How We Manage Our Money: Behind The Scenes of The Frugalwoods Family Accounts
Today, by popular demand, I bring you a comprehensive rundown of how my husband and I manage our money.
Before we dive in, I want to point out that your money management strategy will likely differ from mine, and that’s ok! Your financial situation will also likely differ from mine, and that’s ok too! There’s no one right way to do money, although there are definitely some wrong ways. What I hope is that by sharing how I manage my money, you’ll be enfranchised to organize, manage, and set goals around your money too.
A disclaimer that I am not a trained financial professional and I encourage people not to make serious financial decisions based solely on what one person on the internet advises.
I encourage everyone to do their own research to determine the best course of action for their finances. Here’s a boring (but important) explanation of how Frugalwoods makes money.
It’s OK To Not Know Everything (or anything) About Money
Too often, money is discussed in hushed tones, behind closed doors, underneath covers, or, more likely, not talked about at all. A lot of us (me included) feel stupid if we don’t know what a financial term means and we aren’t sure if it’s ok to ask questions. As (relatively) mature adults, we feel we should intuitively KNOW how to manage our money, but that’s like saying a person should intuitively KNOW how to bake a soufflé or drive a car or hang glide as soon as they turn 18.
We need to learn how to do these things and, while there are cooking and driving and hang gliding classes, there aren’t many financial education opportunities for adults. So consider yourself opportunitied today.
Ask questions in the comments section–there are no dumb questions and, chances are, it’s a question I once wondered myself! In fact, it’s totally possible I won’t even know the answer to your question, but I’m willing to bet another reader will. So ask away! Alright, that’s enough introduction, let’s get to the goods.
PART 1: Income.
Net versus Gross. Gotta know the Nothing But Net.
You’ve got to know how much money you earn. Sounds obvious, but bear with me: your salary is not your income. Your salary is a gross figure, but what you actually make every month is called your “net” income, meaning your salary MINUS taxes and any other withholdings (such as health insurance, retirement contributions, employee parking, etc).
Your pay stub will provide this information for you, handy little thing. If you work multiple jobs, or have a partner who works, or own a rental property, those totals should be added in too.
My family’s sources of income:
- Mrs. Frugalwoods’ job (this is non-W2–or freelance–income because I work for myself)
- Mr. Frugalwoods’ job (this is W2 income–in other words, income paid to him by a traditional employer)
- Our rental property (this is the house we used to live in and that we now rent out in Cambridge, MA)
FIRE side note: we are FI, but not RE (since we both work) and so we do not draw down on our taxable investments at this time. That might change in the future, but for now, we utilize the above three income streams to pay our bills and add to our investments.
Summary Of Our Accounts
Here’s where all of our money is kept. I’ll expound on each category in a momentito:
- Checking accounts
- Retirement accounts
- Taxable investments
- Donor Advised Fund (for charitable donations)
- 529 college savings plans
PART 2: Savings and Checking Accounts: Make Sure Yours Is High-Interest
We have three high-interest checking accounts to keep us organized (one for my business, one for our rental property, and a general family account). Although we have checking accounts, the vast majority of checking accounts don’t earn interest (which is bad). We happen to bank with Fidelity, which offers a 0.82% interest rate on checking accounts (which is good).
Using a high-interest savings/checking account is one of the easiest ways to earn extra money.
Also, your checking and savings accounts should be fee-free.
Let me say that again: do NOT pay a fee for a checking or savings account and do NOT settle for low (or no) interest!
Here’s a list of high-interest accounts you might consider:
Here’s my full write-up on high-interest savings accounts: The Best High Interest Rate Online Savings Accounts
***Takeaway: use a high-interest checking/savings account that doesn’t charge you a fee. If your checking/savings account doesn’t earn interest–or earns very little interest–consider switching to a high-interest account.
Have An Emergency Fund
Our family checking account serves as our emergency fund, which means it’s there for us if a large, unexpected expense crops up. An emergency fund exists so that you don’t have to go into debt or liquidate investments at an unfavorable moment.
Our emergency fund is the money we’d spend if something cataclysmic or bizarre or unexpected happened: If we both lost our jobs, if our cars both died, if our roof caved in, if a moose ran through our front window (stranger things have happened to people), we have easily accessible money to cover us and keep us out of debt. The rest of our money is tied up in less liquid assets, including: retirement accounts, taxable investments, and real estate. All of that can be liquidated and turned into cash, but not quickly or easily.
Our emergency fund is our readily-available cash on hand. Ideally, you keep enough–but not too much–money in an emergency fund. You want enough money to cover any calamities (cars, moose-through-windows, etc), but not so much that you’re losing out on investment opportunities (see below). The basic rule of thumb is to keep three to six month’s worth of your spending in an emergency fund. For example, if you spend $1,000 per month (on everything: rent, groceries, clothing, medicine, entertainment, dog food, etc), you should target an emergency fund in the range of $3,000 to $6,000.
***Takeaway: have an emergency fund of three to six months’ worth of your spending saved in a high-interest checking/savings account. Replenish this fund anytime you spend it.
Track Your Spending
Of course, in order to know how big your emergency fund should be, you need to know how much you spend every month, which means you need to… track your spending!!! I use and recommend the free service from Personal Capital. Here’s my full write-up on why I like Personal Capital and how it works.
***Takeaway: keep track of how much you spend every month. And actually track it–no estimations allowed!
PART 3: Retirement Accounts
Traditional retirement accounts are tax-advantaged and designed to help you save for traditional retirement. These accounts have restrictions on when you can access the money (usually not until age 59.5), but they can provide a significant tax benefit if used properly. Some employers offer retirement accounts (such as 401ks, 403bs, or 457s) and some employers even match the money you put into your account. If your employer offers a retirement plan–and especially if they offer a match–that’ll probably be your best bet. If your employer doesn’t offer a retirement plan, there are a number of different accounts you can open on your own (such as an i401k or an IRA). Retirement accounts are invested in the stock market and, in most instances, you’ll have an opportunity to select how your account is invested (more on that in the investing section below).
Our retirement accounts:
- Mrs. FW’s 403bs: I have two of these from two different former employers:
- As long as your former employer doesn’t charge a fee for keeping an account open, there’s no need to roll these accounts over. The money you contribute to a 403b/401k is yours, even when/if you leave your employer (note: be sure you know your employer’s vesting policy).
- Mr. FW’s 401k: from his current employer
- Mrs. FW’s i401k: my individual 401k for my current self-employed work
Other common retirement accounts:
- Roth IRAs
- SEP IRAs
More about IRAs here: Reader Case Study: Medical Student and Software Engineer Dream of a Homestead
More about 401ks/403bs here: 401ks Are Your Friend: Demystifying Personal Finance Part 3
***Takeaway: saving into a traditional retirement account–either on your own or through your employer–can be an excellent, tax-advantaged way to save for retirement.
