Science tells us that when we set goals we’re more likely to accomplish them. It has been with the help of starting this blog that I’ve managed to grow my networth from less than $25k to over $250k. Now the stakes are raised.
My next big goal is $500k by 2018.
Fortunately, I’ve found myself in a career that pays reasonably well. I could be making more money, but I’ve also found that, as many of the finance gurus say, it’s not about how much you make but how much you keep. I’ll never claim to be a frugalista, but I’ve managed to control my spending to the point where my savings have grown into a sizeable nestegg for anyone who doesn’t live in such an expensive region of the world. Here, where average starter homes cost $1.2M, it’s slightly more than pocket change, but it’s a start.
Readjusting My Savings Goals for the Mid-Long Term
Previously in Mint I had three goals set up for the short term. I track my retirement accounts under one goal, my taxable investments and liquid cash under another, and then my college savings account (529 plan) in another (just because that’s an oddball I set up once in case I ever want to go back to school, but I’m not investing any more in at the moment.)
Instead of tracking towards my annual goals, I’ve decided to start tracking towards my next “big goal” — $500k by 1/1/18. This enables me to think big picture while also making up for lost growth when markets don’t cooperate.
Mint.com does not allow you to take into account your potential interest earnings — only your actual monthly savings per program — but the numbers below are based off of the following data:
- school/college – $0 annual addition, 5% YoY ROI
- retirement – $17.5k annual addition (401k max if avail), 5% YoY ROI
- investments – $36k annual addition, 5% YoY ROI
(*the key is not assuming I will achieve 10% YoY ROI, but to map to this so if I’m falling short I somehow invest more on a monthly basis to hit my goals.)
This chart has me saving $53.5k per year ($17.5k pre-tax, $36k post tax) to achieve my goals, with a healthy market over the next four years (plus my individual investments performing well.) If the markets happen to perform even better (i.e. 10%) my plan should net me $600k by Jan 1 2018. I’ve also mapped this to major life events as my ultimate goal is $500k in networth before I have a child. It would be awesome if my partner would match this so we could have $1M in the bank before we have a kid, but he is not going to be able to do this. I’m just going to focus on my own goals because achieving the life I want* is all me.
(*the life I want = ability to work part-time, consult, change careers, spend time w/ my hypothetical children, more freedom and flexibility. I’ll probably have to leave The Bay Area to afford this regardless unless company stock happens to be worth anything, but I want to provide myself some options for the next phase of my life.)
If the 10% goals are achieved I an have a child when I’m 33, otherwise I should try to wait until I’m 34. That said, it’s going to be tricky (and expensive) for me to get pregnant anyway so that could throw the whole plan off by a bit. That’s why achieving this plan is so important to me. Overachieving it is even more important if I can make it happen. It also sets me up nicely to have $1M in savings/investments by the time I’m 40. I want to make sure my 40s (when my kids are in their preteens / early teen years) that I’m available and not working all the time.
Here’s the longer term play of this plan — assuming I can keep saving at these rates:
Now, I’d love to go back to school sooner, change careers sooner, maybe make less and be happier, but it seems like if I can just grit it out — at least for the next four years — I’ll be set up a lot better to make these decisions later in life and have more freedom. I don’t want to live a life where I’m a slave to any job or career. With $1M by 40 I can move to a more affordable part of the country, work part-time as a consultant and spend the rest of my time studying art and painting or writing novels, or just be with my family. That’s true financial freedom. Maybe it’s early retirement, but I don’t really want to retire ever… I just want to have time to get better at my passions so they can become profitable.
In any case, this gives me a very clear plan of what I have to do to achieve or overachieve my goals. This requires a minimum of $3k per month saved in my investment accounts (properly diversified) and $1.4k towards retirement (into a 401k, no match, if I can convince my company to get one.)
Taking home a little over $6k per month post-tax this is challenging but doable w/ the 401k. It’s also imperative to save more sooner because this provides the opportunity for the funds to grow longer. So if I can be a little more frugal when I’m 30, I can spend a little more when I’m 31. And hopefully there will be some pay raises and bonuses in there to help me hit and exceed these goals (today, I could potentially take home $1k monthly avg after tax bonus if I get my full bonus for the year, which makes this plan much more achievable.)
I’ll be tracking my efforts here and also working out a real budget to help me hit these goals, which is more important than ever now that my rent has gone from $650 per month to $1350 + utilities (yikes, that was not the smartest idea but – whatever, I love my new apartment and I’m hoping at some point my bf starts to make more so our split becomes more 50/50 ($1125 / mo would be a lot easier to stomach than $1350 for my half of the 825 square foot one bedroom, but we’re doing % income so I’m just going to deal and plan accordingly!)