Logo
    Search

    Growing Your Wealth with a “Personal Financial System”

    enSeptember 20, 2023

    Podcast Summary

    • Understanding the structure of finances is crucial for effective financial planningThinking about finances through various lenses, from asset allocation to individual investments, helps gain a clearer picture and make informed decisions.

      Building a healthy financial ecosystem involves more than just keeping track of your money in different accounts. The story of a Redditor who defined their finances by institution, rather than by investment types or categories, highlights the importance of accurately understanding the structure of your finances. This mental model can hinder financial planning and confidence. Instead, it's crucial to think about your financial situation through various lenses, from a broad perspective like asset allocation, to more specific details like individual investments. The question of whether to invest in a 401k or the stock market, for example, reveals a disconnect in thinking about investing as opposing forces rather than interconnected parts. By considering your financial situation through multiple lenses, you can gain a clearer picture of your overall financial position and make informed decisions about your financial future.

    • Protecting and Growing WealthImplement both defense strategies like debt repayment, emergency fund, insurance and offense strategies like investing for financial stability and growth.

      Effective financial management involves both defense and offense strategies. Defense mode focuses on protecting your wealth through debt repayment, building an emergency fund, and proper insurance coverage. Once these foundational elements are in place, the energy should shift to offense mode, which is about growing your wealth through investing. Investing can take various forms, from medium-term goals (5-7 years) to long-term retirement plans and even ventures with high risk, high reward outcomes. By understanding and implementing both defense and offense strategies, you can work towards financial stability and growth.

    • Determine financial goals and timelines for effective money managementAssessing financial goals and timelines is crucial for managing personal finances effectively. Prioritize your strategy based on defense, offense, or a combination. Focus on increasing income and optimizing asset location and allocation for maximum efficiency.

      Understanding your financial goals and timelines is crucial in managing your personal finances effectively. Neglecting to assess and plan before diving into financial jargon can lead to unnecessary stress and confusion. When setting up your financial ecosystem, it's essential to determine whether you're focusing on defense, offense, or a combination of both. For instance, when starting my financial journey, I prioritized early retirement and kept my asset allocation aggressive. However, as my circumstances change, I may need to adjust my strategy. Once your financial foundation is secure, the primary focus should be on increasing your income to fuel your financial system's growth. This requires analyzing where you are in the process and committing to it, even during long periods of steady progress with minimal excitement. Asset location and allocation are also essential elements of your offense strategy, as they refer to the tax implications and distribution of your assets. By focusing on these aspects, you can optimize your financial system for maximum efficiency.

    • Understanding tax status for asset locationSmart asset location involves considering tax implications, such as holding high yield bonds in tax-advantaged accounts and understanding the distribution of pretax, tax-free, Roth, and taxable dollars in your portfolio

      The tax status of your money is a crucial aspect of asset location, which goes beyond the specific type of financial vehicle. While the vehicle matters to some extent, the tax status determines the level of flexibility you have later on. For instance, holding high yield bonds in a tax-advantaged account versus a taxable one is a smart move due to the tax implications. The distinction between traditional, Roth, or taxable accounts generally holds true for big-picture financial planning. Additionally, the location of your assets can be categorized into pretax dollars, tax-free or Roth dollars, taxable dollars, and cash. Understanding this distribution can help you identify potential imbalances in your financial portfolio, such as holding too much cash or too much money in pretax funds. This holistic perspective can lead to more informed financial decisions.

    • Understanding asset location and allocation for optimal investment strategyConsider age, investment goals, risk tolerance, tax implications, and timelines when deciding where to invest and what to invest in for optimal investment strategy.

      Understanding both your asset location and asset allocation is crucial for optimizing your investment strategy. Asset location refers to where you hold your investments, such as taxable accounts or retirement accounts, while asset allocation refers to the types and proportions of assets you invest in, like stocks, bonds, or real estate. Your age, investment goals, and risk tolerance are factors that influence both location and allocation decisions. For instance, someone approaching retirement might prioritize tax-efficient investments in their retirement accounts, while a younger investor may focus on high-growth stocks in their taxable account. It's essential to consider the tax implications and timelines when deciding where to invest specific asset classes. By visualizing your finances as a whole, you can make informed decisions that maximize your returns and minimize your taxes. Tools like Personal Capital and CoPilot can help you manage your assets across different accounts, but it's important to remember that every investor's situation is unique.

    • Managing personal finances involves calculating asset allocation and creating mini asset allocationsTo effectively manage personal finances, calculate asset allocation in a spreadsheet, create mini asset allocations, and use a flowchart to visualize money flow for tax efficiency and income sources.

      Managing your personal finances involves multiple aspects and perspectives. One of the challenges is dealing with similar investments in different accounts being treated as separate holdings by most software. To overcome this, manually calculating and tracking your asset allocation in a spreadsheet is a common solution. Another important step is creating mini asset allocations tailored to your account types based on your asset location strategy. To systematize your results, consider creating a flowchart that illustrates how money flows through your financial system. This visual representation can help ensure that your plan is moving you closer to your goals rather than further away. By reflecting on different lenses, such as tax efficiency and income sources, you can identify areas of opportunity and potential leaks in your financial plan.

    • Assess your financial situation before investingRegularly review spending to identify trends, create a spending plan, and make informed financial decisions.

      Understanding your income, expenses, and savings is crucial for making informed financial decisions. If you find yourself with excess cash each month, consider opening a Roth IRA or taxable brokerage account to put that money to work. However, before doing so, assess your asset allocation, asset location, and goal timelines. If you're unsure of your financial situation, focus on creating a spending plan to account for every dollar earned and spent. Tracking your spending regularly can help identify trends and keep you accountable. Despite the importance of a spending plan, many people overlook it, often underestimating their expenses. Regularly reviewing your spending data can provide valuable insights and help you make better financial choices.

    • Effectively managing finances with multiple accountsUse a spending tracker app for 90 days and create a budget based on actual expenses to gain clarity on your financial situation. If needed, continue tracking for another 90 days.

      Effectively managing your finances becomes increasingly complex as you accumulate multiple credit cards or accounts, making it harder to keep track of spending and understand your true expenses. Mental write-offs of unusual spending can lead to an inaccurate perception of your financial situation. To gain a clearer understanding, consider using a spending tracker app for at least 90 days and creating a budget based on your actual expenses. If you find your spending varies significantly, challenge yourself to continue tracking for another 90 days. Accepting the reality of your expenses allows you to develop a realistic investment strategy and adjust as your income grows.

    Recent Episodes from The Money with Katie Show

    BONUS: TradWives, Pop Culture, and Feminism with Caro Burke

    BONUS: TradWives, Pop Culture, and Feminism with Caro Burke
    While we’re technically in a bye week, we’re releasing a bonus episode with an unreleased portion of my conversation from last week with Caroline Burke. We cover a lot of ground, but mostly, we discuss her thoughts on the tradwife phenomenon, pop culture, and consumerism’s influence on modern motherhood. Transcripts, show notes, production credits, and more can be found at: https://moneywithkatie.com/tradwives. Learn more about your ad choices. Visit megaphone.fm/adchoices

    The Cognitive Dissonance of "Getting Rich" and Imagining a Better "American Dream"

    The Cognitive Dissonance of "Getting Rich" and Imagining a Better "American Dream"
    I recently wrote an article reflecting on the fact that an awareness of the systems you exist within can empower you to make even savvier individual decisions for yourself. But sometimes, when you’re carving out a safe, secure, full life under capitalism, the thing that’s better for you makes things worse for others. So it leads me to this question: How do we have a good relationship with money in an uncertain world, and how do we stay true to our ethical code while taking care of ourselves and our futures? I wanted to invite two people I admire—feminist writer Caroline Burke and author, artist, and bookkeeper Paco de Leon—to talk about it more.  Transcripts, show notes, production credits, and more can be found at: https://moneywithkatie.com/cognitive-dissonance-wealth. Learn more about your ad choices. Visit megaphone.fm/adchoices

    Beauty, Botox, and Bleach: The Hot Girl Hamster Wheel in 2024

    Beauty, Botox, and Bleach: The Hot Girl Hamster Wheel in 2024
    For this week's Rich Girl Roundup: After a few Rich Gals wrote in looking for an update on our Hot Girl Hamster Wheel episode, we decided to sit down again and talk through how we’ve adapted our routines since seeing through the glossy, Sephora-sponsored matrix. How have we adjusted our own routines and spending over the last two years? Rich Girl Roundup is Money with Katie's weekly segment where Katie and her Executive Producer Henah answer your burning money questions. Each month, we'll put out a call for questions on her Instagram (@moneywithkatie). New episodes every week. Transcript, show resources, production credits, and more can be found at: https://moneywithkatie.com/hot-girl-hamster-wheel-2024. Learn more about your ad choices. Visit megaphone.fm/adchoices

    Yes, You Might Be Saving *Too Much* for Retirement

    Yes, You Might Be Saving *Too Much* for Retirement
    You might be saving too much for retirement, if you aren't factoring in Social Security. But Social Security is the subject of a lot of pessimism, with many claiming "It'll run out by 2035!" The problem with this sentiment? It’s actually misleading. So what are the implications for your future, and more importantly, your financial independence number? We'll dive into the future of Social Security, how it works, and whether you’d be better off taking home those wages and investing them yourself—and you'll probably leave you feeling really good about your own progress.  Transcripts, show notes, production credits, and more can be found at: https://moneywithkatie.com/retirement-social-security. Learn more about your ad choices. Visit megaphone.fm/adchoices

    Will the Election Influence Your Finances? Our Attempted Nonpartisan Discussion to Figure It Out

    Will the Election Influence Your Finances? Our Attempted Nonpartisan Discussion to Figure It Out
    For this week's Rich Girl Roundup, Rich Humans McKynna and Jake wanted to know: "Will the election impact our finances? How much does the president actually affect our money?" So we're attempting to talk it out in the most nonpartisan way possible, and digging into some of the listener feedback we received after our episode on private equity. Rich Girl Roundup is Money with Katie's weekly segment where Katie and her Executive Producer Henah answer your burning money questions. Each month, we'll put out a call for questions on her Instagram (@moneywithkatie). New episodes every week. Transcript, show resources, production credits, and more can be found at: https://moneywithkatie.com/election. Learn more about your ad choices. Visit megaphone.fm/adchoices

    The Cost of Ambition and the Myth of "Making It"

    The Cost of Ambition and the Myth of "Making It"
    There’s an expectation on women that we should be constantly striving to “have it all.” But as the pandemic laid bare, “having it all” usually just means “doing it all,” and doing it all...just doesn't work.  Samhita Mukhopadhyay, former Executive Editor of Teen Vogue and author of The Myth of Making It: A Workplace Reckoning, joins me this week for an honest conversation about where we go from here—and what type of reckoning our workplaces and family lives face as women respond to structures that no longer make (never made?) sense. Transcripts, show notes, production credits, and more can be found at: https://moneywithkatie.com/having-it-all. Learn more about your ad choices. Visit megaphone.fm/adchoices

    Navigating Health Issues in the Workplace? Consider This

    Navigating Health Issues in the Workplace? Consider This
    On this week's Rich Girl Roundup: If you're dealing with chronic illness or mental health issues, how do you strike the best balance between work and health? What kinds of flexibility or accommodations can you ask (and advocate) for? Rich Girl Roundup is Money with Katie's weekly segment where Katie and her Executive Producer Henah answer your burning money questions. Each month, we'll put out a call for questions on her Instagram (@moneywithkatie). New episodes every week. Transcript, show resources, production credits, and more can be found at: https://moneywithkatie.com/health-work. Learn more about your ad choices. Visit megaphone.fm/adchoices

