6 Smart Personal Financial Moves I've Made

I recently wrote about some of my own personal finance missteps. The goal here is to highlight things that finance professionals struggle with as well and to show no one will get everything right all the time. I think it is also important to see real world examples of the things we have done that have worked out a little better and that we have put our proverbial money where our mouth is. 1. Began investing early I was just shy of turning 24 when I got my first “real job”, meaning I had a salary, benefits and access to a 401k plan. It was an entry level job and I lived in a lower cost area so the salary was fairly low (about $20,000) but I was young, single, and had a roommate (my rent was only $250 per month) so I was able to get by. That said, I didn’t have a ton of discretionary cash, but I knew it was important to start with my long term savings. I was hoping that if I could bite the bullet right away, I would get used to not having my full paycheck available for spending. I did the minimum of 6% so that I could get my full employer match which was an additional 3 or 4%. I know that 10% of $20,000 doesn’t seem like a lot and many might think it’s not even worth it.  No doubt, I was not on the fast track to become a 401k millionaire at that pace. But you have to start somewhere. The key is establishing the behavior of systematic investing. I also knew I had 40 years for this to grow and didn’t plan on staying at $20,000 forever. Sure enough, within five years after a transfer, promotions, raises, etc,, I was making a wage where I was starting to make more sizeable contributions. As the years have gone on our investments have continued to grow and put us in a decent position for retirement. We still have a few years yet to go and can continue making contributions but had we waited until we started making more money where it felt more comfortable to start investing we would not be in the position we are today.   2.  Continually increased the amount we invested As I mentioned above, I began my investing career doing the minimum 401k contribution to get my employer match. I had read about the philosophy of giving yourself a raise first before increasing your discretionary spending and thought this made sense. So, any time I got a raise in pay, I increased my contribution 1%. Soon enough, I was contributing 10% and with a bigger base of pay I was making more sizeable contributions. As time went on, both my wife and I continued with this mind set and did get to the point where we were maxing out our annual contributions. Depending upon your income, you may not realistically be able to max out starting day one. That is ok. You have a lot of time and if you get started and put a focus on saving more as your income grows, you can still make really good progress on your long term savings. We also took advantage of the ESPP that was available through my wife’s employer. By continually increasing the amount you invest you may eventually max out retirement plan contributions. That may let you venture into other areas of investing like a taxable account which can provide tax flexibility as you enter retirement. 3. Purchased real estate I spent the first few years of my working career renting an apartment as many of us do. I was sharing a two bedroom apartment with a roommate and when he got married and moved out I decided it was time for me to venture out and get something more permanent as well. I knew this day was coming so I had been stashing away a little bit here and there but didn’t have much for a down payment. This was still well before the financial crisis of the late 2000’s so lending requirements were a little easier and you didn’t need as much for a down payment. Real estate prices had been growing at a more reasonable rate so with a minimal downpayment, less than $5000, I was able to get into a little two bedroom townhouse. I experienced some major life milestones in that townhouse. I was 28 when I bought the property and had many of my gateway to real adulthood moments there. My career really began to take shape, I got engaged, married and we were expecting our first child when we decided it was time to seek out something bigger. I will always have fond memories of that place, but it also turned out to be a really good financial move. While living there, real estate prices went up so when we sold it we were able to pay off all remaining credit card debts, if you remember those from the previous blog, and have enough for a solid down payment. We would never have been able to save up that much cash for a down payment without owning that first townhouse. 4.  Stayed calm when markets didn’t My investing career began in the mid 90’s when things were pretty good. The economy was humming and markets were going full steam ahead. From 1995 through 1999 the S&P 500 had annual returns ranging from 19-34%. That is a great five year run. I just wish I would have had a more sizeable balance to take advantage of those gains. But then came the tech bubble crash of 2000-2002 and markets plummeted with three straight years of double digit losses. A handful of years later the market collapsed again as part of the financial crisis. There have been a number of other short term downturns along the way as well including drops in 2020 fueled by Coronavirus and in 2022 by rising interest rates. Both the tech bubble and financial crisis losses were very tough for investors to go through. In January 2000, the S&P 500 was at 1469, and ten years later it was only at 1116, a loss of 24%. It took until January of 2013 for investors to get back to even. 13 years of treading water led many investors to bail on participating in the market. “Investing is too risky”, and “I’m better just holding cash” were among the statements I remember hearing during this time. Depending on where you were with your investing lifecycle during that time a little panic was understandable. Those in retirement or near retirement saw their life savings erode resulting in stress over whether those savings were now going to be sufficient. But for those who are investing for the long term it can pay off to stay invested. That abysmal stretch of market performance largely coincided with my 30’s. I had a fairly high risk tolerance, was confident that at some point things would turn around, and I had time on my side. While the stock market struggled I continued with my 401k contributions. My contributions were buying more shares of funds due to the lower prices. As a result, when