Personal Finance Course
Deal with as few financial institutions as possible; try to limit it to:
- local bank
- investment programs offered by employer -- 401(k), TSPs
- one-stop shopping for everything else: I prefer Schwab -- see below.
- necessary credit cards
There are three components to a personal finance plan:
- record keeping
- an actionable finance plan (planned allocation of income and expenses)
- monthly expenses: tracking actual expenses
- cash management (we used to call this "savings and checking accounts")
- investment plan
Minimize fees / expenses:
- in today's market, one should be able to find everything one needs without any fees or expenses
- if you're being charged for something, take another look
- exceptions
- annual tax preparation
Leave it to the professionals:
- I doubt (m)any of us can max out our company retirement programs; individual retirement accounts
- IRAs: professionally managed
- only after maxing out these options, then does one begin to think of investing on one's own
Life insurance
- I took out permanent life insurance (two flavors: whole vs universal; see below) when I was young; turned out to be a great decision but I did it as a way of forced savings/investment
- however, no one recommends permanent life insurance as an investment vehicle -- so, again for me, it was a way of forced savings (and early forced investment which turned out for the best) -- but not a recommendation in general.
- not a recommendation but what we did:
- as parents
- we insured ourselves to the max we thought reasonable
- we took out moderately good whole life insurance programs on our children when they were born
- incredibly inexpensive if bought within first two years of life; premiums don't increase; and option to add insurance later on possible; younger the age when first bought, the lower the premiums, and again, the premiums don't increase;
- we took out basic, but not great, whole life insurance programs on our grandchildren (for same reasons as above)
- as young adults, our children and grandchildren have at least basic life insurance;
- whether to buy more as they grow older is case specific and their choice
- but for now, not an additional expense
- whole life vs universal insurance.
Comments
- IRAs? Establish only Roth IRAs; no traditional IRAs
The Ideal Schwab Account
Two portfolios within same account:
- cash management portfolio (checking, savings, and record-keeping)
- investment portfolio
Cash management portfolio
- a Schwab checking account
- Schwab includes a debit card; personal choice: I didn’t activate; won’t use a debit card;
- limit $500 for a college student
- limit $1,000 for most others
- a money market fund (MMF) sub-account
- in lieu of a standard savings account
- a place to "park" money until invested or needed for expenses
- a bond fund
- not recommended for cash management
- optional; I generally prefer not using bonds for cash management
- an account aggregator
- Rocket Money heavily advertises their app to do this
- an app that links to all outside accounts like magazine subscriptions, etc, for easier management;
- very, very optional; Schwab broker will be able to help;
Investment portfolio with the following sub-accounts:
- at least one margin account (a typical brokerage account)
- max: ten individual tickers (stocks)
- least important but standard in a Schwab account
- ETF sub-accounts: at least the following three; no more than five:
- SCHD
- SCHB
- SCHG
- a self-directed IRA sub account in which multiple investment vehicles can be placed;
- self-directed but professionally managed
- only Roth IRAs
- education fund: 529s
- investment portfolio professionally managed — one of either:
- Schwab Intelligent Portfolios:
- free; minimum: $5,000
- Schwab Intelligent Portfolios Premium:
- one-time set-up fee: $300
- monthly advisory fee: $30 / month