PART 4: Taxable Investments
The term “taxable investment” refers to non-retirement accounts that are held in the stock market. A “brokerage” is a bank that invests this money for you. For example, Fidelity and Vanguard are brokerages and an index fund is a type of taxable investment.
Investing in the stock market is one of the most common ways to build wealth. If you keep all of your money in savings or checking accounts (even high-interest accounts), you’re not leveraging your money to make you more money. Conversely, if you invest your money in the stock market, you have the potential to gain tremendous amounts of money over time. Of course, you also open yourself up to the risk of losing money.
When you hear of people losing all their money in the stock market, it often means that one (or more) of the below mistakes occurred:
- They panicked during a market downturn and sold all of their investments at a loss
- They weren’t diversified enough
- Their investments weren’t properly calibrated for their age and life stage
- They had all of their money invested in the market and no other assets
The stock market goes up and down–that’s pretty much the definition of the market. It will go up, it will tumble down, it will wobble and fluctuate. You will gain and lose money. But the reason so many of us invest in this mercurial market is that historical data demonstrate: if you keep your money invested for decades and decades, you will see a return. I like this article and graph by CNN, showing how quickly the market bounced back from major downturns, including the Great Depression and the Great Recession (spoiler: quicker than you probably think).
Buying and selling stocks on a whim and as the market undulates is dumb: you will lose money. Buying stocks and holding them for a long time is smart: you will make money. That’s essentially investing 101 and, boring as it sounds, the best thing to do is buy and hold stocks and resist the urge to mess with them. This isn’t to say you never do anything with your stocks, but you don’t continually buy and sell.
Risk Versus Reward: Investing In The Stock Market
A common phrase in investing theory is that return is directly correlated with risk. What this means is that, when you’re young (and have a long time before retirement), having additional risk in exchange for additional reward is advantageous.
The broad strokes, very basic idea is that while you’re young and far from traditional retirement age, you keep your investments in what’s termed an “aggressive” position, which means you’re in the highest risk/highest reward investments. Your money has the potential to make–and lose–a lot.
Then, as you near retirement age, you gradually rebalance your portfolio and move your investments into a less risky, less aggressive, more stable portfolio that won’t lose (or gain) as much. This is sometimes called a “target date fund,” and the whole idea is to gradually reduce your risk over time until you hit retirement age, at which point your investments are in stable, not-very-risky holdings. That way, if the market experiences a major downturn right as you retire, you won’t lose as much money as you would if you were still in high-risk, high-reward investments.
Side note: For you extreme financial geeks out there, I will note that there’s some emerging research suggesting a slightly different approach. I link you to Michael Kitces’ article The Portfolio Size Effect And Using A Bond Tent To Navigate The Retirement Danger Zone for further reading.
Diversification In Investments
Diversification means you’re invested in a wide variety of stocks, which ensures your fortunes aren’t tied to a single company. Fortunately, diversification is super easy to accomplish through total market index funds. I invest in total market, low-fee index funds, which means I’m invested in every stock across the entire market. This means that I get to take advantage of any and all gains (and losses) in the market. If I were instead invested in a single company, I’d be sunk if that company went out of business or took a massive hit.
Total market index funds are the investing version of not putting all your eggs in one basket. If you drop that one basket? You are egg-less and alone. If you instead have one egg in every basket available, you stand to lose far fewer eggs in the event of a basket-dropping-calamity. It spreads out the risk in a way that’s advantageous for you and your eggs (or money, as the case may be).
Don’t Invest Money You Need Right Now
Don’t invest money you need to pay your rent or buy your groceries. Don’t invest money you’ll need next year to buy a house or a car. Ideally, investments should be made for the longterm and you don’t want to tie up money you envision needing in the near future. Money you’re likely to need in the near future should go in a high-interest savings account (see above).
Avoid Fees On Your Investments
High fees are bad, low fees are good. Fund managers charge fees for the service of investing your money. The problem with fund managers is that you stand to lose a lot to fees and not gain much (if anything) in return. Passive funds–funds you manage yourself such as total market index funds–usually outperform actively managed funds.
Why? Because no one actually knows what the stock market is going to do. Ever. No one. If anyone did know that, they wouldn’t be wasting their time managing your money, they’d be mega billionaires sipping cocktails on a beach they own.
This 2019 CNBC article sums it up well:
For the ninth consecutive year, the majority (64.49 percent) of large-cap funds lagged the S&P 500 last year… After 10 years, 85 percent of large cap funds underperformed the S&P 500, and after 15 years, nearly 92 percent are trailing the index.
In plain English, this means that actively managed funds (funds you pay someone to manage for you) did worse than passive index funds (which are low fee and that you manage yourself) for NINE years in a row. NINE, people. Furthermore, after 15 years, “nearly 92 percent” of actively managed funds are doing worse than index funds. That means index funds do better than all but 8% of actively managed funds.
To recap: passive index funds do better than active funds, by, like, a lot. Passive index funds can be low-fee and self-managed whereas active funds are high-fee and you pay someone to manage them for you.
With stats this compelling (and obvious), why don’t more people talk about this?!? Because it’s boring and confusing and frankly, kind of weird to bring up at a dinner party (unless you’re having dinner with me!). But HERE, we will talk about it. Here we will discuss the genius of passive, low-fee index funds and your ability to invest in them on your own.
Here are the fees we pay on the funds we’re invested in:
- FSKAX (total market index fund): expense ratio of 0.015% (this means they charge us a mere $0.15 per $1,000 invested)
- FTIHX (total international index fund): expense ratio of 0.06%
All (good) brokerages have something similar: a total market index fund and a total international index fund offering. Compare their expense ratios with Fidelity’s to ensure you’re getting a good deal.
More about investing here: For the Love of Frugal Hound, Manage Your Money Yourself! (by following The Simple Path to Wealth)
For even more about investing, I recommend these two books:
- The Simple Path to Wealth: Your Road Map to Financial Independence And a Rich, Free Life, by: JL Collins
- Broke Millennial Takes On Investing: A Beginner’s Guide to Leveling Up Your Money, by: Erin Lowry
***Takeaway: The keys to successful investing are:
- Invest in diversified, total market index funds
- Keep your money in the market for a long time (often termed “buy and hold”)
- Make sure your fees are low
- Decrease your exposure to risk as you near retirement
PART 5: How We Spend Money
Even when we spend money we’re looking for ways to optimize the experience. We buy everything we can with credit cards so that we earn credit card rewards. Right now, we’re focused on cash-back rewards cards because they’re the easiest to manage and they give us cash back for making purchases we were going to make anyway. Travel rewards are the other major category of credit card rewards and, if you travel a lot, these can deliver fabulous returns (these are affiliate links). More on how to use credit cards to your advantage here and here.
