The Burrito Bowl Diaries Philosophy on Money and Investing

For today’s article I’ll attempt to explain our investing philosophy- where we do it, how we do it, and why it doesn’t have to be this big scary thing.

If you’re in the financial independence community you’ve almost certainly peaked your head into the mysterious world of investing. If you’re not in the FI community, investing might still be this big scary thing. The point of this article- and kind of this blog in general- is to defog the whole saving and investing situation while trying to convince people it’s worth doing.

I think our overall money philosophy can be summed up to this:

Live below your means, avoid debt, invest as much as you can, and enjoy the journey. But, since you’re here anyway, I’ll dive a little deeper.

Our Investing Philosophy

The key to successful investing is consistency and time in the market. The more money you can put in the market the better off you’ll be. Within our general philosophy are a few subcategories-Put as much money as possible into the market, time in the market (not timing the market), have a cash cushion, pay as little in taxes and fees as possible, and finally, keep it simple. Each of those branch off into multiple even smaller subcategories, but for simplicity’s sake we’ll keep it to that.

Put as much money as possible into the market

This is the heart of our frugality. Any money we set aside to invest is the only money that gets us closer to our goal of financial freedom. Some people view investing like gambling, just throwing their money away hoping to make some money in the future. I view it the opposite- any money you DON’T invest is money you’re throwing away.

To a lot of people, when they invest a portion of their income, it feels like a sacrifice because that leaves them less money to do ‘fun’ things with. We also want to have a fun life. We aren’t forgoing the fun things, we’re just front loading the sacrifice so that we can do more fun things later on.

Throwing away money isn’t always bad. You have to live, eat, and have experiences. Still, anything not invested is essentially being thrown away. When we start from that general framework, saving and investing becomes motivating instead of demotivating.

Let’s have a picture break…

…Here’s the original featured image to this post, but then (before seeing this article) my sister posted a picture of my niece doing the same exact jump coincidentally. Hot dog. Anyway, I thought the coincidence was worth sharing.

Time in the Market, But Not Timing the Market

One key to successful investing is do it for a long time. No matter how good you are at picking stocks it will be hard to catch up to someone who has been investing for forty more years than you. Along with this is our philosophy that you shouldn’t try to time the market.

Most people lose money in the stock market because they try to time the ups and downs. When the market is on a bull run, they jump in even though prices are high. When the market is going down, they want to abandon ship. The trouble is, you never know when the highs or lows are at their highest or lowest. To combat this, our plan is to just leave our money in the market come hell or high water. This makes it mentally easy because we never have to look outside at the storm clouds and wonder if today is the day we should finally sell everything and run for the hills.

What the market is doing today doesn’t matter at all because we’re not planning on spending the money for several decades. Don’t listen to the talking heads on your favorite news channel. They’re paid to create panic. The world isn’t ending. Just hold on to your investments and don’t buy into the drama.

One of the most common mistakes in investing is selling at the bottom due to panic. People get so nervous they’ll lose everything they sell their investments for pennies on the dollar. If they had just stayed the course, the market eventually would correct and they would be fine. When the market is going down, you should actually up your investments. Stocks are on sale and you get to benefit!

We don’t try to time the market. Once we’ve paid our bills, whether the market is up or down, we invest.

Have a cash cushion

It doesn’t matter if you make $200k or $20k per year, if you’re not living below your means you’ll always be right on the edge of disaster. We typically keep about three months worth of living expenses in our online Ally Bank account. This means that if the wheels completely fall off- both Mrs. Burrito Bowl and I lose our jobs on the same day- we’ll have our living expenses covered for three months before we’d have to tap into our investments. Ally Bank offers 2% return on your money. It’s not as good as being in the market, but it helps to hedge against inflation and it’s a lot better than most big banks will give you.

If we do lose both our jobs and run out of our emergency fund, we can always tap into our investments. This is a last resort and not something we plan on doing. Still, the money is there if we ever need it. Having a cash cushion means, if the market is down, we don’t have to immediately cash out. We have some time to ride out the storm even if we lose our income.

Having this cash cushion is incredibly important because it gives us flexibility. We don’t ever have to stay in a toxic job environment for fear of not being able to pay rent. We’ve got rent and everything else covered for several months.

Pay as little in taxes as possible

The way we invest a large part of our income is by maxing out our pretax retirement accounts and simultaneously paying very little in taxes. For a deeper dive into this topic, read our post on saving pretax. If you don’t care at all about how we save pretax just skip to the Pay as little in fees as possible section.

Okay. Well here you are. If you didn’t skip to the Pay as little in fees as possible section, it means either you weren’t paying attention when I said skip this part, or you actually want to hear about how we save pretax.

Mrs. Burrito Bowl is a nurse so she has access to a 457b and 403b. They basically work like a 401k except she gets two of them. That means in 2019 she can put up to $38,000 total into these pretax accounts ($19,000 in each).

I have a solo 401k, so I am able to put $19,000 into my solo 401k as the employee with a match of 25% of my salary ($6,000) as the employer (this one is a little more complicated as I’m an independent contractor with an LLC taxed as an S-Corp.)

In addition to these, we each can contribute to either our Traditional (before tax) IRA or our Roth (after tax) IRA. Anything we contribute to pretax accounts doesn’t count as earned income when tax season rolls around.

