My 10 Money Rules: How I Save, Spend, And Invest Every Dollar I Earn
After turning 30, I did what most people do...
I read 6 new books on personal finance, spoke with 3 financial advisors, and had one slightly awkward conversation with my CPA (after seeing my tax bill).
Totally normal.
As part of my research, I stumbled across Ramit Sethi’s 10 Money Rules. I loved the idea so much that I ended up creating my own.
In this article, I'll share my money rules with you. I’ll also share my investment philosophy, asset allocation, and the specific funds I invest in.
Keep in mind: I'm not a financial expert. This isn't advice. I'm just documenting my learnings in case they’re useful.
Table of Contents:
A Little About Me
How you invest depends on your situation, philosophy, and goals. Here's a rundown of mine.
Financial situation:
I am 31, married, no biological children. My wife and I currently foster a teenager. I live in Vermont and run an online business with one other full-time employee. My wife is training to become a massage therapist and works as a doula. We're debt free aside from a mortgage.
Investment philosophy:
I am a passive investor. I purchase low-fee index funds, mostly through Vanguard, and hold them for the long term. I started investing this way during my first job out of college (age 22). I learned that the vast majority of actively managed mutual funds do not beat the market, but they do charge high fees that eat away at your wealth.
I don't trade individual stocks or bonds because almost no one does this successfully. I don't invest in crypto because I don't understand it well enough. I don't invest in rental properties because I don't want to run a second business. Plus, our home is already a large enough percentage of our net worth.
Financial goals:
Hold enough cash that I'm never stressed about money
Have the choice to retire completely by age 60, if desired
Do work I enjoy, when I want to, with people I like
The Most Important Decision: Asset Allocation
Before we dive into my money rules, you need to understand asset allocation. If you already know what that is, feel free to skip this section.
Think of your investments like a pie chart. Asset allocation is how you determine the percentages of each slice. The two primary asset classes are stocks and bonds. Within these, you can invest domestically or internationally. You can also hold alternative assets like REITS, gold, crypto, etc. The asset allocation you choose will be the biggest factor in how successful your portfolio is.
Asset allocation allows you to determine the amount of risk in your portfolio. Person A, who invests in 100% stocks, will see larger fluctuations than Person B, who invests in 50% stocks and 50% bonds. If Person A has 40 years until retirement and nerves of steel, they'll likely get a higher return than Person B. But it's not guaranteed. By diversifying your portfolio across different investments, you reduce the likelihood of a large loss.
There are a few ways to determine your ideal asset allocation. One way is to use the "your age in bonds" rule (a 40 year old investor would hold 40% bonds and 60% stocks). You can also take online assessments to assess your risk tolerance. Or, if you invest in a target date fund, your asset allocation is chosen for you based on your retirement date.
Most people hold more stocks when they're younger and can afford to take more risk. Then they shift their allocation towards bonds as they age. That way, they aren't as affected by market fluctuations when it comes time to take the money out. You can adjust your allocation up or down based on other risk factors. For example, running your own business or relying on a single income increases your risk, and could be an argument for a less aggressive portfolio.
Pick an asset allocation you can stick with. Don't change it based on how you feel. This usually results in buying high and selling low.
My 10 Money Rules (a.k.a. Control The Controllables)
You can't control what the market does. But there are a handful of things that you can control. These are the things that I focus on with my money rules:
Time in market
Savings rate
Earning potential
Asset allocation
Fees
Spending
Debt
Work
Marriage
Taxes
1. Time in market: Money invested doesn't come out until retirement
As the saying goes, "It's not about timing the market, but time in the market."
It's tempting to try and predict whether the market will rise or fall and invest accordingly. But none of us have a crystal ball. So I invest for the long-term. While the market has it's ups and downs, it's historically returned around 10% per year on average (6% when you factor in inflation).
My wife and I were fortunate enough to start investing right out of college. This has been our biggest financial win to date. We're not investing for any goal other than retirement, so whatever we invest stays put. This gives compound interest time to work. We don’t stop investing when the market is down. This is just another form of market timing.
