1) Determine what “wealth” means to you.
2) Set goals in place to bring “wealth” within your reach.
3) Reevaluate as necessary.

There are no hard rules in this approach. Once can max out a 401(k) or not, contribute to an IRA or not, or pay for their children’s college expenses or not.

What if someone defines “wealth” as just having an income stream of $3000 a month because they have minimum financial obligations (paid off mortgage, no car debt, etc.)? Surely this person can have 3 rental homes and collect this amount. So, should they max out $16,500 every year or work towards having three homes that are $165,000 paid off in the next 30 years? Both investment vehicles will “hopefully” appreciate. Which is the better approach?

The only way to make such a decision is to run the numbers and hope that the decision that is made is the best one that worked for us.

There are no hard rules. Ever. For every one person that was screwed in one era (the current housing market), there was one person that was successful (the housing market before the crisis).

For every one person that saved money and maxed out their 401(k)s in, say, Enron, and got screwed, there is another who maxed out their 401(k) in a thriving company and started living fat, dumb, and happy.

Personal finance, IS personal. Hence, “what works for you.” The assumption is that people are able AND willing to make a rational decision, which, by the way is relative to what they’ve learned as a “best practice”, and apply it to their “wealth” building equation.

This is why I try not to speak in absolutes. It’s pretty damn hard to make an argument. Yes, do something. Anything. But don’t talk people into saving another 10% if it means that they’d have to give up their yearly vacation. They are not going to do it, especially if they are already on track to reach their definition of “wealth.”

Would you tell someone who has had an overwhelming success in day trading, because they have taken huge degree of speculation out of it by studying the companies for which they trade daily, that they shouldn’t continue to do it? Or would you tell that to someone who is completely ignorant about the markets? What if someone has maxed out all 401(k)s, 529s, IRA’s, etc., for years on end, and has “money to blow?” Then what? Would you also tell this person not to risk day trading?

In other words, day trading may work for some, and will absolutely not work for others. But the philosophy stands founded. There is no absolute in this case either.

While I am using what works for me, I most be constantly on search to make it better.

I must set financial goals annually to meet. One such goal, though made an exception to it for this one year given a separate goal I put in place to make this goal nearly impossible to meet, daily residual savings must be improved by $3.65 with just the money added to investments and/or drop on investments. Another goal, which I didn’t make an exception for with this year, 25% minimal though shoot for 40% of actual gross income go to countable savings.

This year, I turned 40. This year, we as a family have done the following:

YTD Actual Gross Income: $52,000 (appox.)
YTD Countable Savings: $17,000 (appox.)
YTD Short-Term Networth Value Increased By: $12,275
YTD Long-Term Networth Value Increased By: $25,000

Note, other than for Actual Gross Income, all of the above numbers are after tax based numbers. As for the Networth values, there’s 2 basic ways of valuation, cash basis or accrual basis. For me, I refuse to use the cash basis as it doesn’t give you a true picture. As such, the numbers above are accrual basis of Accounting primarily using US GAAP rules. There’s only one or two exceptions to the US GAAP rules I break away from, but even with that, the networth numbers are still US GAAP numbers cause where I break away from isn’t in so much the networth, but more so as how I treat the tax aspect of it. Rather than me reporting the tax as a liability, I reduce the pre-tax investment amount down to it’s after tax basis number, so as I have an after tax number to compare to all other after tax numbers on the report. For me, it’s better to compare apples to apples than to compare apples to oranges. As such, rather if it’s via a reduced investment amount or via a higher liability amount, the networth value is still reduced by that same tax amount. That’s why the networth itself is still a US GAAP number, even though the total assets and total liabilities are not US GAAP numbers.

Not only that, but we have other financial successes this year:

Short-Term Networth Value finally came out of the hole

Long-Term Networth Value not only broke the $50,000 mark on an after tax basis, but well on it’s way to breaking the $75,000 mark as it’s currently at $67,500.

We knocked out of the 1 of the 6 remaining debts, so we now have 5 debts remaining.

Overall debt went down by about $12,000 (8.4% of long-term debt dropped)

As for the credit card thing mentioned in this article, I do use my cash back reward credit card, but it’s not without having to consult with my cash flow management and financial objectives first which I keep it all within my Excel financial file. Though I created this file, this file has served as my own personal financial advisor. Granted, there are limitations to it, but it has been serving it’s purpose quite well over the years, much better than what paper was doing when I first started budgeting as I went out on my own. Doing it via paper is okay to get started, but even with me as good as I am with math, it’s too time consuming and too tedious to do by paper. With me using Excel instead, I can use formulas quite extensive and with minimal work, it only take minutes to get the results I’m looking for per week. That’s including all of the tracking that I do. If there are changes to be done within the financial including the cash flow management worksheet (the one that requires the most maintenance as it’s ever so dynamic as our set of circumstances change over time), I can make such changes with very little time spent as I use formulas to do most of it for me. Of course, for some things I do have to use the Advanced Filters, but that’s okay as that’s easy to deal with too. Currently, that cash flow management worksheet is setup to the end of the year of 2020 on a daily basis.

Maybe I’m a rare breed of this sort, but after what I been through in the first 30 years of my life, I don’t want to be through it in my retirement years either.

Example: How many people set a minimal goal of 25% of actual gross income goes into countable savings and have the ultimate goal of 40% of actual gross income goes into countable savings, so as when those bad years happen, you have those extra savings to get you through?

This year, we did have some emergency spending (Not really true emergency but still a financial emergency given it still counts against countable savings, but yet had enough of an emergency fund to cover such expenses), but even with that, I still managed to have about 31% of actual gross income go into countable savings, which means I have banked 6% of actual gross income for that future rainy year.

