For the past three years, I’ve set a theme for the year related to our financial journey. Last year, it was optimism over cynicism. This year’s theme of Do Not Fear Change is appropriate with all the changes happening.
I’ve hit financial independence and am walking away from my job. To that end, I also mentioned that I’m stepping back (a bit) from the site. For the next few months, I’ll post less and probably share more about my personal journey. Don’t worry, the career content that is among my most popular will return!
Despite all those changes, we continue our regular goal systems. Setting effective financial goals has been the most important thing we’ve done on the journey. If you’re just getting started, I suggest starting there. (Here are some financial goal examples if you need them.) We will always conduct these quarterly reviews.
Now, let’s see how we did. (Spoiler: mixed)
Our Financial Review
Quick Overview: Each year, we set annual goals and then build medium- and short-term actions to help us achieve our annual targets. The short-term actions are updated each quarter.
We discuss our progress monthly, but do a formal review quarterly. This is our review for quarter 1 (January – March) 2021.
Here’s the color system for our goal reviews:
|We’ve either already met the goal or are on track to do so and have added something.
|On Track / Done
|Exactly as it sounds. We’ve taken the necessary action to get there by year-end. Or, it’s already done.
|Actions that we haven’t yet taken, or need to adjust to reach the goal.
|Uh uh. We won’t make it without significant changes.
It’s important to note that you should adjust your goals along the way if they don’t make sense or circumstances change. We’ve adjusted our goals up more often than down on our journey. Sticking rigidly to a bad goal is as harmful as not meeting a good goal.
One big change for us this year – we no longer have a net worth target. Once we reached our FI goal, it’s no longer useful. We still track our net worth and I’ll report it as a percentage against our original target. You’ll see that at the end.
The actions we take are more important than the goals. Your short term actions are where movement happens. The longer term goals are just autopsy results of those actions.
Here are the goals we set for 2021, and the actions we said we’d take:
|Avoid drawdown of assets for 3-5 years
|Goal 1: Tax Advantaged Investments
|Goal 2: Brokerage Investments
|Goal 3: Crypto Hedge of 1%-2%
|Goal 4: Establish New Budget
|Adjust payroll withholdings
|Complete Roth IRA contributions
|Establish reserve fund
How Did We Do in Quarter 1?
Annual Goals for 2021
|Goal 1 – Tax Advantaged Investments
One of our biggest accelerators has been maxing out our tax-advantaged investments in recent years. I only wish I’d realized earlier how much power educators have in tax advantaged options. In our case, we have four places we can invest with tax advantages: 403b, 457b, Roth IRA and I’ve got an HSA option.
This year, with my impending job change we’re stepping back a bit. We’ll still max out our 457, HSA, and contribute to Roth IRAs. We’re putting less into the 403b since our income will drop midyear.
We are on track here. TFI has her withdrawals set up for the whole year, we’ve covered both Roth contributions, and I’m contributing 1/6 of the contribution limit to my 457b monthly so it will be capped before I leave.
It’s not as much as in recent years, but we are on track for our goal.
|Goal 2 – Additional Brokerage Investments of $20,000
This was a stretch goal for us. We don’t NEED to invest more, but while our earning is high it seemed right to push as hard as we can and build up some extra money in our brokerage account.
We’ve put about $3000 away so far. Not bad, but not on pace to hit the goal. We had some financial bumps: our tax bill was larger than expected thanks to a temporary easement payment that we hadn’t realized we’d have to pay taxes on (whoops!) and a bathroom repair.
There is still a chance we hit this target, but right now it feels like a big lift. Again, it won’t be the end of the world if we don’t but I hate missing goals. We aren’t adjusting this year, but may need to after a midpoint check.
|Goal 3 – Crypto Hedge of 1 – 2%
Don’t worry, I’m not going to go all crypto evangelist here. We simply decided to put a small amount into cryptocurrency as an alternative investment. Our target is no more than 2%. Thanks to some surprising appreciation in our holdings, we’re close to this even though we haven’t made additional contributions this year.
|Goal 4 – Establish New Budget
This will (mostly) be a quarter 2/3 action.
Short Term Goals
Our short-term goals are quarterly actions explicitly linked to achieving the long-term goals. If we do these, we are very likely to meet our annual goal and therefore meet our long-term goal.
After each quarterly review, we set new ones for the next quarter. So, how did we do in Quarter 1?
|Short-Term Action 1 – Adjust payroll withholdings
As I mentioned above we did this and it’s why our tax advantaged investments are on track.
|Short-term goal 2: Complete Roth IRA contributions
We put the money into our brokerage to do this. One is complete and the other is processing. (This is the last year we’ll need to use the Backdoor Roth strategy.)
|Short-term goal 3: Establish reserve fund
|Did Not Meet
Well, timing is everything. Our plan here was to use profits from our vacation rental to establish a reserve fund for future expenses. Unfortunately, one of those expenses hit in the first quarter so we used the profits on that. It’s all covered now, so we’ll roll this one into our next quarter.
Quarter 2 Short-Term Goals
Well, we missed on a few of our goals in the first quarter. Overall, our plan is still solid and we’re in better shape than ever. We’ll take it light in the 2nd quarter and our actions will mostly be related to catching up on the goals we missed.
One important action – we’ll create a quarterly budget for the first time in years. Our income will drop significantly in quarter 3 and I want to make sure we’re paying attention and have thought it through. That should help us figure out what our quarter 3 actions are in our next review.
Here are our short-term goals for Quarter 2:
- Short-term goal 1: Establish reserve fund
- Short-term goal 2: Make $5000 in brokerage contributions
- Short-term goal 3: Make $2000 in crypto contributions
- Short-term goal 4: Create budget for 3rd quarter
Net Worth Review
We calculate our net worth during our quarterly review. I use personal capital to easily track my net worth for free (affiliate link), if I want to glance at it.
Every quarter, I prefer to sit down and go through everything by hand in a spreadsheet I’ve kept for years. This gives me a better feel for my overall financial picture.
Last year, quarter 1 closed with the onset of the pandemic and resulting market drops. The markets have recovered (and then some) since then. Somehow, our net worth has continued to increase. We’re now at 129% of our net worth target.
Things continue to feel very strange. We are definitely in a liminal state where we’ve achieved the majority of our financial goals but haven’t yet shifted into the next phase. I suspect the next several months will feel a bit listless until we get closer to the actual change.
I’m so grateful that I discovered the concept of financial independence and that my partner was willing to dive in. It’s changed our lives in countless ways – and they’re all positive. I can’t wait until our next goal review when we’re setting up our new life!