Starting next month, the plan to allocate my income will drastically change.
Trying to land a loan has been an unnecessarily cumbersome process, but now that we are through jumping over all the hurdles, I can concentrate on figuring out how I will continue to allocate my income to build wealth. For a while now, the plan was simple: stick everything other than retirement account contributions in an online savings account in order to save for a down payment. As our short term need for money essentially vanished after buying our first home though, it’s time for an re-evaluation. Here’s what we came up with. Please take a look and give some comments or ask questions.
My Irregular Income
With a business income that can fluctuate wildly from month to month, the plan is actually not as precise as I would have liked. However, the world still rotates with or without you and having a plan to adjust in the future is better than no plan at all, so here goes.
Emma and I intend to allocate 50% of my income towards a taxable investment account, where we will invest in stocks and bonds for long term growth. As to the rest of the funds, 10% will go towards retirement accounts, while the rest (40%) will be transferred to high yield savings to help rebuild our emergency fund, prepare to pay business taxes as well as pay bills.
This is rough, I know, but as we are unsure of how much a newborn is actually going to cost every month plus the addition of the expenses of the house, this will do for now.
For now, apart from her 13% contribution to her 401k, her salary will be put in high yield savings plus pay for some of our living expenses. Seems boring compared to my side of things, but in personal finance, boring is often a good thing.
Other minor changes include:
- Funding Schedule – I used to transfer money into my retirement account on the first business day of the month, so I can invest the next day. From now on, apart from having a buffer to pay for unexpected bills, I will transfer my income to the various accounts the same day the deposits are available at my checking account. This way, I’m not losing on average half a month of interest on everything that comes in. (This one is still up for debate. Half an interest seems to be worth the effort, but it does make managing this more cumbersome. What do you think?)
- Simplifying Our Financial Picture – Over the years, Emma and I have opened way too many accounts, be it savings, IRAs or investment accounts. We are going to cancel all of them and keep just the bare minimum.
- Be an Ignorant Investor in Regards to Short Term Fluctuation – As soon as the funds are available to invest, I will buy the securities (be it an ETF, index fund, stocks or others) right away. While short term price fluctuates and timing can make a big difference, getting it right is essentially a part time job and I’m not in need, nor do I want, more work. If it goes up 5% the next day, great. If it drops, I won’t sweat it. Over time, this will even out. My time is better served figuring out how I can increase my income to contribute more.
As I mentioned, this plan needs continual adjustments as we get a better handle of our expenses down the road. What do you think so far? Anything in particular that jumps out at you, and any suggestions of how the plan needs to change for the better?
Your suggestions are appreciated. I have a thick skin, so fire away 🙂