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Josh’s 10 Year Financial Plan

11 February 2010 4 Comments

Today, I present an entry in the Financial Plan Writing Contest. Just a reminder that you can win $250 by participating.  Here are the brief guidelines, to read the full description of the contest, click the link above.

  • Answer the question: What is your financial plan for the next 10 years?
  • Be sure to to hit on things such as income, job security, budgeting, expense management, real estate, investing, retirement planning, etc. – the more detailed within specific areas the better!
  • Be sure to discuss how the economy might affect your plan – what if we fall into a double dip recession?  Or worse, a depression?  Or inflation?  What if you lose your job? What are you doing to prepare for any economic scenario?
  • Be specific about certain financial goals you might have
  • Include your age and your age-specific concerns & goals
  • A minimum of 500 words is required – again, more detail improves your chances of winning the contest!
  • Send your contest submission to kevin (at) 20smoney (dot) com with “Writing Contest” in the subject line

I am 32 years old and currently employed as a chemical engineer at a industrial chemical plant. I am married with a 5 year old daughter. My wife is employed part time at my daughters school and her paycheck is spent on household needs, groceries, and her discretionary spending. It is not included in our over all budget. We own a modest home with a low 5% mortgage rate. Property values have remained stable in our area due to the near by university and military base. My job is fairly stable and I have been spending my spare time preparing to start my own internet blog to hopefully provide extra income.

At a glance my 10 year plan seems overly complicated and all over the place. It is far simpler than it appears as everything other than a few household bills is completely automated. I have automatic deposit with my paycheck and automatic draft on all my savings, investments, debt, and bills. I wrote out a plan over a year ago when I began to
worry about the economy and realized I wasn’t prepared. I set up everything to be automatic and haven’t thought about it since. It runs itself.


I only consider pre-tax dollars when planning retirement. Currently 6% of my gross income is invested in a 401k plan with my employer. My company matches 50% on the dollar up to 6% of your income, meaning my actual contribution is 9% of my gross. I further allocate 1% of my gross income to a Roth IRA for some tax free income in my retirement.

Retirement Investment Strategies

Due to lack of options in my 401k I follow John Bogle’s advice and keep 96% allocated to a simple S&P 500 Index fund and 4% in a broad bond fund. My bond allocation is determined by subtracting 30 from my age and doubling that number. I am currently 32 years old, so 32 – 30 = 2 x 2 = 4% in bonds.

Roth IRA
My other retirement account I follow a value investing, buy and hold strategy. I screen stocks and do not consider ones that do not have a dividend. Further narrowing my list I look for stocks that have over 10% return on assets, return on capital, and equity growth rates over the last 5 years. Then look at free cash flow compared to debt. If they can pay off their debt in 3 years or less then I consider them low debt and acceptable for investment. To determine fair value I use an over simplistic formula of dividing the companies current EPS by the going rate of 10-Year Treasury Bonds, then discount that price by 25% to find my buy point.

It sounds complicated but is really not. Everything is plugged into a spreadsheet that generates the numbers for me. After that it is a simple matter to put limit orders for if and when the stock you want hits your buy point. I pay no attention to it to stay unemotional and only update everything when the new earnings come out adjusting my buy point.


My budget is only considered with my actual take home income. Variable bonuses I may receive are not considered in my budget or plans as they may change at anytime or even disappear in the current economic climate. My tax withdrawals are setup that I owe no taxes in April, nor receive any refund, to maximize my take home pay and avoid an end of the year tax surprise.

Charity – 1%
Off the top I give one percent of my income to a charity that fights childhood cancer. I realize that 1% is pathetic, but is currently within my budget.

Bills and Lifestyle – 69%
This includes mortgage, utilities, food, and entertainment budget. I consider this a bit high and ideally would like to reduce this to 60% but have found the hard way that squeezing the budget too tightly usually causes too much stress. I feel you should have some fat in your budget or you start to feel like someone who is always on a diet. Things go good for awhile then you can’t stand it anymore and eat everything. I’d rather plan for it ahead of time rather than over spend later.

Also a good portion of this is non-essential spending, such as telephone, cable TV, or the Bug Man. If a catastrophe happened or sudden job loss almost half could be cut immediately.

Debt Repayment – 20%
My wife and I sadly have a good amount of debt, mostly left over from our college days. Not counting my mortgage I have four student loans at low fixed rates and one credit card. I am allocating 20% of my income to debt repayment. I use a debt snowball approach. I add $5 – $10 to four of the minimums then the remaining allocation is put toward the lowest debt. On current track, all debts will be paid off in 5 years.

Savings & Investment – 10%
I actually keep four different accounts for various needs. I do not believe in spending all excess cash on debt repayment as Dave Ramsey and others suggest. The economy is too fragile and the future murky. Savings should also be taken into account and you should pay yourself first before Visa.

1. Short Term Liquidity – I keep $1,000 in a bank savings account attached to my checking account. This is a quick cash emergency fund that is used if we have an unexpected medical bill, home, or car repair. If used it is immediately replaced in a minimum of two paychecks.

2. Emergency Fund – Two thirds of the 10% is sent to a Treasury Direct account. I have automated withdrawals and purchases setting up a ladder of 4-Week Treasury Bills. My goal is to have one year’s take home pay saved in ten years time.

I used to consider my stock investments as part of my savings but the past year has taught me there is a difference between savings and investments. Investments are meant to grow and have risk. Savings are supposed to be safe, growth should not be a consideration.

3. Investment Income – The remaining one-third of my 10% allocation goes to a brokerage account. I invest in six diverse closed-end funds that generate monthly income. They are market neutral, generally oscillating 1% up or down mostly ignoring the larger stock market. The range from zero tax home state muni fund to high yield corporate bond fund to real estate and utilities. They are low tax, passive income that in ten years time will provide $500 month extra income. In thirty years time at retirement age, they should provide $3,000 – $4,000 a month income.

4. Mad Money – I kick $20 a month to a ING online savings account. This is my mad money account that if we suddenly want to go on vacation or buy something big, shiny, and unneeded we use this account. It can be spent completely guilt free on anything.

Future Adjustments

In 5 years when my debt repayment is complete the 20% will be reallocated for the next 5 years as the following:

20% – Savings
70% – Bills and Lifestyle
5% – Charity
5% – Roth IRA

At the end of the ten years I will be 42 years old. My retirement and brokerage account allocation will remain fixed till I reach retirement. My emergency fund will be complete at one year’s pay and at that time will continue to save that money but look for other type of investments such as businesses or real estate.

Submitted by Josh


  • Blake said:

    This is a very good section. I like the was you broke this down, Josh.

  • Reina Hosier said:

    Would you mind outlining some of the stocks in your Investment Income, and how you go about selecting them. If you have already outlined this in a previous post, you can just point me to that as well. Thank you.

  • Jen said:

    Are you planning on saving for your child's education?