PART 6: The Cascading Priorities Of Financial Management
Most of us don’t start off with all of these accounts in place. Most of us–unless you receive an inheritance–have very little money at the outset of our adult lives. Mr. FW and I started off with a combined $8,000ish (and no debt) when we got married in 2008 at age 24. We didn’t own a house, we didn’t own a car, we didn’t have kids or pets, we didn’t have a set of matching dishes, or even a bed (we bought one, don’t worry). My husband and I are very fortunate, and I’m extremely cognizant of the role that privilege played in our journey, a topic I address in depth in my book and also in this post.
Since 2008, we’ve increased our incomes, saved more, invested more, increased our incomes, and opened different accounts to reflect and manage our long-term priorities. But we started–as many people do–with a simple checking account. That’s it. I had so little money I didn’t even have a savings account.
Here’s how we prioritized saving and wealth-building these past twelve years:
- Create an emergency fund.
- Pay off any high-interest debt (note: we didn’t have debt but if you do, paying it down should be a high priority).
- Open and utilize credit cards responsibly to build credit and earn rewards.
- Invest for retirement.
- Save up a downpayment for our first home.
- Invest in non-retirement taxable investments.
- Save up a downpayment for our second home and turn our first house into a rental property.
- Continue investing in our retirement and taxable investments.
- Open a Donor Advised Fund for tax-advantaged charitable giving.
- Open 529 College Savings Plans for our two children.
- Continue investing in our retirement and taxable investments.
A lot of this happened consecutively, not in parallel. While it would’ve been ideal for me to open a retirement account at age 22, when I started my first job, I didn’t because I was scraping by. And while it would’ve been ideal for us to buy our first home sooner, we didn’t because we needed to save up a downpayment, and maintain an emergency fund, and invest for retirement.
Managing your money over a lifetime is a question of managing competing priorities.
Right now, my husband and I balance saving for retirement (be it early or traditional–jury is still out), saving for college for our two children, and saving for more extensive traveling once our kids are a tad older.
Most of us balance divergent goals and the key is to understand what’s mandatory versus nice-to-have. This is why I think the above list can be helpful in determining where something falls on the financial priority list. For example, while it’s awesome to invest in the stock market (step number 5), that should not happen before you build an emergency fund (step number 1). This list isn’t perfect and it’s not going to make sense for everyone to follow to the letter, but it provides a basic guideline for how to think about your money as you age and your life circumstances change.
CONCLUSION: Put Yourself First
Financial management is one scenario where it’s appropriate to put yourself first. That’s why in the above list, saving for our kids’ college is the last step. It’s not out of greed or selfishness that we put this last, it’s out of personal responsibility. No one else will be responsible for us in our old age. My husband and I do not want to saddle our children with our financial care and so, we’re setting ourselves up to have plenty in our retirement accounts to see us through all our days. I am a strong advocate for putting your own oxygen mask on first: save for your own retirement, then pay for your kids’ higher education. You can take out loans for college, but you cannot take out loans for retirement.
Putting yourself in a position of financial strength bears fruit over time and is often a question of waiting: waiting until you have a downpayment saved up so that you can qualify for better mortgage loan terms, waiting to save for your children’s future once you’re sure you won’t be a burden on them in your old age, waiting to buy things until you can afford to pay for them in full. Putting yourself first financially isn’t selfish, it’s responsible, pragmatic, and up to you.
How do you manage your money? What questions do you have?
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Thanks for this write-up, I do almost exactly the same. For retirement, I max out my 401k and IRAs for each of us (my spouse is a stay at home parent). If anything remains, I put some in our sons 529 account and some in our brokerage account.
Something I have been wondering about recently is, does it ever make sense to reduce our retirement savings rates in favor of putting more into the brokerage account?
We have a 6+ month emergency fund and dedicated savings for our other immediate goals. But I would like the option to retire early in 10-15 years (possibly working part time but I want to plan so that’s not required), and want to make sure I can access cash then.
This is a good question and it depends a lot on your tax situation and your projected income (if any other than investment drawdown) in early retirement. I can’t accurately answer your question without knowing all the details, but, there are a few resources I’ll point you to that might be helpful.
An important thing to note in considering taxable investments vs. traditional retirement accounts is the Roth conversion ladder, which the MadFientist has a good write-up on here: How to Access Retirement Funds Early.
You may also be interested in reading more about the Bond Tent idea, which I mentioned above. Kitces is the author and the original article is here: The Portfolio Size Effect And Using A Bond Tent To Navigate The Retirement Danger Zone
And then for more general info on asset allocation and withdrawal strategies in retirement, Early Retirement Now has this series on the math behind the different options.
I hope this is helpful :)!
Thank you so much! I will review all of these. I’ve considered talking to a financial planner, but I’ve had so much success managing my own finances that I don’t quite see the point. I hope these resources will help me to make even better decisions!
A financial planner (who is a Fiduciary–only go to a Fiduciary!) can be helpful, but a major challenge is that FIRE is not very common and not typically reflected in the standard financial planning advice. But if you find a FIRE-fluent advisor, it could be helpful. On the other hand, if you’re motivated (which it sounds like you are!) you can certainly do the research on your own. Best of luck :)!
A FIRE-fluents Fiduciary! Sounds like a nice job title!
Hah, yes! If anyone ever finds one, I think they’d have a lot of business :)!
I know what a Fiduciary is…. but what is a FIRE?
Financially Independent Reture Early
FIRE=Financially Independent Retire Early
Hi Danielle – Most 401k plans allow employees who leave their job at age 55+ to withdraw from their 401k plans without the 10% penalty. You still have to pay income tax on the withdrawals. At age 59.5, there is no penalty on withdrawals from retirement accounts, but it is still taxed. In my experience, it is always good to have several types of accounts or “buckets” of money to fund retirement, including a taxable account and a Roth account. This becomes even more important in retirement to minimize taxes.
An element that is not talked about enough is whether you believe taxes are going to go up or down. Two different paths to take depending on your answer. If you think they are going to go up why are you deferring from this lower tax bracket to a higher one? If you have an employer that is doing a match of say 3% then it makes sense to put what it takes to get that extra employer investment. If you are self-employed why defer at all? If the tax bracket when you take the $ out is exactly the same, then it doesn’t matter the net result is the same. However, if it is even only 1% higher don’t defer.
IRA….pay taxes later vs.Roth IRA….pay taxes now. You can also design the 401k with a Roth contribution.
Though I’m currently doing the Uber Frugal Month Challenge, I also keep track of every penny I spend, EVERY month. I keep a spreadsheet (have for the entire time I’ve lived here – over 4 years) and almost every night, after I’m finished for the day, I’ll pull out my receipts (more on grocery shopping day); but, occasionally, I’ll pick up something at a local thrift store or I might give someone $1-2 for having driven me somewhere. (We’re a big GROUPIE area and often carpool). But, I never get behind in this. My spreadsheet has 7-9 columns for everything from church tithe to misc (with bills, food, gifts, clothing, gas, in between). It’s always enjoyable, at the end of the month, to see how well I got by WITHOUT spending. And, I love to compare my most recent month with a prior month. Like my light bill (which is also my heat, since I live in an apartment) was higher this month than last month. BUT, lower than a few years ago, so I HAVE learned how to keep my heat cranked down, especially when I’m out for the day or down for the night (in bed under several blankets). I do round up these amounts to the nearest quarter to make calculations simpler. But, I love doing this; somewhat of a challenge EVERY month to see how well I can get by without overspending.
