Still Need a Written Personal Financial Plan? Here…Use Mine!

I’ve mentioned a bunch of times on the blog that I went from totally and utterly financially clueless to managing all of my own finances in about a month or so. Now I even have my own written personal financial plan.

Being honest, this was not my expectation when I began my financial education. Managing one’s own finances seemed way too complex and time-sucking for a simple mortal like me.

My goal was more modest…to understand and gain more control over my personal financial life. I wanted to start making smart decisions instead of dumb ones.

As I went along and read a number of books on personal finance and investing, I found a common theme. Each source had slightly differing opinions about this or that, but they all discussed the use of a written personal financial plan. 

A personal financial plan is the guide that leads you to your financial goals

Without one, you are making guesses, however educated, at each step. With a written financial plan, you have something to refer back to in a difficult spot to make the right decision without the emotions of the present clouding things.

Needless to say, I strongly believe that a written financial plan is a necessary, non-negotiable step for anyone seeking financial well-being. 

It’s shocking therefore that in a recent poll, the White Coat Investor found that nearly 66% of his readership still did not have a written plan. The overall percentage of doctors without a written financial plan is probably way higher than even that!

With all of that said, I am sharing my unedited, full written personal financial plan with you here. I divided it up into different sections with some commentary in between. Enjoy!

Selenid and Jordan’s Financial Plan

Financial Priority List

1. Pay down high interest loans/debt (>8%) Done! (as of 10/2020)
2. Establish emergency fund (3-6 month’s expenses)
3. Maximize Voluntary Defined Contribution (VDC) retirement account
4. Invest in vetted real estate (cash flowing rentals w/ cash-on-cash ratio >10%)
5. Contribute to 529 college savings account
6. Maximize 457(b) retirement account
7. Pay down medium interest loans (6-8%)
8. Contribute to back door/spousal Roth IRA (every January if contributing – 2 steps)
9. Contribute to retirement taxable account
10. Pay extra to mortgage
11. Pay down low interest loans (<3%)
12. Donate to charity with equity dividends

So, this first section is a priority list of where we want our saved money to go.

Paying off high interest debt, like credit card debt, is a guaranteed >8% return. Few, if any, investments can guarantee that return so always attack high-interest debt first. 

An emergency fund should always be a high priority as well, even before things like 401(k) contributions in my opinion. Too many physicians found out during COVID that they had little to nothing to fall back on when their salary was eliminated or reduced.

My employer offers a Voluntary Defined Contribution (VDC) retirement plan. I will always max this out (capped at 8% of my annual salary) because that will be met with an employer contribution of 6% of my salary up to $285,000. If you have a match, that is free money. Basically, it’s part of your contract. Don’t leave free money on the table because you don’t contribute enough.

Next, we have decided to invest in cash flowing real estate investments. This is another post in itself so I won’t get into detail but we are using this investment vehicle as an accelerant to our wealth building.

From there on, we plan to invest in a variety of tax protected accounts followed by a taxable investment account. The order of some of the items on this list can certainly be debated, but this is what my wife and I agreed upon.

General Financial Guidelines

• Save at least 30% of income every year (includes debt payments)
• Review and square budget on the first of every month beginning 7/1/2020
• We will calculate our net worth every 2 months
• We will calculate our savings rate and our total return and real return each year (1/1)
• We will use our credit card only once balance is at $0. At that point, we will use it for everyday purchases and will pay it off in full every month
• We will not use credit to purchase automobiles, appliances, or vacations
• We will use credit only for mortgages, and perhaps for safe, fixed-income investments starting in 2030

This next section lists the general “rules” of our financial plan. These are things that we basically agree that we “have to” do. There is no argument when it comes to these items. We do them without thinking.

Specific Financial Goals

• Pay off consumer debt in 2 years (2022)
• Pay off student debt in 5 years (2025)
• We will be worth $1 million in 12 years (2033)
• Save $40,000 to buy car 1 in 3 years (2023), save $40,000 to buy car 2 in 6 years (2026)
• Save enough to cash flow at least $250,000 in retirement (goal retirement at least 2045)
  • This will be via hybrid approach using equity and real estate investing
  • Save $1-2 million in equities for 4% yearly withdrawal of ~$71,000
  • Cash flow >$200,000 from real estate investments in 5 years (2025)
• Save $400,000 for Samuel/Emery college
• Save $250,000 for renovation/down payment new home
• The mortgage on the home we are living in will be paid off when we retire

This section delineates our specific financial goals

I am a huge believer in goal-setting. Goals should be specific and should be BIG. Once you have a goal, all that is left to do is plot the course. Without a goal, you’ll never arrive at one.

Our current savings rate is 41% but we aim to always keep it >30% at least.

We would like to have a yearly cash flow of >$250,000 when retiring. This is a somewhat arbitrary amount but we plan to have the ability to retire early, before our kids are in college perhaps. And why not set big goals like I said above.

We plan to cash flow >$200,000 from real estate investments therefore we need to cash flow >$50,000 from our equity withdrawals. Using the 4% rule of yearly retirement withdrawals, $1-2 million in equity investments will do.

