How to build a financial plan that doesn’t require you to react
There is no avoiding it.
The most important number in your financial life is not your portfolio balance. It is not your rate of return. It is not your net worth.
It is how much you spend each year.
What does it cost to fund your life today? That number is what keeps you living the life you want. It is the foundation everything else is built on, and it is the first piece of data we will discover together.
Next, what are the near-term big expenses in the next 5 years? Tuition payments, a wedding, down payment on a second home, new car, helping a parent who needs care?
Only after we know how much cash you need to fund the next 5 years will we discuss taking risk, investing in capital markets, growing wealth.
I’ll build your asset allocation the way a disciplined company manages its finances. It starts with expenses. Reserve those in cash. Build a near-term cushion. Then invest everything else in growth — the projects, the compounding that builds something beyond what you imagined when you started.
One of the most common financial risks for a business is running out of cash. A disciplined CFO funds the business first, then chases growth. I will construct your asset allocation the same way.
3 Months to 1 Year of Cash
Living Expenses:
Mortgage, Tuition
Vacations, Insurance
Emergency Reserve
Next 5 years: Planned RMDs, upcoming expenses like vacations, wedding, tuition – maturities matched to goal
Global Index Funds
Real Estate
Long-term Holdings
Retirement Accounts
Legacy Assets
This is your asset allocation. Not a generic “60/40 mix” based on age. Like a bond manager matching duration to cash needs, we match your asset allocation to your life.
This is your comptroller bucket. Its only job is to make sure you never have to sell anything to pay your bills.
How much lives here depends on you: your life stage, your income stability, your expenses, your comfort level. For some clients that is three months of cash. For others it is a full year. There is no universal answer, because there is no universal life. What matters is that the number is honest and deliberate, not a guess.
Think of every obligation you have this year: mortgage, groceries, utilities, insurance, tuition, vacations, the things that make your life your life. All of it lives here. Liquid, stable, untouched by markets.
This bucket is not earning a great return; that’s not its job. Its job is to be there regardless of what the S&P 500 did last week or what decisions Congress will make next month.
When Bucket One is full, you are safe when the market does what the market does. In investing, the ability to wait is worth more than almost any strategy.
Bucket One funds your life today, Bucket Two funds your life for the next two to five years. Its job is to refill Bucket One on a predictable schedule, so you never have to touch Bucket Three at the wrong moment.
This is where the bond manager’s discipline comes in.
Why bonds are more volatile than you think, and what that means for you →
I am not buying you bonds to maximize returns. I am not buying you bonds because I think rates are going down. I am buying you bonds that match the timing of when you will need the money. Year Two’s expenses are covered by a bond maturing in Year Two. Year Three’s by a bond maturing in Year Three. The daily price swings in between are irrelevant since you committed to the term and the term delivers.
If you are still working, your employment income does much of this work already. A steady paycheck is bond-like: predictable, recurring, not correlated to equity markets, something you can plan around. Dividend income from your portfolio plays the same role, and we count it here, not in Bucket Three.
This is the engine. Everything that isn’t funding your life in the next five years lives here, fully invested in equities, real estate, or other growth investments with returns higher than inflation, working as hard as possible over as long a time horizon as possible.
No bonds. No hedging. No buffer strategies, structured notes, or complicated overlays designed to smooth the ride. Those products exist to solve a problem Buckets One and Two have already solved with cash and fixed income.
Bucket Three can be aggressive because it has time. Time is your risk capacity, not your net worth, not your age, not your risk tolerance questionnaire score. How much time you have before you need the money is the single most important input in determining how much risk you can afford to take. Time is the best downside protection.
Investing in global equities is a long-term bet on human ingenuity, innovation, and our collective ability to solve problems and create value. That bet has paid off over every long time horizon in modern history — not every quarter, not every year, but over time, with patience, it compounds. Because your life doesn’t depend on what this bucket does this year, you have the freedom to hold through anything and let that compounding work.
Retirement accounts live here too: your 401(k), IRA, Roth IRA. Long-term, tax-advantaged, fully invested. Let them work.
The only question for Bucket Three is: how much can you afford to put here? And the answer comes directly from Buckets One and Two. Once your life is funded and your bridge is built, everything else becomes your engine.
Most financial plans start with a number. What percentage should be in stocks? What percentage in bonds? The industry default is a generic “60/40 mix,” adjusted slightly for age, and presented as a strategy.
It is not a strategy. It is a placeholder pretending to be a plan.
Your right asset allocation is not determined by your age. It is determined by your liquidity profile. How much do you need in Bucket One to fund your life without touching markets? How much do you need in Bucket Two to refill it on schedule? Everything left over is Bucket Three.
When your buckets are built and matched to your life, something shifts. Market volatility stops being a threat and starts being noise. You stop watching your portfolio every day because you already know next year is covered. And the year after. And the year after that.
