My friend recommended Betterment, a Robo-advisor where you can hold IRAs and other investments, and they re-invest your money automatically. It seemed like a good idea, so I signed up and began rolling over my accounts. I had a Traditional IRA and a few other investments with my advisor. It was a fairly easy process to move everything over; it took some time and some paperwork.
I converted the Traditional IRA into a Roth IRA and placed my other investments into it. I maxed out my contributions for that year.
Also, based on some advice from my biz partner, I opened an account at Vanguard and began investing in VTI and VGT ETF funds. I also started to buy individual securities in companies I liked, mostly tech.
- While I was happy with Betterment, I opted, instead, to move my IRAs (a Roth and a SEP) over to Vanguard to a Target Retirement Fund. The expenses are a bit less .05 compared to .35 at betterment. I still get automated investing from Vanguard, just no more automated tax loss harvesting.
Where I Was in 2017
- Tax Debt – I was making a minimum payment toward my Tax Debt. I got more information about my debt as well. I owed money for several different years. So I made a note about what I owed for each year and the interest, which I believe was around 10%.
When talking to my mother about it all, she mentioned that IRS debts fall off after ten years. Yeah, your tax obligations expire after ten years if they don't collect. The kicker, though, is that you have to maintain your installment agreement, if you extend your payment timeline or if you pause payments that will tack additional time, extending your debt obligations further.
I confirmed that with the IRS that tax debts do in fact expire. I just needed to keep making my payments, which were low already.
I chose to pay off the tax years that were the furthest away from expiring. My thought was that I would be looking for a house within four years and I didn't want tax debt or liens on my record. That left two tax years, totally 12k, that I would let expire. I wasn't sure it would happen or not but I proceeded with that assumption.
- The Car – I finished paying off my car and decided I would use those payments to start funding my savings. I kept putting those dollars to work and I didn't miss them. I still had the same budget except I was funding my emergency savings. The goal was to get to 6 – 8 months of cash savings.
- During 2017, I changed my agency to begin using Profit First as a means of allocating my agency revenue for specific priorities. The benefit of which is that I was setting aside profits which I then paid myself quarterly. I divered about 75% of the proceeds from my quarterly disbursements to my savings and in a relatively short amount of time I hit my savings goal.
- Investing – None. I never invested in anything related to the stock market. I talked with friends who were financially savvy and they all said the same thing. Invest in ETFs or Index funds.
Where I'm at in 2021
In 2021 things are very different and in a good way.
- My tax debts are completely paid off.
- My company pays for my personal taxes (via distribution). Thanks Profit First!
- 12k of my tax debt ended up expiring and being forgiven, since I maintained my payments. Those payments were negotiated to $100/mo.
- Credit card debts are gone and I don't hold any debts on them now. I pay off usually every month.
- I have a car payment again 😢 – I hit a deer with my car and totalled it. I bought a 2018 in the mid 20s. Thinking about it again, I should have gotten a cheaper car. I might just do that. The car I have now is great but it costs more to maintain.
- I hit my emergency savings target.
- Investing – I began investing in ETFs, specifically in VTI and VGT. Each have grown by just over 30% in the time since I started.
- I started an HSA (Health Savings/Spending Account) a few years ago and have maxed it out each year. I try not to use it. If you don't know what they are, look em up. They're amazing!
- Saving about 15% of my income for now. It's being invested currently. I'm going to tally up my holdings and re-allocate as needed and that might mean putting a little more money in cash reserves. I'd like to get to 50% saving.
Things I've learned
Managing your money isn't so bad
Managing your money is not nearly as hard as you think (or not as hard as I thought). I'm not doing any crazy day-trading stuff with my money. I keep it in ETFs, and I might bet on a stock but no Wall Street bets stuff for me.
In 2020, the stock market took a dive. I sold off some of my VGT and VTI. I wish I hadn't because I'd be up a good chunk more now. But I also wasn't sure if cash on hand would be needed or not. Society didn't completely collapse.
I took the opportunity to pick up individual stocks and more shares in my ETFs when I felt secure; it was a good thing to do.
Financial Advisors, Money Managers pretty much play it safe with their money, too. ETFs and Index funds are what they do mostly. Nothing crazy.
Investing isn't so scary
The stock market is a risk, but investing in Index Funds or ETFs takes a lot of that risk off the table. Sure, you can still lose some money, but if you choose well, then the chances are that your investments will edge higher after a few years. Again, I don't do margin/option stuff. I keep it pretty boring. This is what a lot of investment people do with their own money.
You don't need so much in savings
I used to think you needed to put your money in a savings account solely. I learned that wasn't true. High Yield Savings accounts and CDs still don't produce much interest for your account, not enough unless we're talking several hundred thousand or a million+ in balances. I have about eight months saved, and I wonder if even that is too much. Maybe two or three months? I may reduce my savings by a few months and invest that, too.
Stop Should-ing yourself
I had a wise friend who would say “don't should yourself!” She was right. I mention it because I wish I had done all of these things a decade and a half ago. I think the moral here, for me, is that it's never too late to make a change and to take control of an aspect of your life that is a bit of a mess. Make small incremental changes to get where you want to grow. James Clear has written a lot about that.
Where I want to be
I want to make sure I'm prepared for retirement, but I also want to enjoy life. I also want to buy a house at some point, preferably where I live in SoCal but the cost is insane right now.
I am working toward making more changes. I need to reduce my spending more. I spend a lot on eating out and other discretionary things.
I'm working on automating a few bits on how my personal finance and investing work. I will implement a similar Profit First methodology to my personal finances, too, and see how that works out.
I'm going to consolidate most of my financial stuff into Vanguard soon, moving away from Betterment. So I'll talk about that more in the future.
A few books I've read on the topic have been helpful.
- The Simple Path to Wealth, by JL Collins (thanks, Pete!)
Good book. Straight to the point. Although, this book could be boiled down to investing in VTSAX and VBTLX and don't touch it. An oversimplification but it's kinda true. It is a good read, especially for those getting started in getting their financial house in order.
- I Will Teach You to be Rich 2nd Edition, Ramit Sehti
I enjoyed this book, good read and voice. Lots of actionable tips you can put to use. It expands a bit upon what Collins wrote, imo. Honestly, his writing voice makes him sound like a bit of a douche bag. The actual advice, I think, is solid.
- How I Invest My Money, Joshua Brown
I didn't like this book. It was based on purely anecdotal advice and tactics by a number of other financial advisors. If anything, it told me that these financial advisors are boring and none-too-risky with their $$$ and that's okay.
I'd like to give past me a high five and a hug. It takes effort to make drastic changes, especially in the financial sense. For the last four years, I've been preparing for what's to come. And I'm going to keep doing that now.
I'm super stoked about what I've been able to do within the window of four years. I have just about twenty years to get all of this right… Here's hoping I do!
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Just like the good ol' days!!