Serenity now: Beachman's financial plan
HowTos: How I constructed and execute my personal finance and early retirement plan
I first wrote about my Beachman’s financial plan in May 2022.
We were just done with the Q1 earnings season and investors started realizing that interest rate hikes were changing the macro landscape and forward fortunes of companies we owned. The SP500 had already fallen -14% YTD and was threatening to go lower. Panic and fear started setting in quickly.
Interestingly, almost 3 years later feels eerily similar. There is a significant increase in doubt and uncertainty among investors and traders alike. People are worried about their futures, their portfolios and looking for answers and information.
And I will be honest, I am a little worried too about the next 12-15 months. However, every time, concerns start creeping up in my mind, I go back to my financial plan construct and peace sets back in.
My financial plan always gives me…Serenity now!
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About six years ago, I found myself giving my then 29-year old cousin some financial advice. He asked me several basic questions on how to save, invest etc. Below, is what I shared with him then.
P.S. I recently had a follow up chat with him and his bride. He still has the little sticky note with the diagram below in his wallet. He is well on his way to putting many of these elements in place for his family’s financial security.
Beachman's financial plan
I have been managing my personal finances since the age of 24. I learned from my father, a few good books, some of my more experienced friends and a constant urge to read, listen and watch informative, educative financial management content. There is a lot of good, free content out there and there certainly is a bunch of crap too. The challenge is finding the nuggets and avoiding the not-so-good stuff.
My graduate MBA degree as well as decades in business strategy, product engineering and new markets development helped improve my understanding at both the micro and macro levels.
I think about my personal finances in terms of the diagram depicted below.
Each part of this diagram is important in its own way. It is strongly advised to establish the outer and the lower layers first before taking on the higher, inner layers in the pyramid. This ensures that one has a strong base upon which to build, learn and manage risk.
Many people will skip the foundational elements in the thirst (FOMO) for juicy investing returns. This erodes their ability to handle volatility when it hits their portfolio and they lose sleep at night, they make hasty erroneous choices and may even lose interest and hope. I, too, have made some of these mistakes in my early investing days and lost several thousands of $ making ill-informed decisions. It left me disappointed in myself and I lost interest in taking an active role in investing…for many years. Today, I rue not only those faulty investments, but also the loss of compounding returns if I had not walked away from investing in disgust.
My life goals have always centered around keeping my family safe, healthy and happy, building enough wealth to fund my family’s current and future needs, ensuring our ability to weather a financial storm, if it hits us and creating a financial and legal structure that will continue to serve my family when I die.
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The key elements in my financial plan depicted above:
I track our family finances using Quicken. It creates weekly/monthly habits of logging income and expenses, tracking bills and payments, setting up and sticking to budgets. All these actions result in a deeper, accurate awareness of our financial situation at all times.
Investing in your health is self-explanatory…staying active, working out, eating healthy. Actions that one takes at a younger age will pay dividends later in life as the years take their toll on our bodies.
Setting up a living will is easy these days. Establishing an estate trust costs a little more in legal fees, but tremendously simplifies the process and reduces the cost to your heirs when you pass away. Do it for your loved ones.
Apart from home and automobile insurance, we have a whole life insurance policy that covers me and a term life insurance policy covering my wife.
We have about 3-5 years worth of annual expenses sitting in a savings account that we can dip into if the markets go to shit. This is the best sleep-well-at-night medicine for an early-retiree like me.
Our real estate holdings include our main home and a beachside vacation home. Both these were bought when the real estate market in those locations were depressed. Our mortgage rates are fixed and reasonable. My wife and I intend to move to the beach home in a few years.
Throughout our careers, we saved and invested, often and a lot. Our base savings target was a minimum 25% of our income. Some years it was higher and other years it was lower. But socking away at least 25% of our earnings every year resulted in a steady growth of our investment portfolio that enabled my early retirement at the age of 50.
I love the F.I.R.E (financially independent retire early) movement and learned much from their teachings. We never embraced all of their concepts (my wife kept me in check…LOL), but we found a good balance between living a good life (travel, entertainment etc.) and saving as much as we could regularly.
Usually about 80-90% of our investments are in long term, high conviction holdings. This allows me to invest the remaining 10-20% of our portfolio in more risky, potentially-higher return stuff such as emerging tech companies, crypto, short term trades etc.
Conclusion
So that’s Beachman’s financial plan in a nutshell.
As I mentioned above, each portion of this plan has a role to play in my family’s financial future. Other than the top of the pyramid (riskier investments), nothing should be skipped or ignored.
If you are just starting out on this journey, at first glance, it might seem overwhelming…too many things to get in place….so many financial habits to inculcate.
I did not…could not…do all of this at once. It took many years to establish this plan and its various elements. And it evolves and shifts over time as our lives enter new phases. For example, I am now reviewing my entire financial stack to make necessary tweaks as our kids are close to leaving the nest and we enter our early retirement years.
So take it one step at a time, figure out your life goals and priorities and make an investment in your family’s future. Build your own comprehensive financial plan.
If you have been investing or trading, you have the skills to do this too!
I enjoyed the post. My rental property will be paid off this summer and it definitely gives me some Serenity as I try to navigate the crazy world of stocks, especially growth stocks. As I get closer to my Goal of early retirement or semi-retirement with a few years, I’m trying to balance my stock portfolio to preserve capital while still allowing for the upside I need to reach my goals. I like that your community is open - As you know, Saul’s board has all these ridiculous rules, which prevent open discussion of a lot of important topics.