Welcome to the Trail to FI Money Map! A few bloggers out there have taken the time to share how their finances are set up, so I thought I would join in on the fun.
This is an interesting idea because we focus on net worth quite frequently, and for good reason. The size of your investments can be a great indicator for when you can retire. The problem with focusing on net worth is that it only gives you a snapshot – all the information is static, and it will certainly be different next month.
The money map shows you how money flows. Where do you get your income? Where do you store that money? What accounts do you use to spend that money?
It can be helpful to learn how other people have organized their finances. Maybe there is some account or process out there that could help you improve your finances. You would never know if we didn’t share, so here you go!
Paychecks and payroll deductions
Both of our employers is nice enough to give us money in exchange for our services. Before we get that money, a few things are automatically deducted:
- 401k (yay!) – My employer uses Charles Schwab, but I still have access to a few Vanguard funds.
- HSA (oh yeah!) – A FIRE seeker’s best friend! Read more here.
- Pension (meh.) – Chelsea doesn’t have the ability to opt out, and she will probably not stay at the job long enough to become vested. Oh well.
- Medical insurance, taxes, SS (…) – We are American citizens, so I guess we have to pay taxes.
After that, our paychecks go to…
The Hub: Our Checking Account
Nearly all of our money flows through our checking account, so I think of this as the anchor of our finances.
We keep this at our local credit union and have no complaints. I don’t think it is completely necessary to have a brick and mortar bank, but it does give us access to a safe deposit box.
You can get better savings account interest rates from online banks (like Ally), but even then the best you can do is about 1%. Since we don’t typically keep a whole lot of cash on hand, we don’t bother with moving our savings from our credit union.
We pay for everything that we can using our credit card (Fidelity Visa). Why? REWARDS BABY.
Credit card companies think so little of us that they are willing to PAY us with the hope that we will go into debt. But we in the FIRE community have advanced degrees in personal finance – we know to pay off our debt as quickly as we incur it. Instead of giving money to the credit card companies, we let them pay us.
The only thing that can’t be paid for with credit cards is rent, so that comes directly out of our checking account.
Non-employer sponsored investment accounts
Our IRA’s and taxable investments are at Vanguard (hooray!). We also have a taxable account with Lending Club, but I don’t think we will keep this much longer. Returns have been dismal, and like many others, I fear how the P2P market will react during the next recession.
All the cashback we get from our credit card gets invested into the taxable brokerage at Vanguard.
Free money + investing = 🙂
All our investments are lovingly placed in VTSAX for maximum returns and low fees. Set it and forget it!
A word on Simplicity
We don’t have very many accounts, and that’s on purpose. We have taken active steps to consolidate where our money is. I don’t see the point in having multiple savings accounts, so we minimize how many we have open. We could be further maximizing our returns by searching for the highest savings account interest rate available, or the credit card with the highest cashback bonus, but we don’t. We would rather keep our finances simple than spend time chasing rewards.
When Chelsea and I got married, we combined our finances. Some couples prefer to keep some level of separation and individuality, but we both felt that it was important to treat all our money equally.
That’s what works for us – but it might not work for you! I know that many people have different opinions on this, so do what feels right.
The Silent Key to Success: Automation
The best part about all this? We really don’t have to do much.
Most of our bills and investments occur automatically. This keeps us on track to meet our goals. We don’t have to waste time wondering if we contributed the right amount to our IRA’s this month – it’s automated!
Isn’t technology awesome?
What is missing?
Sometimes showing what is there doesn’t tell the whole story. It can be equally helpful to discuss what isn’t there.
We avoid debt like the plague. Car loans and credit card debt can kill your long term wealth! A good rule of thumb is if you can’t buy it in cash, you can’t afford it. Obviously there are some caveats here – mortgages and student loans.
I did leave out the remainder of our student loans ($8,000) because we are not currently paying them. We are both in graduate school right now, so all interest and payments are completely deferred for the next two years. The student loans are not a part of our monthly finances right now, but we will eventually need to pay them off. Luckily we worked hard immediately after college to reduce them by $23,000.
We consider ourselves fortunate, so we want to donate some of our money to charities. I think it would be good for us to start a regular giving schedule in 2018. At some point, we plan to open a donor-advised fund (DAF) to manage our future donations and allow the funds to grow tax free.
The Chain Gang
Here is the complete list of everyone who has participated so far!
Link 1: The Luxe Strategist
Link 2: Adventure Rich
Link 3: MinaFi
Link 4: Othalafehu
Link 5: The Frugal Gene
Link 6: Work Optional
Link 7: Our Financial Path
Link 8: Eccentric Rich Uncle
Link 9: Atypical Life
Link 10: Cantankerous Life
Link 11: Retirement Manifesto
Link 12: Debts to Riches
Link 13: Need2Save
Link 14: Money Metagame
Link 15: CYinnovations
Link 16: I Dream of FIRE
Link 17: Stupid Debt
Link 18: Spills Spot
Link 19: Making Your Money Matter
Link 20: Life Zemplified
Link 21: Trail to FI
Link 22: The Lady in the Black
Link 23: Smile & Conquer
Link 24: Her Money Moves
Link 25: Full Time Finance
Link 26: Abandoned Cubicle
Link 27: Freedom is Groovy
Link 28: Millennial Money Diaries
Link 29: A Journey to FI