If you're not into maxing out any retirement accounts, at least contribute to your 401k (or equivalent) up to the company match. That's just free money. It's like if your boss said, "Hey, if you don't spend $10 I'll give you an extra $5 just for saving your own money." And you're like, "Nah. Gotta buy this bubblegum." Come on, people.

So real quick here’s how the math breaks down:

Combined we make approximately $130,000 per year pretax. There’s a $24,000 standard deduction that every couple gets. If we didn’t contribute anything to our retirement accounts, we would be in the 22% tax bracket, and the government would take approximately $15,000. That $15,000 is gone forever. The government takes it and we can’t do anything about it.

If we fill up our pretax retirement accounts, the government gets a much smaller piece of the pie. Instead of having access to $106,000, they can only dip their hands in $31,000. ($130,000 – $24,000 (standard deduction) – $38,000 (457 & 403b)- $25,000 (solo 401k and matching) – $12,000 (Traditional IRAs) = $31,000

Going from $106,000 net income to $31,000 puts us in the 12% tax bracket so we pay roughly $3,300 in taxes. This is a rough estimate, and there are a bunch of ways we lower our taxes even further, but the point is either we save for our own future or the government will gladly take $20,000 off our hands.

We don’t always opt for the traditional IRA, and in fact, typically we do the Roth IRA because at $43,000 we’re already in a low tax bracket. All of this pretax saving is of course contingent on keeping your cost of living low enough that you don’t need to spend everything you earn. More on Traditional vs. Roth IRAs here.

Pay as little in fees as possible

Just like with our taxes, we want to pay as little in investment fees as possible. We don’t have a financial advisor and I would strongly recommend against getting one. All of our investments are through Vanguard, and the only fund we have is VTSAX (Vanguard Total Stock Index Fund Admiral Shares). The fee for this is only .04% per year. That’s .04% NOT 4%. That means, for every $100,000 we have invested, $40 is taken out per year in fees.

Many financial advisors charge anywhere between 1-3% ($1,000-$3,000 per year for every $100,000 invested) for their “services”, and study after study shows that only about 20% of all fund managers are able to beat the market. VTSAX doesn’t try to beat the market, it mirrors the market. Instead of having a 20% chance of beating the market (and paying a 3% fee for the privilege) we happily ride along with the market.

The difference between paying someone to manage your fund and doing it yourself can be the difference between hundreds of thousands of dollars over your life. Don’t get suckered into paying that fee. People sometimes assume the fee is only on earnings, but this is almost never the case.

Here’s an in-depth look at how catastrophic fees can be to your overall returns. 

Keep it simple

Finally, we keep it simple. We invest with one company (Vanguard) and we only buy one fund (VTSAX). Our fund is an index fund that mirrors the entire stock market. This one fund encompasses the performance of over 3,000 companies, whereas individual stocks depend on the performance of just one company. We aren’t putting all our eggs in one stock. Investing in index funds is a lower risk way to invest as opposed to picking individual companies.

The point is, you don’t need to be constantly searching for the next breakout company to be a successful investor. In fact, doing that will probably leave you worse off. All you have to do is pick a low-cost index fund and continue to put money into it. Don’t panic and sell when the market is dipping and you’ll be just fine.

It doesn’t have to be complicated.

JL Collins has a great stock series that everyone should read. He does a tremendous job at explaining why investing using Vanguard is not only the simplest way to invest, but also the smartest.

Live below your means and avoid debt

In order to have anything left to invest after you get paid, you need to live below your means. This means you choose to live in a smaller house or apartment than you can afford. Drive an older vehicle you can pay for outright, or choose to be car-free! Eat out less and make more food at home. These are some of the strategies we’ve used to save a large percentage of our income over the last few years. Trust me, it works.

Living below your means and avoiding debt go hand in hand.  To avoid debt, follow this general rule: If you can’t afford to buy something, then don’t. I know that sounds extreme, but hear me out. If we don’t have the money in our possession to purchase something, instead of purchasing it anyway with a loan, we don’t purchase it. We don’t care how low the monthly payments are, we care about the overall price tag. Financing is offered to customers as a sneaky way of getting them to buy pricey things they can’t afford, and sneaking in extra nonsense like “service fees” without them knowing.

If we want something, we save up enough to buy it all at once, and we usually buy it used. If we can’t find what we want on the used market, we will find the best deal we can buying new. We use credit cards for as many purchases as we can (so we can get points for travel hacking), but never use them to buy something we couldn’t pay cash for.

Don’t worry, we’re almost done.

Enjoy the ride

Finally, enjoy the ride. It’s pretty crazy that you’re even alive, so enjoy it. I hope people don’t get the idea that we keep our noses to the grindstone and don’t enjoy life. We enjoy life, honest. Spending frivolously does NOT equal life enjoyment. Through being frugal, we’ve found that most purchases we thought brought us happiness in the past don’t actually increase our life satisfaction at all. We spend almost as much money as we want. If we had all the money in the world, we’d probably eat more sushi and I’d buy a sauna. Other than that, we spend to our hearts content. We just try to only spend on things that will actually make us happier.

Once we had a little bit of money saved up, we realized the security we felt from no longer living paycheck to paycheck increased our life satisfaction much more than any purchase we would care to make.

So there you have it. This is basically our philosophy when it comes to money and investing. Investing is easy. Start small, but get started. If you have any questions I’d be more than happy to help any way I can.

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