Updated: Jan 31
I have a structure in place for what I do with paychecks (standard biweekly paycheck, quarterly stock options or bi-annual cash bonus). Without these rules I'd be left to make decisions in the moment, and that generally does not work out well for me.
I currently get paid in 3 different ways:
Standard Paycheck: This is the check I get every 2 weeks. Regular old paycheck.
Stock Options: I have stock options that vest quarterly. When they vest I immediately cash them out then put that cash to work in my cash flow model.
Cash Bonus: Every 6 months I'm paid a cash bonus.
I have 4 figurative piggy banks that I'm trying to fill:
Current Expenses: This is the money that pays the bills and other expenses that hit during the year.
Standard Retirement: This is the money we'll spend once we hit the standard retirement age.
Kid's College: Having 3 kids, one who is already in college. It's important for us to cover their college expenses for them. Oh, and that shit ain't cheap.
Early Retirement: This is the cash that will be used to fund our living expenses AFTER I leave the workforce but BEFORE we hit the standard retirement age.
This is the overall view of how I put the cash from my paycheck to work for us:
Now let's dig a bit into the details of each of these streams.
(Note: Some of the links below are referral links which help me to pay for this blog)
Standard Checking: Just a dumb old checking account used to pay our bills and provide spending money. Nothing to explain here. Nothing to see here.
401k: I currently max my 401k contributions every year. Nothing exciting, just a standard Fidelity 401k account as well as a rollover from my previous job.
Heavy Metal Band: As I've written about here I'm a business partner / investor in a professional heavy metal band. Although I'm not currently putting any additional money into this investment, there may be a time where we grow this out a bit.
Music Royalties: As I've written about here I actively invest in music royalties. I plan on continuing to push cash into these investments over the next few years. Stay tuned to see how these investments pan out!
529s: We have 529 accounts for each of the kids with Fidelity. Pretty boring stuff so nothing to expand on here.
Individual Stocks: Whenever I receive music royalty payments I round down to the nearest $100 and put that amount into the kids 529 plans. The amount above the nearest $100 I put into a brokerage account at SoFi. I use that account to make more risky individual stock purchases. This is really my play money for investments!
Rental Properties: We currently own 1 rental property in Mississippi, and are under contract on another. Most of the cash flow from these properties will be saved and used to purchase additional rental properties or dividend stocks until we start using that cashflow to pay for our living expenses (after FIRE).
Dividend Stocks: I've recently opened an M1 account where I've built a pie focused on dividend income. Currently all dividend income is being reinvested back into the pie, until we start needing that cashflow to pay for our living expenses (after FIRE).
Betterment Brokerage: A small portion of my standard paycheck goes into our Betterment account, as does a larger chunk of my bonus and stock options. This account is at a 90/10 stock/bond mix and will not be touched until FIRE. At that point we'll plan on utilizing a safe withdrawal rate to pull from this account and pay for our living expenses.
Wrap It Up:
So that's it, that's the structure I have in place to ensure we're putting my paychecks to work for us. I'm sure this will evolve overtime, but I feel pretty good about how this structure is working thus far.
I strongly encourage everyone to do a similar exercise. Even if your current flow is simply 1 line connecting a standard paycheck to a standard checking account, it'll get you thinking about how you can expand out further.
Always find ways to put your money to work for you.
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Personal Capital: My go to place for tracking all things Net Worth.
YNAB: My go to place for managing my spending and budget.
Betterment: I use this account for general investment purposes.
M1 Finance: I use them for my dividend stock investments.
SoFi Invest: This is where I make individual stock investments.