20230115

Five weeks since I wrote. In that time, I have had no free time. Actually, that is kind of what I do want to write about today.

I have started simplifying my personal financial life. I think I have reached my first level towards something resembling a goal. By the end of March, I will have closed three accounts that no longer fit any objective that I have. This will result in the following:

• Two retirement accounts
• Two brokerage accounts
• Two savings accounts
• Two checking accounts
• Two debit cards

The reason I created two of everything is to avoid situations that I experienced during the Great Financial Crisis. During the 2008 and 2009 years, one checking account was suspended, two credit cards were closed, and one brokerage was in jeopardy of closing. Not all of those happened at once, but the repetition emphasized that having one location for anything can create an issue in extreme circumstances.

The two retirement accounts are one 401 (k) plan from my current employer plus an IRA holding retirement assets from a previous employer. Simple. When I do retire, this will necessarily be simplified to one account.

The two brokerage accounts have different funding sources. One is a collection of inheritances and bonuses. These bonuses arise from cash back from cards or other similar activities. The second is for excess savings. This doesn’t happen every month, but there are times when life goes smoothly, and I have a few dollars left over at the end of the month. The 401(k) sucks up most of my savings because I definitely want to capture the match from my employer. Given my age and my participation in the catch-up plan, it stresses my monthly budget enough that I cannot guarantee there are any other funds available for additional savings.

The two savings accounts are for emergency needs. For now, my largest requirement for these funds is loss of employment. Because of the Federal Reserve raising rates, I have been increasing the targeted amount in these two accounts. In November 2021, I was at six months of expenses. As the Fed has been raising rates, I have been increasing the targeted amount to twelve months. That has always felt excessive, but I am constantly reminding myself that I am not young enough to not experience age discrimination. One of these accounts is at my local credit union and the other is in a DeFi protocol on the Ethereum blockchain. This is the one pair of accounts that is the most radically different and separated.

There are two checking accounts — one is for monthly payments on a car and the other is for paying down credit cards. I am currently only using two credit cards — one for everyday expenses like groceries and fuel. This is the one that generates cash back rewards. The other is for anything online and generates miles for travel. These two checking accounts are at different institutions — one is my local credit union, and the other is an online bank.

The two debit cards also have different purposes. The first and most used is for dining out while the second is for gifts and upgrading computers. The first is a treat us type of expense while the second is a type of targeted savings account where gifts for birthdays and holidays are saved for throughout the year.

I balance all of these accounts weekly, and it has recently taken less than one hour to accomplish. This is remarkable because it used to be four hours. As Spring approaches, I expect to find ample things to fill those open hours.

As I sit in a coffee shop waiting, I had planned to write a separate post about the two-fund strategy. I have enough time that I’ll write about it now.

I have been following Financial Tortoise on YouTube. Tae has a video where he talks about multi-fund strategies from the two-fund to the six-fund. It seems to me the two-fund strategy fits our situation because of the Fed’s plan for interest rates. Fed Funds are set to be in a range of 4.25% to 4.50%. The Fed board has announced they do not expect this rate to rise above 5.00%. Given we are near the terminal rate, I am targeting the two funds of VTI and BND. VTI is the Vanguard Total Equity Market ETF and BND is the Vanguard Total Bond Market ETF. My 401(k) has a total bond fund but only an S&P 500 Index fund. This will have to do. Because of my age, I have an allocation target of 75% equity and 25% fixed income.

This fits in with the simplification actions of the accounts. Every account is aspiring to a dollar cost average (DCA) funding mechanism. This is built into the 401(k), but it requires personal discipline for the two brokerage accounts. By using DCA, timing is taken out of the investment process. There is a side benefit of purchasing a larger number of shares when prices are relatively low and fewer shares when prices are relatively high. This forces a lower cost basis and can amplify the account value when prices rise. Re-balancing takes place with each purchase as the required proportion into each fund is easily calculated.

I really hope this leads to a simplification of my annual taxes. The size of the return has been growing over the past decade causing the annual process to expand in time required to complete. I won’t notice this year of course, but I do expect an improvement for next year. I expect at some time to become resentful of the necessity of filing my own taxes. All of my income and withholding is already reported to the IRS. I do not understand the need to generate another version of the same data. Is this their version of redundancy? I don’t think they consider the amount of time and money is expended to complete the return each year.

What’s next? I’m not sure. I covered most of the ideas I had for the next two posts. Maybe the next one will be the first weekend in February. I should have the majority of tax statements and will have time to start the tax return. Maybe I will update my rant on the time it took to get that far.