Studies show that people get better sleep in a cold room and more blankets. I LOVE it that way! Doing what you’re doing you get a win-win.
I also use a spreadsheet. This lets me personalize my expense categories. (For example, stuff bought at Target could be food or toiletries or clothes or other tools or supplies.) It also acts like a checkbook register (but for credit cards). But I only update it once every week or two.
FYI, credit card companies often make pretty good reports of your spending, if you don’t mind, for example, everything you buy from Target being categorized into whatever random thing they chose. You don’t have to do any work except to remember to actually look at their reports.
I am curious why invest in Fidelity Total Market Index Fund: FSKAX. vs Fidelity ZERO Total Market Index Fund: FZROX.
The FZROX didn’t exist when we started investing and we’d incur capital gains taxes if we switched over, so, we’ve stayed with FSKAX
If I am opening a new account, would you recommend the FSKAX or FZROX?
I really like using a local bank in case I need to go meet with someone or set up special accounts. Do you manage all your accounts online or over the phone?
I think it’s perfectly fine to go to a local bank in person to do specialty banking. I prefer otherwise to do most everything online – faster and easier for me.
We manage all of our accounts online and for us, it’s perfect. Fidelity offers mobile check deposit, so I can deposit checks with my phone. They have an easy-to-use website and they refund all ATM fees (so we can use any ATM for free). But, you’ve got to do what you’re comfortable with. As long as you’re getting a good interest rate on your checking/savings accounts and as long as they’re not charging you a fee for any of your accounts, do what you know!
Is there a reason why Fidelity doesn’t charge anything and reimburses ATM fees? Seems like there would be a catch somewhere.
I use a local credit union as well as an online “high-interest” credit union for the same reason. I have my checks directly deposited into my local CU, and then transfer things from there to my savings account, IRA, donor-advised fund, etc. To me, this is the best of both worlds, or maybe a transition period before I switch to online-only.
I mostly manage my accounts online, but do sometimes go in to my local CU for things like withdrawing cash in low bills for tips before travel, getting money orders, and getting that service where someone official witnesses your signature for important documents.
Hi Mrs Frugalwoods,
What a great post! I have one question – what should you do with money that you want to spend in the near-term (less than 5 years) on a house. My husband and I have a significant amount of money that we are very lucky to have made flipping property. We are currently living in a flat and one day we want to upgrade to a house but that doesn’t make sense for us right now – we are happy where we are, we don’t have children (yet) and don’t need more space right now. We don’t have a mortgage and we have some money invested in the stock market that we are adding to monthly as we earn.
We are worried about this ‘cash’ devaluing over the next few years but don’t want to invest it to pull it out again. We are in the UK and the best savings rates we can find on cash for current accounts (checking accounts) is about 1.3%. Any tips?
You should consider putting your money into a CD (Certificate of Deposit) account. They tend to have even higher interest rates than high-yield savings accounts and often the rate increases with a larger deposit. The thing to note though is that upon deposit of your money, you agree to let your money sit in that account for a set amount of time (usually longer time = higher interest rate). If you withdraw early, you’ll likely face fees. If you think you have a couple years to spare and don’t want to risk losing money if the market takes a tumble, this could be a good fit. Here is a link to a page that has more info. Good luck! https://www.nerdwallet.com/blog/banking/cd-certificate-of-deposit/
We don’t have CDs in the UK. Best bet is an ISA. Interest rates are very low right now, 1.3 percent isn’t that bad especially for a current account. Check out moneysupermarket.com for comparison tables. Some banks like Nationwide (which is actually a building society) have preferential rates the longer you do business with them. You may get better with a fixed term bond but would then be liable for tax. Which, you know, underpins the whole social safety net so isn’t a bad thing necessarily.
Thank you for your advice! Sadly we are already maxing out our ISAs and investing through them in Vanguard as this is our ‘long term’ money.
I think perhaps I have seen some places where you can deposit money for a set period but the interest rates don’t seem to be any better than I can find as Instant Access plus the downside is no access to the cash.
Ah yes if you need instant access that will limit your options significantly. Good luck but it sounds like you’re doing well and just need to stay patient.
In my country, there are always bonds, govermment or corporate, that offer higher guaranteed interest rates or return of 3-5% depending on tenure. Choose a 3 or 5 year bond that will mature in time for when you will buy a house.
Hi Lottie! Good question! I am, unfortunately, not familiar with investing in the UK, but I’m hoping another reader will be able to chime in.
I’m UK too and a limited access account is probably safest like a 1 to 5 year term product. You will likely be ‘losing’ money in real terms because of inflation but it is more likely to be safe. Make sure that you only have £85k with any one banking group so that it’s protected.
I know what you mean because I took money out of the housing market a few years ago and it’s pretty stagnant whereas my assets would have been higher with the rise in property prices had I kept property.
The only other thing to try is an ISA. The money saving expert site has good advice on how to prioritise, which depends on whether you’re a higher rate tax earner. Follow Mrs F’s advice on prioritising and when you get to savings start with ISAs, then high interest saving accounts. If you can be bothered you can look at regular savers accounts, saving £200ish a month. Sadly most places have dropped the rates so regular savers can be a faff for only getting about £40-50 a year but it’s still free money in effect.
It sounds awful but I’d be better off if we had a Brexit recession so I could get back on the property ladder when prices drop!
Thank you, that is really useful! We are already maxed out on our ISAs with Vanguard in index funds as this is our longer term strategy.
I did some more research and I found, for anyone who is interested, a company called Flagstone that is effectively a platform. You need £250,000 to invest cash with them but they offer multiple banks with higher interest rate cash savings accounts. These are about 1.8% (although they do charge a 1.5% fee which reduces it somewhat) but this is the best I’ve found – you can put £85k per institution to protect your money and still get good returns. I think this will be what we will do.
No I totally feel you about a crash Victoria – house prices are extremely high here and the environment is not ripe for cash savers!
It’s so nice to talk to someone in the UK 🙂
Interested in what Danielle mentioned above also…currently my husband and I are DINK, but plan to change the no kids portion of that soon-ish. We’re on track & planning to retire at approx age 50, which would mean quite a few years before we could access our traditional retirement account funds. Do you have any good resources or recommendations for the best way to prep for that? We have 20 years, so lots could change, but I’d hate to do all this work and be caught unprepared at the last moment.
