Buckets

When I first started thinking about financial planning the one theme I kept finding was the Bucket strategy. This is a great way to look at investing. Think of every bucket representing a different time period for when you will use it and from there you can think about how to develop a strategy. It is important never to ignore one bucket at the expense of another because they are all important.

Bucket 0-5 years

• Checking Account
• Savings Account

Patience is a virtue and really hard. Letting money sit and become worth less and less every day because of inflation (Fed goal is 2%) is the most painful thing I can imagine... Which really isn't that bad when I write it out. However, it is a feeling we all can feel. Likewise, when you have cash maybe you will be more inclined to spend it.

• Emergency fund and savings for anything you plan to buy in the next five years.
• Emergency fund: 3-6 months of income

Feel free to extend this out to 12 months if you are in a career with high turnover or are vulnerable to market fluctuations. However, if you have a very secure and stable job you can get away with 3 months for an emergency fund.

Bucket 5-15 years

This is my bucket for stuff I may/need to buy in the next few years but I cannot stand letting it lose out to inflation (Better grow more than 2%)... and I can wait out a market dip. These investments are less risky (minus one of them I tried out) and can become liquid very quickly (again, minus one).

• Wealthfront (get an additional $5,000 managed for free with this link)

This is my favorite investment vehicle. You can set your risk level (mine is at 1.5) and it is tax efficient because they do tax-loss harvesting (which sounds really smart). Year to date I've received $152.12 of tax-loss harvesting. Since my family is in the 28% this is a nice perk. (Note, we only pay 28% of federal taxes on dollars made over $91,900... which isn't much, but every dollar counts).

• Lending Club (get $150 bonus when you use this link to invest)

Despite many complaints from people using Lending Club, I've been pretty happy with it. I am currently in the process of removing funds because this vehicle served the goal I set (protecting some money from inflation) and now I have different goals (pay off Sallie Mae loans).

This is the bucket where I would ideally never sell assets, but wouldn't mind selling them to buy something we really needed (expensive child birth, house, etc.)

Bucket 15-25 years

• 529 College Savings

I met my wife in college and we really value education. We would love to at least help with our child(rens?) education if possible. However, we will always put our retirement needs first. They can always take out student loans to pay for school, but they don't provide loans for retirement.

Through programs like Upromise, it is super easy to pick up savings here and there. Also, depending on where you live you can receive tax credits (way better than deductions) for contributing to a 529.

Another strategy to maximize contributions to a 529 is to buy a Gift of College for $500, which comes with a $6 fee. However, if you have a card that gets at least 2% back you will net $4 ($6 fee - $10 cash back).

Retirement Bucket

• Employer Sponsored Plans
• Roth IRA

To me, the Roth IRA is the greatest retirement vehicle ever because the money goes in taxed and GROWS TAX FREE. This should be where your riskiest investments should stay. While you should never buy individual stocks because picking stocks is a fools game, this is the one place you could get away with it... Although you can still get some high risk-return investing with many mutual funds.

For retirement savings our strategy will be to use our employer sponsored plans first (along with whatever we get from Social Security, although we never account for that when planning... That will be the cherry on top).

Then, when we need to we will tap our Roth IRAs. This will allow for 20+ years of growth TAX FREE. This will also be the money that allows us to die in a peaceful retirement home.

The Chase Trifecta

If your goal is to travel without thinking too much about credit cards, here is what I would recommend for you: The Chase Trifecta.

 

All you need is the following:

• Chase Freedom (rotating 5%)
• Chase Unlimited Rewards (everything 1.5%)
• Chase Sapphire Preferred (Transfer Power and 2% in Dining and Travel) - $95 annual fee, the first year waived.

Example

Three flights DEN-PHX

 

• $79 (4,339 points)
• $108 (6,282 points)
• $123 (7,489 points)

If you had 8,000 points on Chase Freedom and redeemed it for cash, $80... Only enough to get $79 of flights. Instead, you are effectively buying a $79 ticket with $43.39 of potential cash.

 

Thus, the 5% back you get on Freedom can be equivalent to 9% because 1 point is worth 1.8 cents.

 

If you had the Southwest card, you only get 2% back on Southwest purchases... 1% on everything else. And you can only use those points on Southwest flights (Southwest card is worth it when going for the Companion Pass). With the Sapphire Portal you can transfer miles to other airlines to maximize value:

• United MileagePlus
• Southwest Rapid Rewards
• Air France Flying Blue (lets you book Delta and Alaska flights)
• British Airways Avios (lets you book American Airlines flights)
• Virgin Atlantic Flying Club (lets you book Delta flights)
• Korean SkyPass (lets you book Delta flights)
• Singapore Airlines KrisFlyer

Instead of the Sapphire Preferred, you could get the Sapphire Reserve. I got that card when it had a 100k bonus. Without that big bonus, much of the value is gone and I didn't want to pay a $450 fee again. Remember, you can always downgrade the Sapphire cards to a free one, or go ahead and cancel it.

 

Transfer Power

 

I think this is where some people get confused. Rightfully so. All chase cards have points. Points can become either cash money or flight miles.

 

Without a Sapphire Reserve or Preferred card, the Freedom and Unlimited cards can only be redeemed for cash. However, with the magic of Sapphire you can easily transfer the combine from Freedom and Unlimited to Sapphire and from Sapphire, you can transfer them to an airline.

 

I included hyperlinks with referrals from my account. I get points if you use them and if you find this information useful, please do.