2. Savings rate: Make your saving and investing automatic
I don't rely on willpower to save and invest money. Instead, I try to make it as automatic as possible. Here's how:
I live in a place with a relatively low cost of living (compared to a major city), so I spend less by default
I max out my solo 401k at work, which gets taken directly from my paycheck so I never see the money
Any inheritance we receive goes directly into investments (we weren't counting on that money and we didn't earn it)
We set up automatic transfers to savings each month when we're saving up for a large purchase
We keep our expenses low, but we're not saving 50% of our income like some people pursuing FIRE (Financial Independence Retire Early). I'm more focused on enjoying my life now than on retiring early. For us, this translates to about a 30% savings rate. But honestly, it's a little bit tricky to calculate savings rate across all our accounts. So I just focus on investing as much as I can.
Note: I categorize charitable giving and personal development as investments.
3. Earning potential: Don't micromanage, just earn more
There's a limit to how much you can optimize your saving and investing. But there's no limit to how much you can earn. In most cases, your job or business has a higher potential return than the stock market.
Finding a savings account with 4.01% APY instead of 4.00% won't make much of a difference. Doubling your rates from $500/month to $1,000/month will. This is one reason I don't invest in physical real estate. It would distract me from my business. And it wouldn't guarantee a higher return that just taking a passive approach.
Once you've done the obvious stuff like investing early and choosing a common-sense asset allocation, move on.
4. Asset allocation: Revisit your allocation every 10 years, rebalance annually
I'm committed to revisiting my asset allocation every 10 years. If I want to adjust my allocation early, I force yourself to wait 6 months before I make any changes. This cool off period ensures that I am making changes based on my personal situation and not market fluctuations.
Your actual allocation will change as some parts of your portfolio do better than others. You'll need to go in and rebalance your portfolio to return it to your target allocation each year. The best way to do this is by purchasing more of the underweighted asset. You can also sell some of the overweighted asset in order to rebalance. Just know that if you sell something in a taxable account, you'll get taxed on the gains.
5. Fees: Keep fees as low as possible and only pay for advice hourly
There are two main types of fees to watch out for: expense ratios and advisory fees.
When I am selecting mutual funds and ETFs to invest in, I keep an eye on what's called the "expense ratio." This is the percentage you pay in fees. This number may seem too low to matter, but it can make a huge difference in your return. For example, this Vanguard article shows how paying a 2% fee over 25 years can erase almost 40% of your total earnings. Expense ratios work like compound interest, but in reverse. It's possible to lose millions of dollars to fees over your lifetime. This is why I select low-fee index funds. My average costs are 0.07%.
If you want to hire an investment advisor, there are three main options. Commission-based advisors get paid by selling you certain mutual funds. Avoid these advisors at all costs. Fee-based advisors charge a percentage of assets under management. This is a better option, but it's unlikely that the returns you get will justify their fee. Then there are advisors who charge a flat hourly rate. If you need a second set of eyes, this is the type of advisor I'd recommend. It's not that hard to manage your own investments if you keep things simple.
6. Spending: Give every dollar a job
Ramit says, "Spend extravagantly on the things you love, and cut costs mercilessly on the things you don't."
I love spending money on health and fitness, self-improvement, and freedom in the form of time off. Ramit calls these categories "money dials." The idea is to turn your dials up or down depending on what matters to you. I love being able to take a random Wednesday off to go snowboarding with friends on a powder day. Or invest in a coaching program. That's what makes me happy.
In exchange, I cut costs mercilessly on clothing, travel, and status symbols like watches and cars. Am I sometimes tempted to buy a Rivian? Of course. But I know it won't make me happy the way my other money dials do.
My wife and I use a software called YNAB to track our spending. This helps us "give every dollar a job" by assigning that month's income to different categories. We each have a category called "Fun Money," which allows us to spend an equal amount of money guilt free. This allows us to combine our finances without running every single purchase past the other person.
7. Debt: Pay in full. No debt besides a mortgage.
First of all, Emma and I were fortunate enough to graduate from college without any student loans. That's a huge advantage and one that we don't take for granted. It's easier to avoid debt when you don't start out with any in the first place.
Second of all, I understand that not all debt is bad. In theory, you could take out a 3% loan for something and then invest that money in the stock market to earn a higher return. But in practice, it's easy to spend beyond your means and hard to invest the difference when you don't. If nothing else, I like knowing that we haven't added to our monthly burn rate.
We have separate savings accounts for specific large purchases we plan on making in the next 24 months. For example, we have a savings account for a new car. We also keep 6 months worth of expenses in an emergency fund.
