Effective with Money

Talking about money might seem a little off-track from my usual topics, but personal and career growth depends on a strong financial foundation. Whether for freedom, stability, or our dreams, money is essential (even if we’d rather not think of it that way).

While personal finance can get complex (especially in the U.S. with 401(k)s and other strategies), I want to focus on principles that apply almost anywhere. Here’s a look at key ideas to help you take charge of your financial path (and just to clarify, I am not a financial planner, I just read a lot of theory and try to share it in a consolidated manner every week). Hope this helps!

THE THEORY

Automation and simplification make consistency easy. One of the best ways to simplify our finances is to automate. In “I Will Teach You to Be Rich,” Ramit Sethi suggests automating transfers to savings, investments, and other goals so that saving becomes a “default.” This frees up time and energy to focus on the bigger picture, rather than managing every transaction. The idea? Automate what matters so you don’t need to make daily decisions on where your money goes.

Use the 50-30-20 Rule for mindful spending. Mindful spending is all about aligning expenses with values, and the 50-30-20 rule is a helpful guide. It suggests spending 50% of income on needs, 30% on wants, and 20% on savings. The Algebra of Wealth and similar frameworks encourage finding satisfaction in simplicity and focusing on what brings lasting value. With this balance, you’re able to prioritize savings while still allowing for flexibility and enjoyment in your spending.

Diversification and time in the market. Growing wealth depends on investing, and diversification (spreading investments across different assets) reduces risk. A popular rule is the “60/40 rule,” which suggests investing 60% in stocks and 40% in bonds (it actually suggests adjusting the bond percentage to your age, which I think makes a ton of sense, but I do understand why it has some detractors). “The Simple Path to Wealth” advocates for low-cost index funds like the S&P 500, which have a strong track record. While it’s tempting to try to “time the market,” experts advise aiming to spend “time in the market” to let investments grow. Diversified, low-cost funds are a steady, reliable way to build wealth. [Side note: If you earn RSUs, you are probably highly invested in one stock, so take a close look to see if you are where you want to be.]

MY PERSONAL THOUGHTS

Money is a shared household goal. I believe financial planning should be a team effort within a household. Money is a major cause of stress in relationships (often leading to divorce), so having open discussions and shared investment and spending goals is essential, even if one person makes more or manages the bills. Joint decisions lead to less stress and more alignment.

Time and Money: Our two most precious assets. I see a lot of similar patterns in how we manage both. We often say we value things like health or education, but how often do we actually spend time or money on them? Managing time and money follows the same principle: Make a clear plan that aligns with your values and stick with it.

HOW TO PUT THIS INTO PRACTICE

1. Automate Key Financial Actions: Call your bank representative and set up recurring transfers for savings and investments.

2. Apply the 50-30-20 Rule: Review your budget based on this split (50% for needs, 30% for wants, 20% for savings) and adjust if needed.

3. Establish an Emergency Fund in a high-yield savings account: Aim to save at least 3 months’ worth of expenses to protect against unexpected costs. Choose a high-yield account to maximize returns.

4. Diversify Your Investments: Consider a mix of stocks and bonds that matches your age and risk tolerance. ETFs like VTSAX or VOO are good low-cost options (and review your RSUs).

5. Review and Adjust Regularly: Set aside time each month or quarter to stay aligned with your financial plan and make adjustments as needed.

Money is a tool, not the goal. Let’s make it work for us, not the other way around.

With diversification,

Jorge Luis Pando