Course Correction

Phil Dawson  |  December 19, 2017

OUR DECEMBER FINANCIAL TRADITION is for my wife and four daughters to frolic in the holiday shopping minefield, while I decry their irresponsible behavior and try to establish some semblance of financial stewardship. In response, I receive heavy sighs, eye-rolling, and other displays of deep and abiding affection.

Maybe not coincidentally, December is also when we do our financial planning for the year ahead. There is no shortage of such discussions on the web. This year, I’m piling on with my own. It isn’t because my plans are brilliant, or even rise to mediocre, but because the readers of this blog are known to respond with very clever ideas for improvement. Social accountability, you know. Here are some of the financial changes we’re planning for 2018:

Automation. We continue to put more of our financial transfers on autopilot. This had made our financial lives immeasurably simpler. Not everything is automated, but we’re getting close. I no longer fret over expenses that come around just once a year.

An added bonus: With separate accumulation accounts for taxes, insurance, education, charity, retirement, recreation and emergency savings, it’s very simple to look at a dashboard of our financial accounts, and see how things are going and make minor corrections as needed.

Fixed living costs. We’re looking for ways to reduce recurring monthly expenses—what HumbleDollar has dubbed the “number one number.” Donna and I do pretty well here, but there is always room for improvement and compromise. I’m all for eliminating cable and heaving the television into a dumpster, but others have different views, so we’ve scheduled time to review and share our priorities for the coming year.

Health insurance. I’m already regretting that I didn’t change my health insurance to the high-deductible plan offered by my employer. That way, I could have taken advantage of the unique and powerful savings opportunity offered by the attendant health savings account.

The change would have complicated coverage for our two adult kids who are still covered by my employer. Although they would have coverage under the plan, at least one of them would not be eligible for the funds in our health savings account. I’m okay with letting them budget for their own deductibles, but their (overly protective) Mom felt otherwise. Happy wife, happy life. I’ll nudge my 401(k) contributions upward as consolation, and advocate for the change in health coverage again next year.

Life insurance. We decided to load up on the relatively inexpensive life insurance available through my employer. This decision carries some risk in terms of coverage if I am suddenly unemployed—and in terms of my family learning the cash value of my untimely death.

Disability insurance. For the first time, we elected to drop the supplemental long-term disability coverage offered through my employer. The cost has crept up over the years and adds only about 10% to payouts in the event of a claim. As we cross some age-related thresholds, we will have penalty-free access to some retirement funds in 2018 and beyond, so it seemed reasonable to self-insure for the difference. Only time will tell.

Recreation. In recent years, we have enjoyed some great recreational experiences as a family, which I will continue to encourage. Multisport races, cycling, climbing, whitewater paddling, competitive shooting, regional travel and family celebrations have benefits that are hard to quantify, but are priceless to me as a husband, father and father-in-law. Yes, there can be large expenses associated. But these activities provide opportunities to exercise discipline, challenge and encourage each other to improve, and prepare for the next sporting event.

Retirement. Over the past few years, my monumental ignorance has been slowly displaced by awe for the complexity of retirement planning. In our situation, there are many moving parts, all highly interconnected. The resources available through very bright contributors to this blog and others are inexorably lifting the dense fog surrounding these matters for me.

In 2018, our 401(k) contributions, along with the employer match, will continue to add to our tax-deferred savings, and we could even hit the annual cap. Meanwhile, I’ll max out my Roth IRA at Vanguard again in the year ahead, which will give me tax-free withdrawals in retirement to balance the taxable withdrawals from my 401(k).

Investments. What will we do in response to the current stratospheric valuations in the stock market? Absolutely nothing. We’re indexers, and I’m smart enough to know that I’m not smart enough to beat a broad index.

Real estate. We’ve been saving for a long time with an eye toward buying a residential rental property. We’ll get more aggressive with that in 2018, and may even pull the trigger on a purchase. This will no doubt be the subject of much future scribbling.

Of course, any outcomes relative to these efforts are subject to influences well beyond our control. None of us has any idea what the coming weeks and months will bring, and our government seems profoundly adroit at crisis generation. But one thing is certain: The Law of Entropy applies to personal finance. Without regular infusions of energy and attention, everything is certain to devolve into chaos.

When not paddling, biking or shooting, Phil Dawson provides technical services for a global auto manufacturer. He, his sweetheart Donna and their four extraordinary daughters live in and around Jarrettsville, Maryland. His previous blogs were A Thanksgiving Prayer and Life After Amazon. You can contact Phil via LinkedIn.

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