Manage Your Wealth
Research. Make a plan. Monitor your financial health.
Retiring early requires careful financial planning to avoid running out of money. Given that you no longer have a salary, you need to be a responsible steward of your existing wealth—investing well, taking thoughtful risks, maximising every advantage you have—and using that money to keep building your financial foundation and further the causes you care about.
While I’m no financial planner, here’s what I do and what advice I’d offer.
1. Do Some Research
The first step is easy, you’ll want to read about wealth management (The Simple Path to Wealth is an excellent place to start) and talk with wealthy friends and mentors to see what they do. No need to reinvent the wheel.
2. Develop a Financial Plan
Then you’ll want to develop a plan, in two parts.
First, decide on your guiding philosophies in regards to managing your wealth. What’s your risk tolerance, liquidity needs and the returns you’re after? Will you follow the 4% Safe Withdrawal Rate rule? 3%? 5% Use a different approach altogether? Where will you park your money? Cash? Shares? Bonds? Property? Startups? What’s the allocation look like? Are you going to follow Modern Portfolio Theory?
Based on your guiding philosophies, then you’ll want to create some sort of plan, with actionable steps and a set of measurable, time bound goals to work towards. This is the detail. What sort of wealth management strategies are you going to employ? Will you use Sharesies or InvestNow or Craigs to manage your shares? A mix? Are you giving money away? What’s your yearly spend? What’s your approach towards giving money to your children?
My financial plan is a table with three columns: Philosophy/principle, Explanation, Goals/targets. The Philosophy/principle column has:
Retire early
Invest mostly in public equities
Invest in startups (more on this next week)
Don’t invest in property (except for the house I live in)
Always have some cash
Rebalance my portfolio
Be patient
Grow my kids’ financial literacy
Give money away
The Explanation column has a little more detail on the philosophy or principle. Some examples:
Retire early: I used the 4% rule as a rough guide to decide whether I had enough to retire comfortably. I did (and do) but because so much of my wealth is invested in early-stage businesses I have to squint a little bit to make the formula work.
Always have some cash: I want to keep my powder dry and have some money in cash so that I can act if opportunities come up (such as a market downturn where public equities are undervalued).
Be patient: I am happy to wait for the magic of compounding to grow my share portfolio over time. I’m also OK to wait for my startup investments to mature. This requires patience and a thick skin, as the bad investments tend to fail early and you have to wait to see if the others are winner
You get the idea.
And Goals/targets has, well, goals and targets. A selection:
Invest mostly in public equities: Target: 50% New Zealand, 50% international.
Rebalance my portfolio: Ensuring that more than half of the startups I invest in are started by under-represented (underestimated, more like it1) founders.
Grow my kids’ financial literacy: Limit financial support for my kids during their teenage and early adult years. I want them to have to strive and learn some grit, so I’d much rather they have after-school jobs than be a money tree for them
3. Monitor Your Financial Health
Of course, few financial plans survive their first encounter with the real world. That’s why every quarter, I take 15 minutes to capture a snapshot of my net worth. It’s a straightforward process—I log into my bank accounts, share portfolio, and KiwiSaver and note their values in a spreadsheet. I also update the value of any early-stage investments, and use Homes.co.nz to estimate my house’s value.
This quarterly review helps me track how my wealth changes over time and adjust my financial plan as needed. Rather than using a budget, I rely on these check-ins to help answer questions like is it time to pay off a mortgage? Shift some money somewhere else? Change providers?
At the same time, I assess my startup investments, trying to predict whether they’ll pay off as a way of checking how well I can gauge their future prospects. While I don’t keep a detailed “decision journal” as suggested in Atomic Habits—where investors document their major decisions, the reasons behind them, and expected outcomes—I do regularly reflect on my investment choices and how they’ve played out.
Speaking of which, I also review my insurance and utilities when they’re up for renewal, to make sure I’m still getting a good deal.
And once a year I’ll review all my subscriptions to see whether they are still adding value to my life. Last time I checked I had 11 digital subscriptions2 and another half dozen non-digital (the best of which is my undies subscription), and they add up.
Next week I’ll share some lessons learnt mistakes I’ve made with start-up investing, including the best ever photo of me on a rollercoaster…
Shout out to Kevin Withane, the founder of VC firm Diversity X, for first introducing me to this idea
I love it when other people share specifics, so FWIW the 11 are: Readwise, Trailforks, YouTube Premium, iTunes Match, Roboform, Greg, Apple Cloud+, Spotify Premium, Google Storage, Xbox Game Pass, GoPro Quik