8. Work: Create a job you don't need to retire from
I was at a college reunion once, talking with a former classmate about FIRE. She worked in investment banking. She had this elaborate plan where she would work for 10 more years, save a boatload of money, and then retire early. Ostensibly, to do what she really wanted to do.
There's something to be said for delayed gratification. But life happens now, and the future is not guaranteed. Even after you retire, you'll still need to find ways to spend that time. I'd rather start the discovery process now. Doing work that I enjoy, even if it pays a little bit less, helps me avoid the fantasy that someday I'll be happy if this or that criteria is met.
Does your job have to be your one and only passion? No. But there's a big difference between work you enjoy vs. work you hate.
9. Marriage: Don't fight about money
Obviously, not everyone wants to get married. And not everyone who is married wants to combine their finances.
But since I am married, here's how I see it: Money is the leading cause of divorce in America. There is no money-related issue that I'd be willing to risk my marriage for. I don’t want to win the battle and lose the war.
My wife and I have slightly different perspectives on investing. She's more skeptical of the stock market than I am. She likes to invest in other forms of resilience like a garden and chickens. That's fine. I like that she thinks differently from me, because we can help cover each other's blind spots.
It also helps that we have separate Fun Money allowances inside of our shared budget. No one wants to come home with something they're excited about and then have their partner ask how much it costs.
10. Taxes: Max out tax advantaged accounts, optimize taxable ones
The first thing I did back when I had a job was max out my employer match. Now that I work for myself, I have an individual 401k. In addition to funding that, I max out my Roth IRA each year. Since we're eligible for an HSA (Health Savings Account), I max that out too. Then we send the rest to a non-retirement investment account.
Within our non-retirement account, I try to reduce our tax burden as much as possible. Stock ETFs and municipal bonds do best in taxable accounts. Bonds funds, high turnover mutual funds, and REITs do best in tax-free accounts. Tax loss harvesting is also an option. The most important thing is just to get the money invested.
Where I Put My Money
In this section, I'm going to lay out specifically what I invest in. Again - not giving advice here. I'm not affiliated with any of the companies below. Do what's right for your specific situation.
Cash (Capital One):
Business Checking and Savings
Personal Checking and Savings
12 month CD
24 month CD
Vanguard:
Roth IRA
Traditional IRA
Individual 401k
Individual Roth 401k
Inherited IRAs
Non-retirement brokerage account
Fidelity:
HSA
Home:
15 Year Mortgage at 2.5% interest
Current asset allocation:
Net worth: 16% cash and CDs / 39% home equity / 45% investments
Within investments: 90% stocks / 10% bonds
Within stocks: 70% domestic / 30% international
Funds I invest in:
VFFVX - Vanguard Target Retirement 2055 Fund
VTI - Vanguard Total Stock Market Index Fund ETF
VFIFX - Vanguard Target Retirement 2050 Fund
VTSAX - Vanguard Total Stock Market Index Fund
VXUS - Vanguard Total International Stock Index Fund
BND - Vanguard Total Bond Market Index ETF
FZROX - Fidelity® ZERO Total Market Index Fund
FXNAX - Fidelity® U.S. Bond Index Fund
VFTAX - Vanguard FTSE Social Index Fund Admiral
I plan to simplify this at the end of the year. But I'm following my rule about the 6 month waiting period. I’ll likely simplify down to four funds: US stock, international stock, US bonds, and REITs.
Conclusion: Wealth Is What You Don't See
I used to think that making money was the key to building wealth.
Turns out, I was wrong.
Making money is a totally different skill than keeping money.
This quote by Morgan Housel puts it nicely:
"Wealth, in fact, is what you don’t see. It’s the cars not purchased. The diamonds not bought. The renovations postponed, the clothes forgone and the first-class upgrade declined. It’s assets in the bank that haven’t yet been converted into the stuff you see."
In other words, it doesn't matter how much you make if you can't keep it.
If I were to give advice to the teenager we're fostering, I'd tell him to start investing as early as possible. Just open up a Roth IRA with Vanguard and put your money into a target date fund. Later, if you become passionate about investing, you can make changes. Or not.
If you want to learn more about building and maintaining a portfolio, check out the Bogleheads forum (named after the founder of Vanguard, John Bogle).
In case you're curious, here are my favorite personal finance books:
