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We spent more than a decade not even thinking about money and it showed in our results. Setting financial goals has literally changed our lives and helped us grow our net worth dramatically. We’ve just completed our 2020 goal-setting. The outcomes are exciting, and I’m excited to share them with you. Before we dive into the goals, a quick review of our process.
Goal Setting Process
We’ve created an effective (for us) routine for our financial reviews and goal setting. It’s been so successful in fact that we’ve eliminated the frustration and anxiety of financial conversations and actually look forward to the talks. Given how challenging some of our early conversations were, this is an incredible turn.
I wrote last week about the effective financial goal setting format we use. I won’t go deeply into that here, though you’ll see it reflected in the goals.
Here’s our meeting and review structure:
- A two-part annual conversation
- Quarterly net worth and goal updates
- Monthly walks and “how are you feeling about this?” reviews
Since 2019 is winding down, we held our annual meeting this past weekend. The annual meeting is an intentional two-step process. First, we update all of our financial spreadsheets together. These include our net worth, a rough annual budget, and our financial independence projections.
We walk through these numbers together to make sure we have an aligned understanding of the current state of our finances. These conversations require trust and agreement on the numbers. If we disagree, we want it to be about real things, not misunderstandings.
This year, due to scheduling we did the meeting a little earlier than normal, so the year-end numbers aren’t quite final. I’ll share final updates on 2019 progress early next year. By any measure, it’s been a great year.
For the first time ever we’ve maxed out our tax advantaged options. That’s an incredible amount of savings! In 2019, we also cut our housing costs in half by downsizing our home. We’re on track to meet our stretch investment goal of $24,000 into our brokerage account.
The market returns have been great too. That’s nothing we control though, and we are careful to continue with our plan rather than be influenced by market results. We focus on our actions, not the results. (Check out Annie Duke’s Thinking in Bets if you want to learn more about why that is always a good idea.)
In short, our spreadsheet review confirmed what we expected – we made incredible progress in 2019. We were excited to move onto phase 2.
Phase 2 of our annual goal setting involves dinner and a bottle of wine. We talk about our goals and aspirations, hopes for the coming year, and how intensely (or not) we want to pursue financial independence for the coming year. This intentional separation from the spreadsheets is a big part of how we’ve stayed aligned in our pursuit of FI.
It allows us to dig more into the numbers. To understand how we’re feeling about work, if we’re staying balanced in our financial pursuits, and what new things we may want to consider or try.
After 2019, what could we possibly do for 2020? Here’s where we landed.
Long Term Goal
The biggest news, for the very first time, we’ve agreed upon a financial independence target date!
In the past, we’ve run projections but had so many unknowns built in it felt pointless to use them as anything more than a rough estimate.
Over the past three years, our understanding of our finances have increased significantly. We’ve reduced our spending and gotten clearer about our final target. We’ve also gotten closer to our potential pension window and are comfortable starting to make some assumptions.
Our FI Date Target is July 2022. Less than three years away!
With reasonable assumptions, we should make that date without any (new) drastic actions. Of course, a significant market crash or health catastrophe could change that – but that will always be true.
We aren’t declaring that as an early retirement date. We’ve embraced FIOR (financial independence optional retirement) so financial independence is it’s own point. But, we’ll have that option – and we’ll have achieved financial independence before we were 50. Not bad for two broke teachers who spent way too long being clueless about finances.
Long-term Goal: Financial Independence by July 2022.
Annual Goals for 2020
We set 3 -5 annual goals each year that support our pursuit of financial independence. These are things that we plan to accomplish within the calendar year. For a look at last year’s goals, you can check out 2019: Getting Better Every Year.
Goal 1 – Max Out Tax Advantaged Investments
Educators have a huge benefit over most professions in this area. Many educators have the equivalent of two 401ks: the 403b and 457b.
These have multiple catch-up provisions as well. You can read more about the 403b and 457b in these posts:
The end result is that any two educator household can invest almost 6 figures in tax advantaged accounts. If those two educators are over the age of 50, they can put away far more than 100k!.
2019 was the first year we maxed all of our tax-advantaged options. Honestly, we have so much of this automated that we considered not having this as a goal. It’s still a significant amount though, requires us to earn some extra money, and we don’t automate the IRA. So, this one stays as an annual goal.
Here’s what it looks like for us:
|TAX ADVANTAGED |
|Educator FI (Ed)||Teacher FI (TFI)|
|403b (Catch-up provision)||$0 (not eligible)||$3000 (max eligible)|
|HSA||$3550||$0 (not eligible)|
We put about 70% of this into index funds, and 30% into a bond fund as we move from 90/10 stocks:bonds. Our overall target portfolio is 80/20.
Goal 2 – Additional Brokerage Investments of $24000
We are fortunate that the 457 is accessible upon separation of employment, so it serves as a quasi-brokerage option should we ever decide to retire early. However, the majority of our assets currently sit in retirement accounts. So, we continue to build up additional investments.
These go into a combination of VTSAX and the Fidelity international fund. (Heavy emphasis on the VTSAX)
While the majority of the investments for goal 1 are automated, this one is a stretch goal that requires us to create and convert savings whenever possible. We do this with a monthly sweep.
