Our Family’s Financial Map

Are We There Yet? Kid with Map

I saw an interesting post recently about financial maps, which is basically a flow-chart showing how your money moves through your various bank and investment accounts:

  • Where’s it coming from?
  • Where is it spent/saved?
  • How does it make its way from A to B

Like many things, there is no right answer, but having a visualization can help you determine if you set up is achieving your financial goals or hindering them with unnecessary complexity.

Without Further Ado…Our Family’s Financial Map!

Here is my family’s financial map in all its gory detail.  The core structure has been intact for the better part of 9 years now since combining finances with my wife when we got married.

Financial Goals our Map is Built to Support

Before walking through each of the component pieces of the map, I should share the goals we were trying to achieve when I set out to build this.

  1. Pay ourselves first: try to get as much of our earnings “out of sight, out of mind.”  The thought was that if we had it, we would spend it, so getting into investment accounts and out of spending accounts as efficiently as possible was goal #1.
  2. Tax efficiency: utilize all legal means to minimize and/or defer taxes as far into the future as possible.  In other words, minimize the present value of our tax obligations.
  3. Have some money set aside each month to cover our recurring but not every month bills as well random one-time expenses.
  4. Establish an emergency fund with 6-12 months of living expenses saved and invest it to minimize cash drag.

As you’ll see below, the structure of our financial map was designed with these goals in mind.

Income Sources

We have four main sources of income:

  1. My paycheck
  2. My wife’s paycheck
  3. Cash distributions from a small Realty Shares investment
  4. Other/unexpected earnings.

Earned Income

The paychecks are far and away the largest sources of income we have, but I am working to build up some additional passive income streams to better diversify this.  In a perfect world, I’d like to have a 50/50 split between active and passive income.  Working for the man then truly becomes optional.

Real Estate

I have a small Realty Shares investment that I funded by drawing down some of the HELOC we have with a local credit union.  As the investment makes distributions, I just have the money sent there to cover the interest cost.  This is effectively a spread play as the preferred yield I’m getting is about 2x the interest rate I’m paying.  As larger distributions come in, I’ll use the money to pay down the principal balance.

Other/Unexpected

Other/unexpected is exactly what it means.  This includes any tax refunds received, misc earnings from side hustles, etc.  Consistent with goal #1, we budget nothing here and none of our spending is dependent on it.  The second it gets in the checking account, it’s transferred out to one of our investment accounts.

Dividends

Note that I have not included dividends received from my taxable brokerage as I currently reinvest 100% of those.  I’m not focused on generating current income through dividend investing, but this theoretically is an additional source if we choose to turn it on in the future.

Bank Accounts / What We Spend it On

This is where it starts to get a little complicated.

Our net paychecks (after tax withholdings and 401k distributions) plus any other/unexpected income goes to our Schwab checking account.  It acts as a sort of clearinghouse, which then makes monthly transfers out to the next level down of accounts.

From a monthly expense perspective, I try to think of the money we have to spend each month not as the net pay we actually receive, but as the transfers we make out from the clearinghouse.  That’s another way we’re helping to achieve goal #1.  I try to keep about one month worth of transfers in the Schwab account as a cushion; any excess funds get swept to my taxable brokerage via Betterment’s smart deposit feature or other transfers to investment accounts I make directly.

The Schwab account makes 4 transfers out every month (typically mid-month) for spending, which I think of as our monthly expenditures:

  1. Capital One checking
  2. Short-term Savings/Accrual savings acct
  3. Long-term Savings/Flex savings acct
  4. Credit Union checking

Capital One Checking

Capital One checking is our primary checking account for regular monthly expenses.  Any credit card charges we incur are paid in full each month from this account.  We also have auto-pays for utilities and childcare (partially funded by dependent care FSA transfer…yay tax savings!) set up here.  I try to have about one month of expenses in here at the start of each month.

Short-term Savings/Accurals

Short term savings is the holding account for bills that happen irregularly throughout the year.  Think things like property taxes, car insurance, etc.  At the beginning of the year, I add up everything I paid on these sort of expenses the prior year, divide by twelve, then have a monthly transfer for that amount go here.  When one of those bills comes, I either pay it from here directly, or transfer money to Capital One checking to pay it.  I try to keep enough in here to match what I’m accruing for payments for over the next 12 months, consistent with goal #3.

Long-term Savings/Flex

Long term savings gets a couple hundred bucks a month for one-time expenses that I’m not explicitly budgeting for.  This is not our emergency fund, but rather money that gives me some flexibility in my current budget without having to dip into other resources.  If we spend a little more than budgeted, I make a transfer from here to cover it.  There’s generally a thousand dollars in here or so, which allows me to cover pretty much any random thing that comes up (goal #3 again).

Credit Union Checking

The last place that gets a transfer from Schwab is my local credit union checking account.  I have my car loan and HELOC with them, and have to have a checking account along with all that.  I only keep a few dollars in here normally; the transfer and Realty Shares earnings hit just before the loan payments are due.

At the end of the year, I reset the fund balances in all my accounts back to target by filling in any deficits and pulling out any excess.  The excess then gets swept to the investment accounts.

Investment Accounts

The last part of our financial map is our investment accounts.  We each have a 401k and Roth IRA, an HSA, 529 accounts for the kids’ college, a taxable brokerage account and our emergency fund.

The 401k is funded in full each year from payroll deductions, consistent with goals #1 and #2.  We save in the other accounts based on our investment contribution ordering plan, with the exception of the HSA (holdover from a prior job).  Despite having a high deductible medical plan, it’s not HSA-compliant, meaning I can’t contribute.  Boo…missed tax savings.

If there’s anything left over after our tax efficient investing, it gets invested in our regular taxable brokerage account.  We also have our emergency fund with 6 months of expenses in a separate taxable brokerage account, but it’s more conservatively invested than the other one.

One final item you’ll note is that we don’t have any traditional IRAs as those long ago were back-doored into Roths.  We don’t have to worry about back doors at the moment as our income is the doughnut hole above traditional IRA deduction limit but below the Roth IRA contribution limit; we just make the Roth contributions directly.

Summary

I wanted to revisit one thing from the very beginning…your financial map should help you achieve your goals without be unnecessarily complex.  On the surface, mine may look like a big mess, but I believe it’s actually just the right amount.  Not so simple that I’m shortchanging some goals, but not so cumbersome that I can’t make sense of it.  That’s the balance I’m trying to strike.

How do you think we did with our financial map?  Does it align with the goals I laid out at the start?  How well does your financial map align with your goals?

Post Script: After writing this post I joined a chain of other bloggers to link up with their maps.  Links are below.  Hopefully you’ll get inspired by one or at least get some good ideas for your map!

Apathy Ends
Budget on a Stick
The Luxe Strategist
Adventure Rich
Minafi
OthalaFehu
The Frugal Gene
Working Optional
Our Financial Path
Atypical Life
Eccentric Rich Uncle
Cantankerous Life
The Retirement Manifesto
Debts to Riches
Need2Save
Money Metagame
CYinnovations
I Dream of FIRE
Stupid Debt
Spills Spot
Making Your Money Matter
Life Zemplified
Trail to FI
The Lady in the Black
Smile & Conquer
Her Money Moves
Full Time Finance
Abandoned Cubicle
Freedom is Groovy
Millennial Money Diaries
All About Balance
A Journey to FI
[HaltCatchFire]

John started Present Value Finance in 2017 to share his experiences and insights on personal finance to help people make better decisions and take control of their financial lives.  

He achieved financial independence in 2016 by walking away from the high stress world of corporate finance to focus on his family. He’s a husband, father, family CFO, and all around finance geek.

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