I think overall, big picture on FIRE is that you want to have it all covered: traditional retirement accounts and taxable investments and ideally another income stream (passive or rental property, etc). For me, FIRE is about that diversification of assets and risk profiles. You don’t want all the eggs in one basket is the easiest way to boil it down. It’s also good to consider the Roth conversion ladder. Overall, it’s important to really think about your tax implications and decide when and what money you need/want to shelter in tax-advantaged accounts (such as 401ks, Donor Advised Funds, 529s), etc.
Who do you use for your i401k?
Fidelity! We have all of our accounts with them, which makes it sooooo easy to manage them all
My situation is not completely captured by the scenarios outlined above. My husband and I are frugal and live below are means, but are high earners and savers. We have recently come to the realization that we cannot manage our portfolio on our own. Understandably, a nice problem to have. We’re not Bill Gates, but we’re doing well. We do not have the time – we both work full time, manage a household and family. We are also restricted by his work on what we can invest in due to Independence rules (Big 4). So we have recently enlisted a financial adviser to help us make our money work for us.
My husband and I also use a Financial Advisor and yes, there are much higher fees than if we stuck all our investments in an index fund on our own. However, after doing the analysis of what we’ve gained in our current situation compared to the index fund average, it’s without a doubt in our best interest to stay put and pay the fees. We’ve seen really, really, really nice increases, for example, off certain stocks. We have limits set to sell some shares at a certain high price to stay balanced and we’re also protected if it dips too low. We likely wouldn’t have done this if investing on our own and would have just shoved in the index fund. You can’t predict the market, but we’re quite pleased with the managing to-date. I do think if I was just starting out and/or didn’t have much to invest that I’d just do an index fund as there’s nothing wrong with that! We have a big combination going on right now of maxing out retirement funds, some in an index fund on our own, most invested with our advisor, and a few other things. This mix works for us.
I will also say that while you likley “can” leave your 401(k) with a former employer, you’re limited to the offerings they provide. If this is where you’d invest anyway, cool, but if you would like other options it often makes sense to get it out of there.
K–you’re correct that some workplace retirement plans are limited as to which funds you can invest in, which is why you want to check that out carefully. I choose not to roll my 403bs over (at present) because they’re invested in a total market Fidelity index fund with the same 0.015% expense ratio. So, for me, it makes sense to let them ride and continue to grow where they are. But yes, everyone should examine the fund offerings–and the crucial expense ratio–for their workplace retirement plan(s).
Great write-ups! Thanks for sharing your knowledge.
Would LOVE a post on extricating yourself from a financial advisor. I signed up with one when I was first able to invest money, about 10 years ago. I have all of my accounts with him. I think I need to end the relationship (and stop throwing good money after bad) but I feel badly because he hasn’t done anything WRONG (and I do believe he’s a good financial planner, just not worth what I’m paying). I probably just need to stop being a weenie and do it but ugggggh.
I have done this! I was not with they adviser as long as you were but it was awkward. I just said Thank You for all your help and I have learned a lot, but I need a financial change. I had the forms needed all ready and the new accounts already opened to make the transition as easy as possible! It still business, not personal, so I am polite and gracious but firm! Luck!
I am wondering this same thing. Where do you get the forms? How do you prepare for the transition? Are there huge fees involved?
I had the same issue a couple of years ago. Fortunately, Vanguard made most of the contact for me (which was awesome because I’m also a conflict avoider!). I did the same thing as Kathryn and had a brief conversation thanking him and just said that I was headed in a different direction. He tried to persuade me to stay, but since Vanguard already requested the transfer, he didn’t have any choice but to comply.
Good advice from Kathryn – breaking up is hard to do, but it can be done graciously and without guilt.
Yes, my husband has a very small IRA with a financial advisor his parents set up for him. It’s in a whole bunch of different investments….we are talking under $20k total. I don’t see the point in diversifying such a tiny fraction of an overall financial plan. So we are going to have to figure out how to get this money and move it to Vanguard which is where we have the rest of our accounts.
Commenting on this post finally got me to make the move! Kathryn and Kristin, your advice was especially helpful as I was envisioning a large burden. The forms are en route to Vanguard and I had a (surprisingly pleasant) conversation with my adviser telling him I’d be taking a more hands-on approach. Thank you!!!
I’m trying to milk as much as I can from with a high interest savings accounts. Capital one is offering a few hundred dollars in addition to the 1.7% interest rate that appears to be fairly standard (as of today). Question: Do you find that you end up with a lot less of a tax refund when reporting the 1099-INT (?) income? I’m seeing that my tax refund is slightly less than last year due to reporting this new income and wondering if you knew whether it was somewhat of a wash. Thanks.
One thing that’s important to remember about tax refunds is that they represent the money you overpaid to the IRS not the total amount of taxes you paid.
The W-4 you filled out when you started your job is used to estimate how much you will owe in taxes in a given year. Then (through your employer) that amount is divvied out across all of your pay checks, and paid in-advance to the IRS. At the end of the year, when you do your taxes, you figure out how much you actually owed to the IRS (including income from your employer, taxable investments, etc.). The refund represents the difference between what was deducted from your paychecks over the course of the year, and the amount you actually owe.
To evaluate whether your high-interest savings is working well for you, you might want to compare the actual amount you paid in taxes relative to your income, rather than the refund amount year to year.
I noticed there’s no mention of personal health / disability insurance at all. To have bigger emergency funds in case of illness, disability, or sudden death aka loss of income of the spouse/s.
Do you also have this in your portfolio?
Or do things operate differently in the US? I am from PH
In the US a married couple is eligible for Survivor’s benefits through Social Security if one spouse were to die, as well as benefits for the children if they’re under a certain age (16 I believe?). Some disability is covered under this as well. Frugalwoods has 100% of their health insurance covered through workplace if I recall correctly.
When I was working (in the US), I saved some of my vacation time, which could be used for short-term disability, and I also paid for long-term disability insurance. My employer provided decent free health insurance. I also got dental insurance but chose to self-insure for vision.
I also had homeowner’s insurance, but with no dependents did not need life insurance.
Thank you SO much for weekly insight, Mrs. Frugalwoods! I am excited to see your posts in my inbox and feel a renewed enthusiasm for managing my family’s finances each time!
I am curious for your insight as an entrepreneur. My husband and I own a law firm, which means great risk, great reward. Since we both have variable incomes, we are constantly in a debate over how much to have in our emergency fund vs. retirement vs. other investments. Should we give ourselves a longer runway because we are both on the same boat if it sinks?
Also, how often do you reevaluate your emergency fund? For instance, we set originally set our emergency fund goal almost four years ago, but have since grown our family (and plan to again within the year). We have continued raising our emergency fund to accommodate these additional expenditures (daycare, diapers, etc.) but is this something we should formally do every year? With every life change? Can you tell I crave structure and rules?
Thank you for all that you do to make saving and becoming financially savvy accessible!