    How to Break Up with Your Financial Advisor (and What to Do Next)

    How to Break Up with Your Financial Advisor (and What to Do Next)
    We’ve all been there, roped into working with our uncle’s best friend’s financial advisor who charges a 1.5% fee for some inscrutable but seemingly important service. What do you do when you think it might be time to sever ties? And how do you reconstruct your financial life after breaking up? Reminder: We are not licensed financial professionals; this is not financial advice. Please do your own due diligence. Transcripts, show notes, production credits, and more can be found at: https://moneywithkatie.com/financial-advisor-breakup. Learn more about your ad choices. Visit megaphone.fm/adchoices

    Dating Money Red Flags, Power Moves, and Money Dates

    Dating Money Red Flags, Power Moves, and Money Dates
    On this week's Rich Girl Roundup: How do you navigate the world of dating as an aspiring Rich Person? When's the right time to bring it up? How do we make checking in about money "fun"? Rich Girl Roundup is Money with Katie's weekly segment where Katie and her Executive Producer Henah answer your burning money questions. Each month, we'll put out a call for questions on her Instagram (@moneywithkatie). New episodes every week. Reminder: This is not financial advice; we are not certified financial professionals—please do your own due diligence. Transcript, show resources, production credits, and more can be found at: https://moneywithkatie.com/dating Learn more about your ad choices. Visit megaphone.fm/adchoices

    If You’re Not in the Top 10%, the “Economy” in Headlines Isn’t Yours

    If You’re Not in the Top 10%, the “Economy” in Headlines Isn’t Yours
    You might be familiar with the phrase, "In this economy?" But it turns out, there might be more than one "economy" out there. There's a deep disconnect between what we hear about in the headlines ("The economy is great!") and our day-to-day experiences affected by wage stagnation, inflation, and high interest rates. We dig into it with the help of Mark Zandi, the chief economist at Moody's Analytics, as well as Judd Cramer, from the Harvard department of economics. Transcripts, show notes, production credits, and more can be found at: https://moneywithkatie.com/economy-headlines. Learn more about your ad choices. Visit megaphone.fm/adchoices

    Related Episodes

    Ep20: It's Time To Evolve! - Part 6

    Ep20: It's Time To Evolve! - Part 6

    In this episode of Money Minds by Moné, we conclude our Evolve series by unlocking how to be mentally and physically healthy so that we can reach our success goals. Listen in as I give you tips on things you can do, starting today, that will positively impact you mentally and physically. Join us on this journey of evolving into a better version of ourselves!

    Ep11: Starting A New Journey

    Ep11: Starting A New Journey

    In this episode of Money Minds by Moné, we recapped our last ten episodes. Because I revealed that the last ten episodes were the completion of Level 1: The Foundational Principles for Finances! We reminisced about the importance of ditching our old mindset and adopting wisdom and strategy toward money. We wrapped up by declaring that we can rewire our minds to grow our money, starting, today! Join me on our journey to financial freedom!

    Ep15: It's Time To Evolve! - Part 1

    Ep15: It's Time To Evolve! - Part 1

    In this episode of Money Minds by Moné, we start our evolution into the best version of ourselves! And what better way to kick off this series than with Discipline? Yes, discipline. Discipline is the glue that will hold us on our journey when times get tough. In this episode, we unlock the blueprint of discipline and we begin an exercise that will help us to chart our evolve journey. Join me as we chart how we will attain Ourselves 2.0 starting with discipline!

    Ep10: Trickle Down or Debt Consolidation Loan

    Ep10: Trickle Down or Debt Consolidation Loan

    In this episode of Money Minds by Moné, we dig deeper into debt payoff and whether we should consider taking out a Debt Consolidation Loan or paying down debt the "regular" way- which I call the Trickle-Down way. But before I unlock those gems, we learn how to shift our thinking to a wealthy mindset, so that we can make the best choice!