For this blog/podcast/video, I’m going to talk about my own personal finances, in hopes that it is helpful for some people.  I’ll go over how I invest, budget and what my retirement plans are.  You can see the Video Here

I will be expanding about my personal finances in another blog at: aiofinancialplanner.com/blog/

Financial History

Let me briefly present my financial history.  I worked as an engineer for about 20 years.  I worked for several firms and started my own consulting firm but I never really liked the work. I lived simply partially to try to retire early. I tried to save at least 25% of my take home income.

I was married for 7 years, then divorced – which cost me far more than half of all of the savings that we had at the time, but I didn’t have to pay alimony. Getting divorced is generally not a good financial move but, for me, it was well worth it.

Shortly after divorcing, at age 36, I joined the Peace Corps and served in Nicaragua (I wanted to get as far away as I could).  I learned that I could have a pretty good life on less than $5,000 per year.  It gave me confidence to do what I wanted to do (or at least not do what I didn’t like doing) without just thinking about earning and saving as much as possible.

After leaving the Peace Corps, I went to Nogales, Sonora, Mexico to help set up a micro-finance organization then joined my mother’s financial planning firm in Tucson, Arizona. I got my CFP (Certified Financial Planner) certification and started meeting with clients.  She had a small business and I earned less than $30,000 per year for the first couple years with my mother.  She specializes in Socially Responsible Investing, or Impact Investing, which really attracted me to the business. I worked hard at internet marketing and growing the business.

I bought my first home when I moved to Tucson (at age 37). It is a duplex that cost just over $100,000.  I lived in one unit and rented out the other.  The renters covered most of the mortgage allowing my housing expenses to be very low.

I married a woman from Sonora, Mexico (Lupita). We have two girls, now 11 and 7 years old.  My wife and I both started our family late. I’m now 50 years old and she is 49. There are pros and cons to having kids so late.

We still have the duplex and rent it. In 2007 (right as the market was tumbling) we bought a single family home to live in.  The duplex is worth a bit more than what we paid for. The home is still worth less than what we paid for it (11 years later). I’m not worried, it was bad timing but we have no plans to sell either for a while.

Spending

I lived very simply until having kids. There are constant needs with kids: medical, education, clothing, travel, activities, etc.  We still live relatively simply but, as a family, my spending, and waste, has increased greatly.

Lupita is from Caborca, Mexico where her father, brother and much of her extended family live. We drive to Caborca every month or two, stay with Lupita’s father and mostly visit with family.  We regularly send money to Mexico to help supports some of Lupita’s family. The costs of being there are not high compared to other travel but it is a regular expense.

We are currently spending approximately 50% of my take home earnings. We did not save at all for a few years when both kids were very young and my salary was significantly lower.

Investments

Here are some of my personal investing guidelines:

My largest asset is my future income. My financial planning business is my most important asset.  I invest into the business with: programs, equipment, support staff, and advertising. There are opportunities to buy other financial businesses, which I have not done yet but I am considering that.

I invest in real estate when I am pretty sure that I will not be moving for the next 6 years or more..  I like having a rental property but would not like another. My time is more valuable working as a financial planner than working on a property.  If I had a fixed salary, I would reconsider.  As a business owner, the harder I work the more income I receive.

Currently, I max out my retirement account. I want to get a tax deduction now. I expect my income will be much lower when I retire.

Donating

My donating varies from year to year depending on how my business does and the expenses we have.  We aim to donate approximately 10% of our net income each year.

I have been on the board of several non-profit charities and I have developed a skepticism. JPAL conducts rigorous evaluation, including randomized controlled trials, to determine what programs are effective and are worth supporting.

I am most concerned about reducing poverty globally. I have not given much at all to politics. My girls prefer supporting animals, primarily dogs.

Liquid investments

I have had periods where I would invest in individual stocks and trade frequency. I looked into different strategies to make money on short term market moves. I studied option trading and tried making money there. I have found that any additional return is not worth the time I put into it.  Although, I was unable to consistently outperform index returns.

If you are not interested in socially responsible investing, I recommend investing is exchange traded funds with as low of an expense ratio as possible.  Schwab and Vanguard have good selections.  The expense ratio is a percentage that is the annual cost of operating the fund. The expense ratio will directly reduce the return on the investment, so minimize it.

I recommend establishing an investment policy and rebalancing to that policy. The investment policy (or investment distribution) is the percentage you want in different asset classes based on your risk tolerance and time horizon (when you need the money). You can read more from our three ebooks: Investment Basics, Socially Responsible Investing and our Investment Buy List.

Right now, my investment portfolio is almost all stock.  Instead of investing in bond funds I’ve been paying down my mortgage.  I see paying down the principle as a fixed investment with a guaranteed return of about 4% (or whatever the interest is minus any tax savings – which, for most, is very modest with the tax changes).

All of my stock holdings are in ESG investing mutual funds (also called SRI or Impact Investing). I want screening to avoid fossil fuel companies, global banks, and weapons producers. However, to make an impact on corporations, you need to do more than just avoid investing in these companies. It requires corporate engagement. I do not what to do that myself, so I am fine paying a slightly higher expense ratio to invest in ESG funds that actively engage with corporations through: dialog, shareholder resolutions, and proxy voting. I think of this as part of my donation, the higher expense for corporate engagement vs investing with ESG index funds or ETFs (exchange traded funds).

I do have some of my portfolio in buffered notes and market linked CDs. There are investments in the market with downside protection. I would like to say that I am investing for the long term and I am comfortable with any loss but my wife is not as comfortable with loss. Together we decided that put about 30% with downside protection.

Of our stock funds, we invest about 70% in US stock, 20% foreign developed and 10% emerging foreign. Of the 70% in the US market, we have about 2/3 in large cap, 1/6 in mid cap and 1/6 in small cap.

Retirement Goals

Lupita and I plan to retire in Sonora, Mexico. Right now, we expect we will retire in Guymas or Hermosillo. Either way, our expenses will significantly lower than they are here. We expect that a home will cost about $100k. Assuming we sell our house (or rental) here, we should be able to cover the cost of a house there without needing a mortgage. In today’s dollars, if we have a home paid for, we expect that $4,000 per month should more than sufficient to cover our needs. Most of the activities there do not cost that much. In addition, most of our friends and family there do not earn that much so we do not feel pressure to spend a lot.

The cost of services is very low. Having someone clean the house, do repairs, going to the movies, professional sporting events, concerts, taking classes, and eating out are all a fraction of the cost compared to the US.

The homes we have seen in the areas we want to live are around $100k. We can easily find a nice home for under $50k in a Mexican community and around $200k (and more) in an ex-pat community. It varies considerably.

I am not in a hurry to retire. I actually would like to work as long as I can. Unlike with engineering, I really enjoy working with people and being involved with the impact investing community. Because of the type of business I own, I am able to reduce work and may not fully retire, just reduce my work load as I need to.

My kids are still young, with lots of unknown future expenses, so it is hard for me to be sure of a retirement time (or time when I may significantly cut back).  I do not know how my energy will be going forward as well.  I know I’ve slowed down compared by 20 or even 10 years ago.

With what I know now, I may cut back in my mid to late 60’s and completely stop in my mid to late 70’s. I expect I’ll need to retire completely by 80 – but who knows.

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