Fabulous questions, Kristin! So, without knowing your full financial picture, I can’t give you rock solid advice, but in general, I think your inclination to have a larger emergency fund makes sense. Since you and your husband have the same employer, you have a slightly higher risk profile than if you had two different employers (it’s the same all-eggs-in-one-basket argument). I think you’re smart to reassess your emergency fund total as things change and, in general, once a year is probably good (or when life events, like new babies) happen. If you’re tracking your expenses every month, then you can easily check in on how your emergency fund is doing each month. I like Personal Capital for this type of check-in because it automatically updates all your accounts every month. I hope this helps :)!
We are in a similar situation as you with my husband and I owning our own CPA business. Thankfully, our contracts are fairly steady and we retain our clients year after year, but we still have to plan a little differently than others. We have a good idea of what our bare bones annual spending is (just the basics, food, shelter,etc.) Our first goal was to have that saved as an e-fund. Then we bumped up the savings to include an e-fund without cutting back on anything. We did bump ours up as life changes happen, but now that our kids are older (11 and 15), we haven’t done so in quite a while partially b/c our financial picture is better than it was when we were younger.
It can help too, to live well below your means. For us, no car loans ever and a house that fits us just fine but is VERY affordable on the income we make. So even if we lost half our income, we could still maintain our lifestyle and have to stress about it. That allows us to sleep at night. And allows us to run our business as we wish, and not just chasing $ b/c we absolutely need it.
Thank you for putting this post together! I really liked your list of 11 priorities. I may have moved some up or down on the list a little bit— but the world wouldn’t be a fun place if everyone was the same.
For me building credit would be #1. I was using credit responsibly while still in high school and I think having a credit card while living at home and having my parents open the bills was a good teaching opportunity. I hope to do that with our 3 girls when the time comes. But I know that everyone’s experiences with credit are different and there is no one-size fits all approach. Thanks again for your take!!
Great post! I have been reading along with FI/RE stuff for a while now, though I personally don’t want to RE, at least not yet. I like my job and my work/life balance, and I like knowing that I have a strong financial foundation.
We’re looking at buying a multi unit property soon, so I am trying to strike the right balance of $ in VTSAX vs. $ in our high interest savings account.
As I’ve posted about here to commenters who have read along I just had a baby 6 weeks ago! So now we are looking at a 529 and this is also a sticky situation. I am unsure how much to put in there for him. I mean what if he chooses not to go to college?! I would be OK if that is his choice someday. By the time he goes to college who knows what college will cost. College costs are such a hot button issue right now I don’t know what to do.
To further complicate things I work at a private school, and we have the opportunity to send him to this school for 75% off the tuition costs if we so choose. This school starts at age 4, which is when we’d have to pay for preschool anyways, and the costs are comparable to preschool with this discount. I believe Federal law enables me to put money into a 529 to pay for his private schooling but state of Illinois law does not give you the deduction. Maybe I open a Coverdell for this purpose too? I need to research more. Good thing I’ve got a few years before Junior Kindergarten!
If you plan on more than one child, you can always transfer to the baby’s sibling – or to you or another family member. If my daughter doesn’t go to college I’ll take her money and go back to school myself 😂
No more kids here! And going back to school after 8 years of college…I’m good!
So, yes 529s do allow you to pay for private school and, you can open a 529 in any state–not just the one you live in. 529s are definitely something that depend heavily on your tax situation and, as you noted, whether or not there’s a state tax advantage. I think you’re on the right track to do some more research, but it’s awesome you’re thinking about this so early on!
Your post a few wks ago on 529s was perfectly timed for me and got me to start the initial research! I’m a CPA–while I don’t work in individual tax whatsoever, I’m versed enough in it that I can do all the research on ind. tax stuff for my own purposes which can be super helpful!
Curious about your Fidelity checking account. How do you get cash when needed? If you pull from an ATM, don’t they charge a fee? I’ve always assumed my “working” checking account needed to be local. Can you tell I’m old – ha?!
A great question! Fidelity refunds all ATM fees! So, we can use any ATM for no fee. Hooray!
I would also add that Fidelity refunds the ATM fees VERY quickly! We love Fidelity!
My husband has his 403b and we have both of our Roth IRA’s through Fidelity. I don’t see anywhere on the fidelity site to open a checking acct.?? What am I missing!? Also, we use the cash envelope system for a few of our budget categories. What is the daily limit on ATM withdrawls? Please and thank you 🙂
It’s called a Cash Management Account. Comes with an ATM card and free checks, as well as mobile check deposit and online bill-pay. I’ve used them ever since I aged out of the free college account I had with BofA. The daily withdrawal limit depends on how much money you have with them; mine is > $500 at the moment.
I love that they refund ATM fees *worldwide.* I travel a lot for work and no longer have to go to currency exchange booths. Just stop at an ATM on arrival, withdraw euros/pesos/rupees/non-US dollars, and I’m on my way!
This is terrific! Thank you!
Thanks! Good information, while I’m not doing all of this yet-I’m hoping to soon! Great post with clear explanations.
Hi Mrs FW,
I’m enjoying another Uber frugal month and have just retired in my 40s, which your blog has played a big part in, so a huge thank you to you!
I just wondered whether it’s considered ‘safe’ to have all of your investments under one wrapper? I’m in the U.K., so the type of accounts are different, but my husband and I both have our share ISA’s (tax sheltered non Retirement account) in index funds with vanguard and are considering transferring our sipps (retirement accounts) over to vanguard as well when they start these shortly. I know that the funds have to be ring fenced by the company you invest through, but are there any risks with having all of your eggs in one basket? Both in the index fund company and the account/wrapper you invest through? Our cash emergency fund is held elsewhere and we do have separate annuities in addition.
Many thanks again!
Excellent post, one I’ll probably re-read several more times. When we first got married we started working with the same advisor my husband’s parents used. We were young, not well versed in financial terminology and it made sense. Flash forward 15 years and while our investments have done well, I’ve learned far more from doing my own research than the advisor has ever shared. I go back and forth a lot in my head on whether we should ‘break up’ but at the same time we’re crazy busy with work/kids/everything and I’m worried there isn’t enough time to thoughtfully consider our investment strategies.
What is your opinion on hiring a CFP? Our family has done all that you have suggested: four years worth of kids’ college saved in a 529; Personal Capital forecasts 75% chance of early retirement (I love PC as well)…. retirement accounts diversified according to plan; Home is nearly paid for and I’m 50.
What am I missing? What does a CFP offer? Facet Wealth seems to be a new flat fee based service that does not charge based on AUM (although the Custodian, like TD Ameritrade, does…. beware).
I’m stressed at the responsibility, but don’t feel confident anyone can do it any better. I’m a lawyer and do all our taxes, including my husband’s self employment income reporting. There is no trust or inheritance to manage. What do you think a CFP could offer, if anything?
I really enjoy your blog even though I am probably not your typical reader at age 71. Due to personal circumstances I have no money saved for retirement. I work part time and am currently saving for an emergency fund. At my age am I even able to open a retirement account? I have been learning a lot from the Uber month challenge, but I have so much more to learn!
