Personal finances

You must acquire the habits and skills of managing a small amount of money before you can have a large amount. Remember, we are creatures of habit, and therefore the habit of managing your money is more important than the amount.

T. Harv Eker

Background

How do I know what I write here around personal finances? I taught myself through hours of reading books, articles, personal finances magazines and later on complemented it with great YouTube resources and conversations with client services at banks. At this point, I feel very comfortable having conversations around my personal finances with experts and understand when I’m getting good advice vs. when I’m being told partial information to sell me a product.

Personal Finance Learning Resources

1. Books (Note: I use Amazon affilliate links for book recommendations. If you buy from Amazon after clicking on these links, I’ll get a small commission)
   • The Richest Man in Babylon (I wrote a separate article on it)
   • Rich Dad, Poor Dad: got me thinking about investing as purchasing assets that produce passive income, putting my money to work for me.
   • Secrets of the Millionaire Mind: among many other learnings, it gave me a framework for my budget, with a minimum 10% of my income going towards retirement, 10% towards gifts and charity, 10% towards other savings, 60% for monthly expenses, and 10% for a monthly “splurge”.
   • The Intelligent Investor: legendary investor Warren Buffett recommends this book from his mentor Benjamin Graham. It taught me to keep a cool mind and long-term outlook when investing, and avoid fads.
2. YouTube
   • Ben Felix: by far my favorite channel on investing, Ben Felix presents research-based evidence of the best way to manage your personal finances.

How I manage my finances

Budget

Budget principles (all post taxes):

1. At least 10% towards long-term investments (retirement, passive income, etc.)
2. Strive for 5-10% charitable giving

Our 2022 household after-tax budget:

1. 20% Retirement contributions
   • 401(k) contributions
   • IRA
   • Other retirement investments
2. 40% Monthly expenses
   • 18% mortgage and condo fees
   • 8% food and dining
   • 6% travel
   • 10% all other expenses
3. 10% Gifts & Charity
4. 30% Other – mainly purchase and hold company stock options

Compensation

See the compensation page for more about how I think about compensation and negotiating compensation.

Compensation

Tracking my budget

For the past 15+ years I’ve used Mint, a free tool now owned by Intuit, to view all of my accounts in one place, track my expenses, and manage my budgets.

Accounts

1. Banking: since graduating college I’ve been using Schwab’s Investor Checking Account. The only drawback is no banking branches, but their online, phone, and by mail services are excellent and I’ve been able to do all my banking with them for the past 13 years.
2. Brokerage: I use the brokerage account linked to my Schwab’s Investor Checking Account as my main brokerage account for investments outside of retirement accounts.
3. IRA: I also have my IRAs, both a traditional and a Roth IRA, with Schwab.
4. 401(k): My 401(k) is currently managed by Fidelity.
5. Cash reserves and other investments: I have a Betterment (referral link) account that I’ve used extensively. In particular, I use them currently for their Cash Reserve account (Yield of 4.35% as of 2023-05-03), and to automate saving/investing towards various goals.
6. Mortgage: I have a mortgage with Wells Fargo, as they gave us the lowest interest rate for our apartment purchase in NYC.

Retirement Portfolio

I looked at multiple passive and lazy portfolios, and settled on Bill Schultheis’ Coffeehouse Portfolio with some slight tweaks:

1. Instead of 40% bonds, I allocate [my current age – 20]% to bonds and the remainder across the other portfolio components.
2. Instead of a fund following the S&P500, I use a total US market fund, such as SCHB or VTI.
3. I don’t love VXUS due to its favoring international developed markets,I’d rather invest that portion of the portfolio 50/50 among developed and emerging markets.
4. I split the bonds part between BDN and BDNX to get more international exposure.
5. I sometimes replace a Vanguard fund with a similar fund from another provider, so long as they have low expense ratios.

As of January 2023, this is my portfolio target allocation:

1. 14.4% towards each for the following:
   • VTI or SCHB
   • VTV or SCHV
   • VB or SCHA
   • VBR
   • VNQ
2. 7.2% towards each of VWO and VEA
3. 6.7% towards each of BND and BNDX

Rebalancing investments

I deposit new funds whenever I have additional cash and use them to buy shares that are under the target allocation, thus rebalancing a bit as I add funds.

I try to avoid selling any positions, and just hold. The exception is when a position drifts 5%+ (absolute, not relative) from its target allocation (e.g., 9% allocation when it should be 14%) then I may sell some overallocated positions to bring up the allocation in the underallocated positions.

Fund Allocation for Tax Efficiency

This is fairly recent (2023), but instead of holding all the same allocations in each long term investment account, I now look at overall holdings across all accounts (taxable, Traditional IRA, Roth IRA) and look to optimize for taxes a bit.

1. Bonds and REITs (i.e., BND and VNQ) are often tax inefficient since they pay out a lot of dividends which are taxes as ordinary income.
   • I hold more of BND on my traditional IRA, dividends just get added to the overall account balance and will be taxed just like any other withdrawal at retirement. I prefer traditional IRA since long-term expected total returns (dividends + capital gains) for BND/bonds are lower than other funds, so I’d expect less total taxable income when withdrawing in retirement.
   • I hold VNQ in any of the IRAs (traditional or Roth). Prefer Roth since VNQ it has higher long-term expected total returns than bonds, so it’s good to have that higher growth happen in a non-taxable account.
2. I shifted some of my international ETF holdings (VWO, VEA) into taxable accounts since many of the dividends that those paid qualify for a foreign tax credit. I’m not certain that the math works out overall in my favor, particularly given VWO’s high yield %, but will check that more closely later.

Stock Portfolio

I also buy some stocks. However, I have <3% of our total stock market investments in individual stocks (excluding my current company stock). I prefer to keep a truly diversified portfolio.

Below are the individual stocks that I hold as of January 2023 (Note: none of these are an investment recommendation. I’ve lost money on many of these and some of them may be on my portfolio for non-financial reasons such as “I like their products” or “I would like to see this company succeed”.)

1. Technology (24% allocation as of Mar 2023)
   • MSFT
   • TCEHY
   • GOOG
   • TSM
   • CRM
   • EXFY
2. Financial Services (20% allocation)
   • BRK.B
   • BPOP
   • SCHW
   • HIFS
3. Retail and Shopping (19% allocation)
   • HD
   • ETSY
   • WMT
   • BABA
   • SHOP
   • AMZN
4. Clean Energy (16% allocation)
   • TSLA
   • ENPH
   • SEDG
   • JKS
   • NEE
   • BEPC
   • CWEN
5. Travel and Entertainment (21% allocation)
   • PAC
   • ABNB
   • NTDOY
   • DIS
   • SE

Money concepts

Interest rates

1. The higher the interest rate, the more that you can earn from savings since the fed is charging more to “loan” money, which has a ripple effect (e.g., banks are then willing to pay you more for you to keep cash with them).
2. Higher interest rate leads to discounting future cash at a higher rate, which means that earnings generated TODAY become more valuable than future earnings. This is because cash is more valuable now, and more expensive to get via borrowing.
   • This is why as interest rates increase, high growth companies with low profitability but with promise of future high earnings, become less valuable.

The US spent way too long at near 0% interest rates, which is reversing now. PBS Frontline has a great documentary about what this means.

Last Updated on May 5, 2023 by Omar Eduardo