things did turn around there was more in the account to take advantage of the upswing. I even began dabbling in individual stocks for the first time in early 2009 during the depths of the financial crisis. Market timing is extremely difficult, and I certainly did not nail my timing perfectly either. Many of those individual holdings continued to fall but eventually turned around and continued growing for years to come. For those who hung in there, it did pay off. From the 1426 level in January 2013, the S&P went on an extended rally. By the start of 2024, the S&P was at 4770, a 234% increase. When markets start in a downward spiral it can get scary. No one knows how long a downward move will last or just how far down things will go. No one knows if the market has a down day if this is the beginning of a bigger, longer trend. Likewise, no one knows the exact date it is safe to start investing again. Instead of trying to jump in and out of the market it is usually easier and better to ride it out if you believe things will bounce back and have a long term investing horizon. Regardless, you should be managing the overall risk level of your investments and be aware of any investments that might be more prone to large swings in adverse conditions. 5. Don’t rely on bonus money for living expenses Both my wife and I eventually got to a point in our careers where we started earning regular annual bonuses as part of our compensation. Often, a bonus is a stated part of your total compensation package, usually in terms of a target percentage of your annual salary. For example, you have a salary of $150,000 with a 10% bonus target meaning the target is to receive a $15,000 bonus.   If you have this as part of your compensation, the big question is how do you treat this extra income? The key concept here though is that the bonus amount is a target. That target is usually dependent upon a combination of company financial results and the employee’s own performance. As a result, the actual amount of the bonus may differ from that calculated target, either up or down, and in some cases, there may be no bonus at all. Some people treat the bonus as a given assuming that $15,000 will be there and factor it into their budgets for monthly expenses or a larger lump sum item. The risk with this approach is that if the bonus is less than anticipated you can be left having more expenses than income or not being able to payoff that expensive item that might be sitting on a credit card. We made a decision early on to treat any income from a bonus as just that, bonus money. We make no plans for what we might spend it on until it is in our bank account. That forces us to keep our living expenses within the range of our salaries. Once, or if, a bonus does hit then we get to have a little fun and brainstorm the different items we may want to target with this extra income. The key benefit with this approach is not having to deal with that ‘oh no’ moment if that bonus doesn’t come in at the amount you needed.   6. Track spending My wife may not always see eye to eye with me that this has been a strength as I just may possibly drive her a bit nuts in my fervor for expense tracking/budgeting. She may have a point, but it has served us well to understand where our money goes and if we are spending too much in a given area and need to spend less in another. Setting a budget without tracking your spending defeats the purpose of said budget. A budget is just a target for how much to spend in a given area. Tracking your spending is critical to determine how you are doing against your budget or if your budget even makes sense. Some people have a pretty solid feel for where their money goes while others don’t. For those that don’t, I recommend looking at a couple of months of their actual spending and putting into buckets or categories that make sense. There is no one approach to this. The level of detail and the categories you track will be different for everyone. The key is that it makes sense for you and provides value to you. Once you know where you are spending your money you can see where you are spending more than you realize and can make decisions on what to do differently. For example, if you need to save more for retirement, it isn’t good enough to just say you’ll save $500 more per month. If you increase your 401k contributions by this amount but now your expenses outstrip what’s in your bank account resulting in credit card debt, you haven’t really solved the issue. By tracking your spending, you may realize there are areas you are spending far more than you realized and you can make an informed decision on the changes that need to be made. Once you set spending targets based on realistic actual spending you can track your actual spending through the month to see if you need to pump the brakes in a given area. Waiting until We have done this throughout our marriage to make sure we can establish targets for short term spending that make sure we have the funds needed to meet our long term goals.   That is some insight into some of the things I've done that have worked for me in terms of my personal finances. Note that these aren't fancy financial planning tricks. These are basic pieces of advice that anyone can follow. Here is the thing with personal finances, being successful is about making sound, smart financial decisions on a consistent, ongoing basis. Financial planning strategies then come into play to help maximize a person's financial position and geared towards accomplishing specific financial related goals. That wraps up this two part series on the lowlights and highlights of my personal financial decisions and habits. Hopefully, you are trying the best you can to make smart financial moves on a continual basis. The reality, though, is no one makes the right financial move every time. If you have overall good financial habits and make the periodic mistake, don’t beat yourself up too bad. If you slip, acknowledge it and try to learn from it. Hopefully any mistakes are small in scope and you stay on track with the big stuff.     th St. Financial Inc. (“7th St. Financial”) is a registered investment adviser offering advisory services in the State of Minnesota and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. The presence of this website on the Internet shall not be directly or indirectly interpreted as a solicitation of investment advisory services to persons of another jurisdiction unless otherwise permitted by statute. 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