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- I consistently advise my clients who are into financial planning to maintain an emergency fund, yet I personally do not keep any cash readily available.
- I have tilted my investment portfolio significantly towards high-risk assets.
- Despite not adhering to all my personal guidelines, I consistently set aside a minimum of 25% of my earnings.
As a
financial planner
As someone who runs a wealth management company, my aim is to guarantee our clients have the best chance of reaching their long-term objectives.
This typically involves offering precise, concrete recommendations about what actions they should take (and which ones to steer clear of). Having collaborated with numerous clients, we’ve developed particular guidelines and rules of thumb that we know help enhance
net worth
and wealth … so much so that I follow these rules myself.
Most of the time, anyway. While I follow my own advice nine out of 10 times, there are some big rules that
financial advisors
give all the time that I happily break — and one that I follow without exception.
1. I don’t keep an emergency fund
Our general guideline for clients is to keep three to six months’ worth of expenses in cash on hand as an
emergency fund
.
We recommend keeping that money in a highly liquid vehicle, like a
high-yield savings account
Or a money market account. The main focus for your emergency fund should be liquidity and security, rather than earnings.
However, I’m nearly allergic to having cash readily accessible! I prefer to direct most of my disposable income elsewhere.
investments
For sustained expansion, or reinvesting into my enterprise to boost earnings. I typically don’t maintain significant liquidity unless it’s designated for particular purposes within the coming several months.
I am willing to face the possibility of having insufficient funds readily available due to several factors. Primarily, this stems from my inclination towards taking risks. Additionally, I maintain confidence in my circumstances despite not maintaining an official contingency reserve because:
-
I own my business, so have more control over my income than someone who works for one employer.
Despite the decline in revenue, it’s improbable that my individual earnings would plummet suddenly like they might if I were employed by a firm with the authority to dismiss me without notice. -
My wife and I do have some cash in the bank.
It’s set aside for various savings goals connected to future spending (like a travel fund and a “date night” fund). If an emergency comes up, we can pull from these cash pools and then work to pay them back later. -
I can easily liquidate my assets, such as
I Bonds
.
In a genuine crisis, I could raise money rather swiftly, even though I would sacrifice some of the interest I might have accrued otherwise.
2. I adopt a more aggressive investment strategy for my age compared to what conventional wisdom recommends.
If you search online for “what should my stock-to-bond allocation be,” you may come across a common guideline recommending that you deduct your age from 100 to determine the portion of your investment portfolio that should remain in stocks.
At my age of 44, I’d be looking at a portfolio split similar to a 60/40 ratio based on these guidelines. The majority of our clientele, who fall within the same age range of their 30s and 40s, typically allocate their investments between a conservative mix of 60% bonds and 40% stocks all the way up to an aggressive allocation of 80% equities and 20% fixed-income securities.
Nonetheless, my investment portfolio follows a 90/10 asset allocation. My comprehension of market risk and the effects of market declines is quite sophisticated. As such, I am able to tolerate higher risks since I firmly believe that I can remain resilient during predictable market fluctuations and dips.
I made the choice to optimize for as much growth as possible, because I also know I still have a relatively long timeline between now and when I plan to start tapping portions of my portfolio. That means I not only have the risk tolerance for a more aggressive allocation but also the capacity to take the risk as I have time to ride out the short-term market highs and lows.
The rule I
refuse
To achieve: Set aside (at minimum) 25% of total earnings
I encourage my financial planning clients to focus on saving and investing. I apply this principle to my own personal finances as well. The guideline I consistently follow, regardless of circumstances, is to allocate at least 25% of my total earnings toward investment tools aimed at long-term expansion. This encompasses a blend of different approaches.
401(k)
accounts,
IRAs
, along with taxable brokerage accounts.
The top priority for me when handling finances is to build wealth that can provide support for myself and my family currently.
and
far ahead in time. My spouse and I aim to secure our future finances and also offer our daughter greater financial stability compared to what we experienced growing up.
I have several options for achieving this objective, but the method I trust the most—and the one I can best manage—is determining what portion of our family’s earnings we allocate towards increasing our wealth through investments in our portfolio.
Allocating 25% of our household income to savings is a must for us. My spouse and I structure our budget based on this dedication to saving at this specific rate, with the remainder available for spending after we meet our savings goal.
Most rules are there for a reason. They help guide us, keep us (or others) safe, and help us understand how to navigate what could otherwise be a chaotic mess with no reliable way to know what to do in certain situations.
But rules can also unnecessarily limit us or slow our progress toward our specific goals. Context always matters, and helps inform when we need to toe the line — and when we should feel free to confidently break the rules.
Finding a financial advisor
It doesn’t have to be complicated. With SmartAsset’s free tool, you can connect with up to three fiduciary financial advisors who cover your region within just a few minutes. All these advisors have undergone scrutiny from SmartAsset and adhere to a fiduciary standard, ensuring they prioritize your interests.
Start your search now.
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