No you can’t open an IRA at age 71. Saving for your emergency fund sounds like a great thing to do. I’m assuming you work and take your social security benefit? I admit I didn’t really hear about IRAs or 401(k)s until I was in my mid 30s and started saving then – now I am 60 – but it’s never too late to just save some money for an emergency!
Hi Elaine – You can, as of Jan. 1, 2020, open an IRA for retirement. The SECURE Act removed the age limit for retirement contributions as long as you have income to contribute. The IRA contribution limit is $7000 for those age 50+ this year. You also have the option to open a Roth IRA, no age limit, as long as you have income. RMDs, required minimum distributions, from IRA retirements accounts have moved up from age 70.5 to age 72. There are no RMDs on Roth IRAs ever.
oh that’s good I hadn’t heard they changed the rules
Elaine-I’m impressed by your honesty and post. It’s never too late to get smarter about money!
It looks to me like you can now open an IRA after 70.5 IF you are working, with the new SECURE act passed. There is a max contribution and other rules, so I would encourage you to look into it to see if it would work for your situation. Here is an article that might help with some broad information.
Hi Mrs. FW. Thanks for this post – it’s comforting to know we’re on the right track. We do all of the above in terms of emergency fund, 401Ks, investing in index funds and 529s. How do you determine when you are “FI”? It is based on a percentage of income or expenses? Right now, I feel like our expenses are artificially high due to double daycare costs and housing costs, but I hope they will go down in the future.
Thank you for sharing the bond tent article, I had not come across that plan yet!
Thanks for this! Great information and reminders. I’ve gone from knowing nothing about managing money (family legacy…) and being afraid of it basically, to enjoying learning more and putting my money to work for me. Your book and blog have been a huge part of helping me overcome my fear and avoidance of money matters. I’ve gotten to the point that when I think I need a treat, I put a few bucks into savings rather than a shopping trip, and it feels like a treat!
I would argue that you *should* roll over any 401k/403b plans from employers for whom you no longer work. This is because the plans are limited by the funds available in that company’s particular plan and many companies don’t have great options like index funds or their funds have high fees. It doesn’t cost anything to roll over a plan and there are no tax penalties- but when you do, you get access to the entire stock market. This means that you could put it all in an index fund like VTSAX with minimal fees rather than your plan at work that has 2% fees and not so great returns. Just some thoughts…
This is a good point, Justine! You’re correct that some workplace retirement plans are limited as to which funds you can invest in, which is why you want to check that out carefully. I choose not to roll my 403bs over (at present) because they’re invested in a total market Fidelity index fund with the same 0.015% expense ratio. So, for me, it makes sense to let them ride and continue to grow where they are. But yes, everyone should examine the fund offerings–and the crucial expense ratio–for their workplace retirement plan(s).
Hello Mrs. Frugalwoods! I always appreciate your work and enjoy following your family’s story. The review of the retirement accounts give me pause. The fact that your plans have good investments to choose from is great. However there is an underlying recordkeeping cost that the employer passes along to the plan participant. This will be contained in a 404a5 disclosure that they legally have to provide you once a year, it will disclose that you are paying on a % (or basis points) fee or a per participant charge. Just from my experience 403(b) plans are notoriously expensive usually due to plan demographics (low total assets and lots of participants). Just something you may want to look into if you haven’t already. If you already have and are okay with the fees then great! Again, thank you for all the work that you do.
Hi Mrs. Frugalwoods,
I enjoy the blog, and am impressed by your lifestyle and success! Although you have a higher net worth than me and more income, I will share my opinion. I think you would pay fewer fess if you rolled your 403(b)s into a Vanguard IRA. My wife left her job and we did that for her to avoid a 403(b) management fee of .35% that was on top of the underlying investment fees. It might be worth it to look into the fees that you’re paying with your 403(b)s. I’m sure you could roll them into an IRA with Fidelity as well.
This is a good point, Locke! You’re correct that some workplace retirement plans are limited as to which funds you can invest in, which is why you want to check that out carefully. I choose not to roll my 403bs over (at present) because they’re invested in a total market Fidelity index fund with the same 0.015% expense ratio. So, for me, it makes sense to let them ride and continue to grow where they are. But yes, everyone should examine the fund offerings–and the crucial expense ratio–for their workplace retirement plan(s).
In reference to your comment on checking accounts, we recently closed our accounts at BoA and moved over to SoFi. They offer 2% interest rate on your checking account and no fees WHATSOEVER! We even moved over our IRA’s and brokerage accounts to them once we “tested” their cheking account. They have a slick website and mobile app and offer mobile check deposit.
Having worked for no less than 7 companies over my career, no way would I leave my retirement money at a former employer. Two of the former employers no longer exist. I did roll one 401k into my next employer’s plan but since then, I’ve rolled it into my IRA. As well as taking a lump sum distribution (roll over) of a pension plan.
One is wise to ensure your employer contributions (match) is credited on a timely basis. Red flag if not. My father was offered a buyout in the late 90s, I told him to take it as his company was in financial trouble. He rolled his pension money into his IRA. Those who opted to not take the buyout saw their pensions go to the Pension Benefit Guaranty Corporation. And they may not get their expected monthly benefit.
Do be advised that if married, your spouse will have to sign off on a lump sum distribution from a pension plan, even if rolling over. 401ks (and I suspect 403bs) don’t have that rule. And once the money is in an IRA, your spouse does not have to make you the beneficiary as with 401ks (and I suspect 403bs).
Also be advised that if you have less than $5000 in your 401k (not sure about 403b), you most likely will not be allowed to keep your money in the company’s plan.
On a side note, I started listening to your audio book tonight. So far, it’s great! However, your reading style and voice are great for audio books! Now that you have a relationship with audible.com, however tenuous, I would recommend you reading audio books for them as a 2nd, 3rd or 4th income. It seems like a viable source of income for someone working from home and I think you would be in high demand. Us audio book listeners know that a bad reader (narrator? orator?) can ruin a good book Cheers!
I’m delighted to hear you’re enjoying the book! However, it’s not me reading it :). The fabulous Ann Marie Gideon is the narrator.
I wonder if you’d consider one addendum to the emergency fund. For home owners, it could be better to pay down your mortgage and simultaneously establish a home equity line of credit (HELOC). Instead of earning a maximum of 1.7% (which, let’s be honest is more likely <0.1% as most people won’t open a separate account), you earn 3%-5%+, depending on your mortgage rate. Should an emergency arise, draw down on your HELOC and you’re no worse than if you’d kept your emergency cash in a checking account. I wouldn’t advocate completely zeroing an emergency but decreasing from 6 months to 1 month seems fine. For example, allocating $25,000 of a $30,000 emergency fund to prepay a 5% mortgage will save $1,250 per year. Obviously this is context dependent (need sufficient home equity to establish a HELOC, etc.) but this seems like a no-brainer if your finances are generally in order.
