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Today, I’m using the analogy of gardening to talk about taking care of your financial life. Both gardening and finances require preparation and tending. If you do the work, both will produce a harvest of fruit. Furthermore, when you harvest in your gains, I recommend you store up some for later.
Prepare the ground in gardening and finances
Once you’ve chosen a plot of land for gardening, the first step is to till up the ground. Next, you’ll potentially need to improve the soil. This involves boosting and testing it until it’s optimal for growing.
When you decide to take control of your financial life, the first step is to lay the groundwork. You must know what type of ground you’re on by testing it. I propose you write out all of your debts, their balances, and their interest rates.
Now that you’ve shed some light on your financial situation you can choose a method to pay off your debt and improve the soil. The two methods I’m most familiar with are the debt snowball or the debt avalanche. Choose a method that works for you and/or a combo of both. Whatever you do, stick with it and see it to completion.
When you’re debts are clear, you’ve got good some ground for planting investments.
Pick your plants/choose your financial investment vehicles
Now that you’ve prepared the soil, you get to choose what plants you’d like to grow. Flowers or vegetables? Either way, you’ll want to choose the plants that are best suited for your climate, soil and the amount of sunlight your garden receives.
Are you do it yourself kind of person? Yeah, me too but be prepared to get your hands dirty. You can google different plants and/or go to your local garden store and read the labels. Additionally, there are usually pros working at the store who will dispense advice for free since you are a buying customer.
I’d argue the same amount of prep work in choosing the right investment vehicles is prudent.
First and foremost, I recommend having an emergency fund of 3 – 6 months of expenses saved. I have an emergency fund of 6 months in an easily accessible online savings account.
Do it Yourself Finances
Are you still a DIYer when it comes to finances? Yep, me too. There are plenty of resources out there and people who will share their experiences with you. I personally recommend the book, The Simple Path to Wealth by JL Collins. It answered all of my investment questions.
Furthermore, I’ve written a post on the basics of investing here.
In regards to choosing investment vehicles, I’d recommend you find out the answers to these questions:
- What type of retirement account do you have access to through your employer?
- Is there an employer match? If yes, how much?
- What is the annual contribution limit for the current year?
In my opinion, maxing out your employer-sponsored retirement accounts should be done first. The reason being is that you can reduce your taxable income. Who doesn’t like to pay fewer taxes? Hands are going up everywhere!
Yeah, you’ll have to pay taxes on it when you take distributions later, but you may be in a lower tax bracket then.
The second set of questions to ask yourself are:
- Do you have enough cushion to also max out a Roth IRA?
- How about an HSA account – are you qualified to open an HSA?
- Furthermore, do you have leftover money which you can invest in an after-tax brokerage account?
Not a DIYer?
Not comfortable in navigating the waters by yourself? Do you want to hire a pro? No problem. I advise you to understand a bit about what type of advisor you’ll be hiring.
If you decide to go this route, I’d recommend hiring a fiduciary. A fiduciary is legally bound to acting in your best interest.
Furthermore, hiring an advisor does not mean you give them your money to invest and walk away. It means sitting down with them and explaining your risk tolerance and your goals.
Additionally, it means choosing investment vehicles together. It should be a collaborative effort where the advisor acts as the teacher and you are the student with control of your decisions.
My friend, Fred, who writes over at Money with a Purpose is a fee-based planner and has been in the financial planning industry for years. He recently wrote a good article about choosing a competent advisor. I think this a good starting point in thinking about how you will choose one.
Put the plants in the ground and money in the accounts
So when putting plants (or seeds) in the ground, you’ll need to know the best time of year to do that. It will depend on the type of plant and your climate.
Similarly, depending on what type of investment vehicle you are parking your money in, you’ll want to be strategic about what time of year it is. Tax-advantaged accounts come with annual contribution limits. These limits are adjusted for inflation annually.
Furthermore, you have until the time you fill your taxes to max out the previous year’s bucket. It’s a way to reduce your tax liability. Simultaneously you can be contributing to your current year’s bucket.
I think the most important and efficient thing to do is set up automation. If you have an employer-sponsored retirement account, decide on an amount you are contributing to for the year (I max mine out) and have payroll automatically deduct it for the year.
You can set up automatic deductions for your other vehicles as well.
Water Your Garden
Here is where the analogy breaks down a bit but in a good way. With a garden, be it flower or vegetable, you need to water it frequently.
However, with a financial garden, you can basically set automation and forget it. Having an annual review should suffice for re-evaluating things like:
- Changes in annual contribution limits
- Do you need to adjust things based on evolving goals?
- Have there been unforeseen changes in your life?
- Has your risk tolerance changed?
- Have you moved from wealth accumulation to preservation?
So one might argue that tending a financial garden is easier!
Pull Out The Weeds
With a garden, it will be necessary to pull out any weeds that pop up. You won’t want weeds impeding the growth of your flowers or vegetables.
The weeds to keep out of your financial garden are debt. When you own your entire paycheck you can embrace a high savings/investing rate.
During your investing life, you may have a mortgage but I would advise you keep any other debt out.
If you use credit cards within your budget, pay them off and on time every month!
Spend within your means.
Harvest the fruit/reinvest the gains
Harvest time is what’s all about.
With a vegetable garden, you’ll likely harvest more than you can eat. I know many people who blanch and freeze a lot of the harvest.
With investment accounts, I recommend reinvesting the dividends. Let the magic of compound interest work for you!
After all, you’re investing in your future so store up those gains for a later date.
It’s a way to hedge off a future famine.
Bearing fruit requires putting in the work up front. You work hard for your money and deserve to enjoy financial peace. Take the time to tend to your financial garden and experience fruit for years to come.