“If you understand money, life is incredibly easy. If you don’t understand money, life is incredibly hard.”- Kristy Shen from ‘Quit like a Millionaire’
As I mentioned in my previous blog post, I was not following our finances too closely when I was working. My dear husband would try to get me interested/involved and I payed little to no attention.
I remember going to a financial advisor in Seattle with him a few years ago. This was a free service offered through the job my husband had then. The guy had a beautiful office in downtown Seattle and oozed charm. He asked a lot of questions about our goals and our lives and really seemed interested in working in our best interests. He (or more likely, an assistant) created beautiful folders with colored charts, showing how we could invest our money and live off it quite luxuriously for the rest of our lives. Although I wasn’t quite ready to stop working just yet, he showed us a chart that outlined how I could quit that year and still be okay financially. I remember coming out of that meeting feeling flush and rich!! In fact, I distinctly remember going to the mall next door and buying an expensive dress that I didn’t really need!!
But there was a catch. (Of course). He wanted us to turn over our emergency cash to him to invest. My husband thought this was a very bad idea. Also, his very colorful charts had our money split up 15 different ways in products we didn’t understand with relatively high fees. When we declined and explained to him that we were not comfortable with the plan he had outlined, the calls became more frequent and the advisor became more irate. Now I am reminded of this as I look back.
“Seek advice cautiously and never give up control. It’s your money and no one will care for it better than you. But many will try hard to make it theirs. Don’t let it happen.”
I do wish I had paid more attention to our finances sooner. We had our savings scattered all over the place without a clear plan or strategy. The good thing was that we were diligent about maxing out our pre-tax accounts such as 401-k’s and IRA’s. This year, I became interested in where our money was and how it is working for us. I needed to know this in order to feel comfortable about not getting a paycheck anymore. I spent hours doing research and discussing plans with my husband and a trusted family friend, who is an accountant and has helped us with our taxes in the past.
We consolidated most of our accounts and transferred it to Vanguard. We rolled over our 401-k’s to IRA’s (which is possible once you leave your job) and invested in low cost index funds. Since we consider ourselves retired at this point, our asset allocation is roughly 60% stocks and 40% bonds.Having all our money in one place makes it easy to track how our investments are doing. Moreover, we are saving a ton of money because of the low expense ratios of the index funds. We also have some cash in Treasury Bonds and CD’s, in case the stock market takes a downturn and stays down for a while. It is important to allocate assets (i.e, the percentage of your savings in stocks/bonds/cash) in a ratio that fits with your life situation and your comfort zone. In this regard, it may be helpful to find a “fee-only” financial planner who has a fiduciary responsibility to act in your best interest.
Now there are also robo-advisor companies that will do the same for a lower fee. It is important to keep an eye on fees in general as they can erode your profits.
The reason I am sharing this is because I have come to realize, at least for myself, that in order to have peace of mind, it is essential to have our financial house in order. I am able to sleep better at night knowing the details of our finances. It can feel overwhelming, but like everything else, if you put some time and effort into it, it can be very rewarding. And if you are aiming for financial independence, the achievement of which can give you peace of mind and the ability to do what you desire with your time, it is a worthwhile pursuit.
So where are you in your financial journey? Are you in the accumulation and growth phase or the spend down phase? Do you have your debts paid off or are you diligently working towards doing so? Have you spent some time exploring your investment options? Do you have an app or spreadsheet that you keep an account of the inflow and outflow of money? Are you and your significant other on the same page when it comes to philosophies around saving, investing and spending?