Question about banks, online vs. brick-and-mortar. We’ll be moving across the country soon and our current bank does not have locations in our new state. We’re thinking of switching temporarily to a national bank that has locations in both, but it’s not one we’d like to stay with permanently. Do online banks (that seem to have better interest rates) work well with things like selling/buying a house where we’ll be depositing a large sum of money, then needing a certified check (or similar) for the purchase of a house? I always went to my bank in person the last time we bought/sold house for these type of large money transactions. Any tips for how this works with only online banks? Thank you!
For a while I have been worried about the certainty and stubborn faith that many investors have with regards to stock index funds. This link articulates some of my concerns.
It is worth your time and effort to search terms like “are index funds overrated” and use critical thinking skills to come to your own conclusions.
With so many aging baby boomers and institutions relying index funds as nest eggs, there appears to be a downside. I predict a bubble and a tipping point on the horizon. I see this herd mentality as being an unsound investment strategy. Too many investors are resistant to contemplating moving some funds out of an index fund. This attitude results in a lessening of diversification and a lopsided emphasis on FAANG stocks. There could be heightened portfolio turmoil in the future as a consequence of unmanageable sums of investments in index funds. I began transitioning out of index funds with individual stock purchases three years ago. I feel empowered and engaged by making my own investment stock choices. I focus mainly on companies that pay dividends and have low P/E ratios. I realize and appreciate that many of your readers may be out of their comfort zone with making individual stock purchases. However, I think they should be aware of the blind risk of following what everybody else does without a second thought.
When we became FI(RE) in 2019 we lowered our risks a lot by adapting a portfolio called Golden Butterfly, basically split between government bonds, stock market and gold. Doesn’t really matter which theory you choose but it’s wise as you say to lower the risks when you are close to or are “retired” (I still work a few hours). When lowering risks you also get a higher SWR. This is how I choose to set that up:
Thanks for a really well written post!
Regarding 529 investing. We did not do this when our children were young, huge mistake, and are now having to pay as we go for their college. Is it possible/advisable to fund a 529 account at the end of each year to be used in the coming year, thus lowering our AGI? I realize that there would be no time for growth of the 529, just hoping to lower how much we are paying in taxes every year related to our income.
I’m surprised to not see a Health Savings Account on your list. Was it not an option with your previous employers?
I am curious about cash emergency savings levels. I don’t like to keep a bunch of cash on hand when it could be working for me. I have been trying to think through scenarios where I would need a lot of cash. I have about $20,000 in a health savings account (with an $8,800 family out of pocket max), plenty of disability and life insurance, three paid off old cars with two drivers (so we have a backup), 6 weeks of paid sick leave, and a job where if my position was eliminated I would be paid severance for a year. I have about the equivalent of 1.5 months of emergency savings in addition to these things and no debt outside of my mortgage. I can also take an interest free loan for up to $50,000 from my retirement account if needed. Right now I think it makes more sense to increase my 401k contributions than to save more cash?
Great article! Given the changes in the tax laws on deducting charitable contributions, is it still advantageous to set up a Donor Advised Fund?
Thank you for this helpful information! What do you consider high interest debt?
Thank you for your incredibly helpful website. I have followed for several years. I have two questions:
Both my husband and I recently retired and I desperately need to do some rethinking of things. We have a ridiculous amount of $$ in a credit union savings account (and money market account)…since we have a Fidelity account, I’m interested in moving our money to a checking account there but I’m not seeing the high interest rate you talk about (actually I’m having a hard time pinpointing the interest they pay on that account…what I’m seeing is .001 and that’s so far from what you mentioned that I must be missing something. Can you clarify that for me? Or has the rate just gone way, way down?
Also want to thank you for the encouragement to get the Fidelity Rewards Visa card. We did and I couldn’t be happier. We’d been paying a yearly fee on the American Advantage CitiCard and it’s time to drop that as the renewal period is about here. But my understanding is that dropping a credit card drops your credit rating. Someone suggested simply switching that card to a no-fee card within the Citi group and it wouldn’t have the effect. What do you suggest?
Thank you for all of your posts. I keep learning! I only want to address the times when you talk about being aware that privilege played a role… and I know what you mean, however, I don’t want to minimize or undermine the fact that you and your husband moved forward with finances BECAUSE of the all the choices you made! When my husband and I had too much debt and not enough income, we could blame no one but OURSELVES! My biggest takeaway from your book and blog are not about how privilege got you here. But your strategies of being fugal, sacrificing material goods, and growing your money were very deliberate and wise. You took a long-term approach, not an instant gratification one. How many of us, privileged or poor, did NOT do that. We did not come from privilege, but we COULD HAVE made better choices. We did learn, though, and are doing very well 12 years later.
I do things very similarly with the following exceptions:
1) Part of my emergency fund is in my Roth IRA. Anything you contribute (but not the extra you earn from interest or capital gains, etc.) can be taken out without fees, so this helps me contribute the max.
2) As many others have done, I rolled over my employer retirement accounts as soon as I could because I like Vanguard better than what my employers had and because I like everything in one place.
3) My emergency fund is weird. Instead of saving 6 months expenses, I just contribute a certain amount each month for various irregular expenditures. Some are pretty predictable (like property taxes), some not (like health costs and car and home maintenance and repair). And then no matter how much is in there, I continue contributing every month–just because I’ve been lucky for a while doesn’t mean a bunch of expensive things won’t happen all at the same time.
4) I have more index funds for the thrill of rebalancing. (For example, I have separated out large cap, small cap, developed countries, and developing countries, plus I have a REIT index fund.) If that ever gets old (or I start getting senile) I would consider switching to a target index fund (not necessarily for my exact retirement year, because with a pension, I can stand more risk in my IRA). Target funds do cost a little bit more than straight index funds but are completely hassle-free.
5) I have a donor-advised fund, but it’s mostly so I can stay anonymous and thus the charity organizations can’t waste any of their money sending me stuff. It was hard to save enough to open one–I had to bunch two years of donations to make the minimum at Fidelity (and I can’t imagine ever making the minimum at Vanguard). Another benefit is that most of the time I end up able to send more to the charities than I contributed to the fund. And if the market were falling, I could have them send the money asap after I sent it to them. The only problem is that for 2020 and 2021, those contributions don’t count toward the deductions the IRS allows you to make without itemizing. Admittedly, I contribute directly for my self-centered contributions (public radio and TV, my homeowner’s association, the local wildflower center), and those donations do count.
6) I was under-employed for a couple of years and able to qualify for an HSA. Best thing ever! However, now my insurance is too good. I won’t complain! Meanwhile, I leave the money in my HSA at Fidelity to grow, even if I have medical expenses.
I’m happy to reiterate what everyone here has said–your blog has proven invaluable to me and I have so much gratitude that you have shared your journey.
I have a question about the index funds you list here. Are they still your choice (as of July 2022)?