Financial Advisors Tell Us What They Do With Their Own Money

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“What should I do with my money?” It’s a question that any one of over 210,000 financial advisers in the U.S. would happily answer for a client. But when it comes to what these experts do with their own finances? That’s not something you hear about quite as much. 

Still, when it’s your job to advise people day-in and day-out on money management, it’s only natural that you develop a philosophy to apply to your own finances. We asked some of the country’s top financial advisors to pull back the covers on their own money habits—and we have some suggestions for applying those expert habits into your own life.

Keep Consistent Track of Your Spending

Eat your vegetables, get some exercise, make a budget—there’s a reason we hear this advice over and over (and over). Just like eating right and getting off the couch and moving, budgeting is a must-do because you can’t identify where you need to make changes in your spending habits if you don’t know what those spending habits are. “When it comes to budgeting, one thing I preach is consistency—picking a method that works for you and sticking with it,” says Davon Barrett, financial analyst at Francis Financial.

His personal regimen includes meticulous tracking of his spending, which both allows him to cut back and to see trends over time. He uses the free website/app Personal Capital to categorize his expenses, then exports them to Excel at the end of each month so he can play around with adding up the items in different categories. Barrett explains that he started seeing things more clearly when he changed the way he labeled expenses. He started labeling food charges as “dining out,” then realized “dining out/lunch” and “dining out/dinner” worked much better for him. He knew lunch would be a relatively set expense for him since he doesn’t brown-bag it, but looking at dinners out, he saw cooking more could cut costs in some cases. “If it was Chipotle or Shake Shack, that was me being lazy,” he says.

How to do it: Different budgeting methods work for different folks—there are apps like Mint, Clarity Money and the aforementioned Personal Capital (all free), plus services like MoneyGrit ($17 per month or $127 per year) and You Need A Budget ($84 per year after a 34-day free trial). Whichever you choose, mark your calendar for at least one day a month—for example, the second Saturday—and dedicate some time that day to looking over your costs and planning for the next month. If you’re busy, know that after you get the hang of things, 15 minutes will likely be enough to look over your expenses for the month, says Barrett.

Keep Enough (But Not Too Much) in Your Savings Account

While having a savings cushion is vital, having too much of one can hurt you in the long run. A 2019 CFP Board survey found that 53% of adults who were saving for retirement kept at least some of those funds in a savings account. The issue: As of March 2021, regular savings account interest rates had a 10-year average of 0.08%, and high-interest accounts had an average cap of 0.83%. Both are significantly lower than inflation, which means you’re losing money over the long term. So how do advisors strike a balance between keeping enough on hand to feel safe, but not so much that it’s a drag on your future?

“When I first started [in financial planning], I had absolutely nothing saved,” says Barrett. “I didn’t have the same handle on my personal finances…I didn’t understand the rules of thumb.” When he created his first financial plan for a client, he knew he couldn’t recommend something he didn’t do himself. By looking at his monthly expenditures and considering his career stability, Barrett concluded that three months was enough for his own emergency fund, though building it wasn’t instantaneous. He did it in a little over two years by putting a few hundred dollars aside each month. “I prioritized this over my taxable investing,” he said. “But I was still deferring a portion of my salary for my 401(k) contributions.”

How to do it: If you’re having trouble saving, apps can help. Digit (which costs $5.00 a month) analyzes your spending patterns, then silently socks money away for you until you have a bit of a cushion. Qapital allows you to set specific savings goals for emergencies (among other things) then links to your accounts so that when you, say, spend $5 on coffee, you move an amount you choose into savings simultaneously.

You can also set automatic savings triggers for when you get paid, specific days of the week or many other things. As Barrett did, you’ll want to fund account with matching dollars—like a 401(k)—simultaneously and automatically, so that you don’t miss out on that free money. 

Invest Unemotionally: Hope for the Best, Prepare for the Worst

“Having done this three-plus decades, I can tell you the mistakes…are when emotions get in the way, and people move away from staying invested [in the market],” says Jeff Erdmann, managing director at Merrill Lynch. He adds that he allocates one-third of his family’s stock-market dollars in passive investments and index funds. “I don’t see that changing in the foreseeable future,” he says.

He and his family also aim for one or two years’ worth of expenses in an emergency fund to ensure that, in the event of a significant portfolio drop, they could use that saved cash to support their lifestyle instead of selling off assets.

How to do it: More information about what’s likely to head your way can help you stay rational. “If we go into the process understanding and knowing volatility is going to be there, then we are in a much better place to not let our emotions take over,” says Erdmann.

Take time to think about the time frames associated with your investments. Make sure you have enough in liquid assets so that you don’t have to sell into a down market to fund short-term goals like next year’s college tuition payment. As for assets you’re not planning on using for five years or more, rebalance once or twice a year. And limit the number of times you check in on your portfolio, particularly if a bit of bad news tends to spur you into making a rash decision.

Stay On-Track With Automated Maneuvers

Even the pros automate their saving and investing in order to keep them on target. Laila Pence, president of Pence Wealth Management in Newport Beach, California says she took two crucial steps when she was younger: She automated her retirement savings (taking advantage of the workplace plan she was offered) and set up an automatic contribution of 10% of her take-home to another account for short-term goals. This helped her keep her spending in check. Why? Because once the money was moved, she didn’t see it. And that helped her keep her hands off. “Even now, I still do that for my assets,” she says.

Barrett agrees, noting that if you see your paycheck after those contributions are taken out, “You will adjust your habits,” he says.

How to do it:  You should aim to put away 15% of your money for your long-term goals and another 5% for short term. If you’re enrolled in a retirement plan at work, check in and see how close your contributions (plus matching dollars) are getting you to those marks. If not, do the same with the Roth IRA, traditional IRA, SEP or another plan you’ve set up for yourself. As for the 5%? That’s money you’ll want to move out of checking and into savings, so it will be there when you need it.