Goal 3 – Develop a Long Range Housing Plan
One of our biggest successes in 2019 also created some uncertainty. We decided in April to downsize our home, and had sold it and moved by July. It was a quick turnaround.
We decided to rent while we experimented with a new area and to give us time to think about a long-term housing plan. It was a wise choice as we’ve become even clearer on our needs, non-negotiables, and areas we’d consider living.
We currently hold $200,000 of our assets in cash equivalents. We need to make a decision on how we plan to use that in the coming year.
Now that we have a FI date, we also need to have our housing plan settled in order to consider ourselves truly financially independent.
In the coming year, we’ll resolve our long range housing plan, including:
- Rent or buy?
- Housing type
- Financials (we already have a defined range in our FI plan)
The plan may actually be to wait until retirement and purchase something elsewhere – who knows? But either way, by the end of 2020 we will have firm plans for long-term living.
Goal 4 – Create a rental house security fund
Our one financial negative in 2019 was a surprising amount of money we had to put into the single-family rental we own. Now – it shouldn’t have been a surprise because things like the roof and deck have a predictable lifespan.
Yet, we hadn’t saved up for them, and have been largely covering rental expenses out of our income and other savings. These were orders of magnitude higher than anything that normally comes up. Fortunately, we were able to cover the expenses with cash from the sale of our main house. That’s a one time solution though.
We realized we needed to create an actual fund for the rental, separate from everything else. After searching for advice and considering potential costs, we’ve settled on 6 months worth of gross rent to cover any vacancies and any big-ticket repairs. (On the bright side – the two biggest predictable ones are now behind us for another ~20 years)
Goal 5 – Implement Consistent Meal Prepping
This was the one goal in 2019 we didn’t fully meet. We made significant progress and at various points were meal prepping a significant number of our meals.
Unfortunately, the house move broke our routine. We never fully recovered, and small adjustments to our schedule in the fall led us to only partially implement meal prepping.
In the grand scheme of things, this isn’t significant for our pursuit of FI. But, we’ve found it to be great for our health and finances and just need to prioritize it. This is our most significant behavior change goal for the year.
Short Term Goals
This is a new section to our goal planning. Well, not exactly new but we are being more explicit and transparent about this portion.
In the past, we’ve always agreed on the steps we’d take to meet our annual goals. To be more effective, this year we are going to share those each quarter. In our quarterly review, we’ll check our results. Then, we’ll either adjust the goal or declare it done and add a new one.
Short-Term Goal 1
By January 14, make payroll adjustments for automatic withdrawals to the new 2020 403b and 457b contribution limits.
Not much description needed there – just a necessary concrete action!
Short-Term Goal 2
Open and meet the minimum spend on a travel rewards credit card. We plan to do this for at least two cards this year, in addition to maxing out the cash-back bonus categories on our second Discover IT card.
For the first quarter, TFI will open a Chase Sapphire Preferred and meet the minimum spend of $4000.
Short-Term Goal 3
Create a meal prepping schedule that balances out our busy lives, schedule needs, and allows us to eat prepped meals a minimum of three days a week.
Short-Term Goal 4
Fund 50% of the rental security fund by the end of Quarter 1.
Short-Term Goal 5
Create a timeline and process for finalizing the housing decision.
Now, this might sound like creating a plan to plan. Okay, it is creating a plan to plan.
But for decisions like this, creating the process helps define all of the factors we’ll need to consider and the decision points along the way. We’ve been loosely discussing this for the past 6 months, we’ll tighten up the discussion progressively more each quarter.
A clear process will help keep us on track for the rest of the year.
Review Plan for 2020 Goals
Goals without a process for review and adjustment are just dreams. We will continue to do a big picture financial review monthly, and will add in the review of short-term goals accomplishments.
On a quarterly basis, we will update our net worth and other financial spreadsheets to monitor progress on annual goals.
Summary 2020 Goals
We have a clear long-term goal we are driving to! While this phase of the pursuit of financial independence can seem almost anti-climatic, we are being intentional. The specific date is motivating in a new way and keeping us firmly on the path!
To make the necessary progress this year, our goals are:
|2020 GOALS||DESCRIPTION||REVIEW PLAN|
|Long Term Goal||Financial Independence by July 2022||Check net worth quarterly, reevaluate goal in Dec. 2020|
|Goal 1||Max out tax advantaged investing accounts||Quarterly|
|Goal 2||Brokerage Investments of $24000||Quarterly|
|Goal 3||Create long-range housing plan||Quarterly|
|Goal 4||Create a rental house security fund of 6 months gross rent||Quarterly|
|Goal 5||Implement consistent meal prepping||Quarterly|
|SHORT TERM GOALS|
|Short-term goal 1||Adjust automatic payroll withdrawals to 2020 limits||End of January|
|Short-term goal 2||Open and meet minimum spend for travel rewards card||March 2020|
|Short-term goal 3||Develop meal prepping calendar of 3x days per week||March 2020|
|Short-term goal 4||Fund 50% of rental security fund||March 2020|
|Short-term goal 5||Create a timeline and process for our housing decision||March 2020|
2019 was an amazing year. We hope 2020 is even better!
Check out my post on effectively setting financial goals – includes a free worksheet!