Financial To Do List Part 1: Financial Assessment

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Assuming control of your financial life involves scrutinizing multiple aspects of your income stream(s), accounting for assets and liabilities, and establishing a timeline for achieving specific financial milestones . The Financial To Do List I’ve assembled is a checklist that you can run through as superficially or carefully as you see fit. I thought applying it to my own situation could be helpful in demonstrating how other readers might use it.

Risk Tolerance
I’d outlined my asset allocation and glide path previously, however, I decided to reduce my risk by going from a 90/10 to an 80/20 allocation 5 years earlier than planned. I had virtually no savings during the dot com crash of 2000, and was both lucky and oblivious during the Great Recession of 2008 (cashing out my taxable brokerage investments to save for a downpayment on my home just prior to the crash; pouring money into my retirement accounts during and after the crash to ride the subsequent bull market to recovery).

I’d like to limit my equity risk to a loss of ~40% of my portfolio during a bear market. Staying at 6 shifts a month, I could extend work enough to pay expenses while our retirement accounts recover should I find myself a victim of sequence of return risk.

Target Emergency Reserves
Although our target is 6 months of living expenses in our taxable account, we currently have one year’s worth. Theoretically, the risk-averse thing to do would be find an FDIC-insured high yield savings bank account or CD ladder to make modest income while avoiding the volatility of stocks and bonds. We assume slightly more risk by parking it in a short-term municipal bond fund at Vanguard.

Debt
We hold a fixed mortgage currently representing 40% of our home’s purchase price with 22 years left to pay off. We have no education debt, and all credit cards are paid off in full monthly, used for convenience and to obtain cash back incentives.

Next installment, we’ll discuss which risk management tools we use and why.

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