Monday, September 05, 2016

Glacial Financial Growth of my Plan

My financial experiments have so far proven more or less workable, although rather slow. In fact, circumstances have led to diminished cash reserves, to the point where I am slightly nervous.

I've had some big draws on my reserves that in times past would have been impossible to pay. For example, my Prius had some cooling problems and required changing parts to the hybrid system and changing a leaky water pump. With dealer prices, the repairs cost almost $1000. Something like that is still alarmingly pricey on my budget. Still, I was able to take care of it. Prius models are known for their longevity, so I'm hoping that at 145,000 miles, I can count on the car to continue to perform as dependably as it has been.

Another large draw was for a deposit with a builder, which would become earnest money if we qualified for financing, my wife and I. That was another chunk that left the reserves. We expect that money to come back to us soon. The driving reason behind attempting to buy a house, a down payment assistance program for teachers, did not pan out. This means that we would have to come out of pocket that chunk of money. At this point, we are unwilling to do that.

So, the point of my writing today is that the whole purpose of setting up our experimental personal financial system was to help us weather big cash flow problems. Indeed, that is what the system has helped us do. The result is that we are experiencing glacial growth of our reserves as we pay down the draws from the system.

In case you are new to the experiment, here is roughly how it works.


  • Checking account - all income enters here and gets allocated to pay down loans
  • Credit Cards - most spending comes from here, paid by money market as a loan
  • Money market - all loan repayments enter here, except car payments, which existed before the system was set up.
  • Margin account with Bond mutual fund - slowly buying shares every month to increase margin. Principal is untouched, margin credit is the source of cash.
  • Whole Life policies with maxed out paid up additions - another emergency fund for borrowing.

The mechanics are that the checking account offers a feature called Goals. Goals let you create discrete savings targets. So, when I pay my credit card, say $500. I create a Goal for $550. That's the $500 I paid the credit card plus 10% interest. 

When I get a paycheck, I pay off as much as I can of the outstanding loans, which is most of my paycheck. This is using a personal version of paycheck parking. You can watch this video to explain some of my thinking:

Using the Debt Weapons described in the video, I am also using a little bit of Infinite Banking Concept. IBC uses whole life insurance policies as a source of financing. VIP Financial also suggests using IBC as a source of money. Unfortunately, it takes years to build up your policies to a level where your cash value is significant. This is where the margin account comes into play. I can buy shares of a bond fund that pays a very meager return, and use that to borrow back half when needed. It's like IBC, except that I can build the cash value faster by buying more shares. 

A lot of this seems convoluted. I apologize for not being able to explain the setup better. What I do want to convey is that there is a limit to the growth of this system. It's limited by my income. It can only grow as fast as I am able to save money. Thus far, I have not reached the point where my life insurance policies have earned their first dividends. My bond funds are small, and pay very little in interest. I have no other reliable investments that assist me in growing the reserves. This needs to change. 

I have some prospects for additional income; but, they require large investments, which I currently do not possess.  These involve debt instruments that pay interest and use velocity of money over the long term. But, I'm no there yet. 

This plan is a long-term plan. I can see where it is going; although it can be exasperating in the first months. I have a lot of things that I need to resolve before I can make significant gains in my savings. For example, having a car payment to an external bank is less than ideal. I could recapture the interest charges if I were paying myself. However, I am not at a point where I can pay off the car entirely and turn it into a loan to myself. But, that's the goal. So, in time, my reserve balance will slowly grow. And my car loan balance will slowly shrink. They will cross paths at some point so that we can make that leap. 

All I need now is patience and diligence. 

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