This year, while I haven’t really notice the snowball effect on our debts, this is the first year I have noticed the start of the snowball effect on our short-term investments.

I also have within my Excel financial file which gets updated every 3 years as the SCF report comes out showing national averages in the 10 dependent categories. The one independent (or control) category is the age of the head of household, which that is updated via the Census Bureau data every 10 years. EBRI data also impact the numbers in this table average as well. I have all the number broken down into 5% blocks or 20 blocks per category with the mean in each block.

As such, given how the ages works, one must improve 4 blocks per year minimally during their working years to maintain, with regards to their age. Based on this data, I also score it accordingly too. Granted, this isn’t a perfect system, but it’s a pretty good indicator. My age score according to this is 8.65. Where I stand financially in this (mostly objective, but a couple of the categories are subjective) is 10.45, which means I’m higher up by 1.8 groups or 9% higher than where I would be estimated to be at based on my age. This year alone, we have thus far moved up a total of 9 blocks.

This is great stuff, Flexo.

I have been hearing from Buy-and-Hold advocates the charge that I promote “a racket” for seven years now.

They really do believe it. Because it causes them pain to let in the idea that there is a different way to see things than the way they have become accustomed to seeing things.

The phrase “whatever works for you” is great when it is put forward to suggest tolerance for new ideas. And it is a huge pitfall when put forward to justify ignoring hard evidence and continuing with foolish choices after then have been revealed to be foolish.

The trouble is — we’re flawed humans and none of us (including the fellow writing these words, to be sure) is capable of seeing when he is the one rationalizing bad choices made at an earlier time.

Rob

You *always* have a license to ignore criticism of personal decisions. No new license is granted here. Also, because you have such a license does not obligate you to use it. You may consider criticism and opposing viewpoints carefully, even if you determine them not to be the best course of action for you.

“What Works For You” invites analysis that could be far too simple

It does not. It invites analysis that is as simple as is possible while still working. This is, by definition, not *too* simple, it is adequately complex, or the solution it brings wouldn't work. Yes, this is a binary system, it has “pass” and “fail” — but that does not mean there's no room for judgement — you can set the bar for passing as high or low as you like. You can even raise it in successive revisions of your criteria for “working”.

“What Works for You” accepts mediocrity as a way of life

This isn't true at all. It depends on what you define as “works”. What if you define “working” as “earning $150k/year, saving 25% of income, having no debt, and being able to take two months vacation each year”? You have absolutely not accepted mediocrity as a way of life, even if you could have potentially made $160k/year and saved 30% of it.

Your points have some validity, but you overstate them. Yes, it is possible to use this philosophy as a crutch, but this basically just means you set the bar for “works” too low, and never went back and raised it. The traps are very much corollary to laziness.

If you're happy with the money you have, or the photography skills, you are in perfect harmony.

When you are giving advice, whether it is financial or medical, both of which I do daily, you have to consider where people are in their own journey. So from that perspective, there are no absolutes/rules that fit every situation.

However, if you don't give people structure to work from, some sort of guidelines, suggestions and guidance, then most people, with their busy lives, will nod, and ignore.

Just like the recent decision regarding people having to “opt out” of their 401-k vs having to opt in. It is certain the retirement savings overall will go up now that people don't have to do anything to have money placed in their 401-k. Does this take away individual rights-maybe, is it better for most people who otherwise would not do anything to prepare for their retirement-I think so.

Like with most things, their will be disagreement, and varying points of view-which I think is the great thing about the personal finance blogosphere. I think we all agree, that doing something about your personal finances, is much better than ignoring it completely-(except maybe day-trading).

I mentioned putting 10% (not maxing out) into a great bank account not to preach that I think this is the One True Path, but just as an example of something that's in many cases *better* than 5% in any old savings account. You're right that the details depend on the goalsm and I'm saying just it's helpful to consider doing more than just “what works.”

When you are giving advice, whether it is financial or medical, both of which I do daily, you have to consider where people are in their own journey. So from that perspective, there are no absolutes/rules that fit every situation.

However, if you don't give people structure to work from, some sort of guidelines, suggestions and guidance, then most people, with their busy lives, will nod, and ignore.

Just like the recent decision regarding people having to “opt out” of their 401-k vs having to opt in. It is certain the retirement savings overall will go up now that people don't have to do anything to have money placed in their 401-k. Does this take away individual rights-maybe, is it better for most people who otherwise would not do anything to prepare for their retirement-I think so.

Like with most things, their will be disagreement, and varying points of view-which I think is the great thing about the personal finance blogosphere. I think we all agree, that doing something about your personal finances, is much better than ignoring it completely-(except maybe day-trading).

He's acknowledging that there aren't very many financial strategies that apply equally to everyone so unlike some bloggers who preach specific “rules”, he suggests that you try some different methods and use the best one (for you).

You suggest in your post that maxing out all available savings accounts is the a best case scenario but in fact that might not be a good strategy for everyone depending on their goals.

-Rick Francis

I think the point, I guess, is to do this all the time and not let “what works for you” lapse into a similar dogmatism/rule, especially when it prevents or precludes thinking fresh about each finance situation you face. Consider others' advice and criticism, of course, but since you will always be the one making the decision in the end, you have to accept responsibility for it. If you don't, then you're just following someone else's “rule.”

Random example: Day trading stocks has been shown to have terrible results. I'd argue that it's perfectly OK to say, “don't day trade” and that saying so is probably more helpful than just “do what works for you.”