Money is a topic that consumes more mental real estate than any other topic in my life, and as a Chief Strategy Officer in my professional life, I love to figure out new ways to apply strategy to my personal finances in an effort to build wealth and improve my life.
As a married man, my wife and I have our own accounts (both checking and savings), and a joint checking and savings account for joint expenses. The joint account goes to paying monthly joint bills such as the mortgage, utilities, our nanny, and some joint investments. Our personal accounts go towards our personal spending, which to be quite honest ends up being for joint use 50% of the time anyway. Either way, we are talking about optimizing finances today, but i will get into how my family spends money in a different blog post. I want to be clear that I am not an investment advisor. I am a strategist, so I am looking at finances through a strategic lense.
So the way I have everything setup is – I automate transactions every month to and from several accounts. I cannot stress enough the importance of automating transactions. As you continue to automate your finances, you start to perceive the money as gone before it even enters your account. It almost feels like it doesn’t even exist. Therefore, the impact of that “loss” is reduced greatly and you don’t learn to live on the amount you are paid, but rather the amount you are left with after the automation takes place. The automation process also reduces the amount of thought you need to put into investing and allocating money – freeing up that headspace for more important things. The transactions that I automate are of the utmost importance to me and my lifestyle wants and needs and I will discuss them in the remainder of this blog post.
First, my wife and I both separately automate our 401k transactions out of our paychecks and we max out our respective 401ks bi-weekly (in 2024 that’s $23,000 each for a total of $46,000 per year plus match minus fees). If you have access to a 401k, I highly recommend setting something up with your company’s broker where you can automatically transfer as much as possible into this account from each paycheck, with a floor of 10% of your income. We are both in traditional not Roth 401ks as we are in the highest tax bracket right now but I suspect we will not be, once we start to draw down on the 401k. As I said before, at a certain point, you start to forget that the money exists, which is a good thing, and you depend solely on your actual realized income to support your lifestyle. I recommend Looking at these transactions like a tax that goes to yourself. Just forget about it, move on, and remember that there should be a nice win-fall down the line. I plan to never touch my 401k unless there is an absolute emergency. I Just plan to leave it alone and let the interest compound.
Second, every week I automate a transaction into a Robinhood account that I use for speculative stock picking. This is an account that I used heavily during the market pullback that happened during Covid. This is an account that I am using now to take advantage of certain values in the market during pullbacks. I do not recommend buying index funds with this account. I am making this about 2.5% of my total investment allocation with the bulk of my monthly investing going towards that 401k. I’d like to note here that I would be doing things differently if my income was lower. On top of the 401 I would contribute to a Roth IRA. I do not qualify for a Roth IRA however, if you qualify for a Roth IRA, I cannot recommend enough that you take advantage, especially for my next transfer.
Third, I transfer about 10% of my monthly investing allocation to a Brokerage account with Vanguard from my personal checking account. In this account I play things relatively safe in that I own an index fund that mirrors the S and P VFIAX, an ETF comprised of information technology company VGT, an equity income fund VEIPX, and I keep a lot of cash on the sidelines in Vanguards Federal Money Market Fund which pays out 5.27 percent interest as of today VMFXX. This is one of the more consequential investments that I make every month. I plan to hold this longer term, whereas Robinhood money may be a bit shorter term – I sometimes draw down on the Robinhood account if I need to finance an outside opportunity like an early stage venture.
Fourth, I transfer about 1% of my monthly allocation from my personal checking to a very small account I keep with a company called Stash every month. It operates very similarly to all of the other apps – you can buy stocks, etfs, bond funds, etc. I may move the money out of this account. This account is something that I keep on the side that I may give to my son one day – I really haven’t decided yet what to do with it. But, it’s nice to see such a low impact investment accumulate over time. Initially I started this account as a vacation fund but I like luxury travel and I’m just not putting enough money into this account to cover that, so the Stash account has taken on another purpose, though unknown to me yet, as time progressed.
Fifth, and this will not apply for those of you who do not have kids, my wife and I both separately allocate about 1% of our monthly investment allocation from our personal checking accounts to our son’s 529 plan. I highly recommend utilizing a 529 plan if you have kids and you want to save for their education. The tax benefits are immense. And even if my son decides to do something non-academic in the future, the penalties for not applying the money to education, in my opinion, will likely be offset by the accounts ability to compound tax free over time so this is a good play for anyone with a child.
Sixth, I am not a huge proponent of crypto, however, as part of my goal to invest 10% of my money speculatively to keep myself interested, I allocate 5% of my monthly investment allocation to Coinbase and primarily buy Bitcoin and some Etherium.
Seventh, I invest about 2.5% of my income in a vacation fund. I like to go away on luxurious trips a couple times a year. I typically keep this money in VMFXX so it’s liquid and can be deployed elsewhere if necessary.
To be clear, I also invest some of my wife’s money. We have a slightly less complex setup for her but still have automatic transfers setup to send money to several different accounts.
In conclusion, I highly recommend automating as much of your investing as possible. I recommend doing this monthly or bi-weekly or even daily – however frequently your paychecks come in on or near the day they come in, in an effort to avoid surprises and reduce the overall impact on your monthly spending. When I started investing, I started with one allocation – an IRA, every month and eventually built up to this. There are a lot of moving parts but as you get older things get a bit more complicated.