General Investment Plans

• Our primary equity investment vehicles will be stock index mutual funds and bond index mutual funds, preferably within tax-sheltered accounts
  • These will primarily be funded through Jordan’s income
  • We will strive to minimize the effects of taxes and expenses on our investment returns
  • In general, we will favor passively managed investments over actively managed investments
• Our primary real estate investment vehicle will be cash flowing rental investment properties with goal 10% cash-on-cash return to reach our real estate goals
  • This will primarily be funded by Selenid’s income, Jordan’s bonus, and monthly surplus
  • All cash flow from real estate will be re-invested in real estate
• We will strive to achieve a real return of at least 6% per year, averaged over our investment lifetime
• In a market downturn or bear market, we will not panic and sell low; however, we will try to use any truly extra cash (not emergency fund, etc.) to rebalance by buying more stock (or other depressed equity)
• We will tax loss harvest any losses >$3000 each year
• We will create a will in 2021
• Once we are 50 years old or our net worth is >$1 million, we will meet with an estate planning attorney

So now that we have our goals, here come some general guidelines for our investment strategies

Again, we will use a hybrid approach with both equity and real estate investing.

For equity investing, broadly diversified low-cost index funds will form the foundation. For real estate investing, cash flowing rental properties with >10% cash-on-cash returns will be our primary vehicle.

Note that we wrote instructions for what to do when a bear market hits…basically, do nothing. Seems simple enough before you have a lot of skin in the game but can definitely be harder when you’re losing your actual money. But remember, we’re long term investors, not speculators. Long-term, the overall stock market is a safe investment. No need to fret over the short term.

Equity Asset Allocations

• Maintain an 80/20 stock/bond allocation, decreasing progressively to at least 60/40 by retirement
• Our primary asset classes will be domestic stock mutual funds, international stock mutual funds, and US Government bond mutual funds
• Our equity allocation will include domestic, international, and emerging market stocks and large-cap, mid-cap, and small/micro-cap stocks.
  • We will also allocate a percentage to REITs and other alternative asset classes if they promise diversification benefits and solid long-term returns
  • For the most part, these will be broad total market index funds, but they may be supplemented by small amounts of value index funds as needed to maintain a slight value tilt.
• Our bond allocation will be split 50/50 between nominal bonds and inflation-indexed bonds in tax-sheltered accounts as much as possible.
  • We will use the G fund as much as possible
• Our pre-2020 Roth IRAs and 457 will remain target retirement funds and NOT count towards overall asset allocation
• Our emergency fund will be 20/80 stock/bond after accumulating in savings account for 1 year (July 2021) and will not count towards our overall asset allocation
• Rebalance 1x each year (July) by buying more stocks/bonds as dictated to maintain goal allocation

Initial Asset Allocation:

• 40% US Stocks
• 35% International Stocks
• 5% REITs
• 10% US Bonds
• 10% TIPS (Inflation indexed bonds)

Ok, so now some more specifics regarding equity investments. Here, we list our overall stock:bond asset allocation. We also delineate our stock allocations and bond allocations.

For stocks, we are adopting a slight small value tilt as small value stocks have over the long run outperformed others (although this year they have done horribly). But again, we are not investing for the short term.

We also dictate that our pre-2020 savings/investments will not count towards this asset allocation. The reason we did this is so that we are free to use this money as down payment for our first investment property.

Lastly, we will re-balance back to our pre-determined asset allocation on a yearly basis.

Future Changes

• Any change to our financial goals must be agreed upon by both Jordan and Selenid after careful consideration of short and long term benefits and risks
• Any change to these investment percentages or change in funds used will require a 3 month waiting period
• Development of any new asset class or new funds allowing us to invest in an asset class such as international small or international value stocks will require a 3 month waiting period prior to transferring funds

This may actually be the most important part of the whole financial plan.

Here, we state that we will not make any changes to this plan without the agreement of both me and my wife.

We also institute a 3 month waiting period before any changes can be made. Any new investment vehicle that is worthwhile will still be there and be attractive in 3 months. Remember, the point of a written financial plan is to have a guide towards your financial goals. It’s not doing that if it’s changing every week.

Well, there you have it!

With this written financial plan, my wife and I laid out our goals as well as general and specific directions for getting there. That’s the hard part. 

Now, all that we have to do is implement the plan in an emotionless and mindless fashion and we can rest assured that we will reach our goals.

For instance, yesterday I had to make my VDC retirement account selections. I just referred back to my financial plan, chose broadly diversified low-cost funds in my set asset allocation and was done without breaking a sweat or paying someone for possibly good but probably suspect advice.

If you don’t have a written financial plan, I highly recommend working to start one. Just keep learning and write a little bit each night. Soon enough, you will have a full plan. It doesn’t have to be perfect the first time around. I would say that we tinkered with ours for a few weeks before it got to this stable form. You can even just use mine as a guide!

Get moving towards financial well-being today!

1. Join the PPS Facebook group to network and learn from likeminded individuals!
2. Calculate how much you will need to retire using a simple equation
3. Learn about stress-free stock market investing
4. Let me show you why real estate investing is a wealth accelerant

– Jordan

What do you think? Do you agree with my written financial plan? What would you change? Do you have a written personal financial plan? What are your goals? Leave a comment below!