December is one of my favorite times of year for personal finances. As a big data analysis nerd, I like to review my spending habits and saving achievements from the past year. I then look for opportunities to refine my budget and seek out bigger investments. If you want to advance in life you need to continuously develop challenging goals for yourself. Goals help us focus our attention and provide direction for long term success. When we challenge ourselves, we learn to push our limits far beyond what we previously believed to be impossible and help us take control of our life’s journey.
Goal setting is more than simply saying, “I want x” and magically receiving what we wish for. There are no magic genies or easy paths to achieving your dreams, however, by developing a process that forces you to reflect upon your personal desires and identify actionable steps that can be taken to achieve your desires, you will have an excessively high probability of achieving success.
To start the process, I suggest taking a step back to identify who you are, what you are doing today and what you want to achieve in one year, five years, and ten years from today. Next, identify what you will need to do to develop yourself into the person you want to be in the future. It’s all about baby steps, year to year. As you move along the path you will become more confident in yourself and begin to take on bigger challenges.
Once you have identified what you want to accomplish with your life, begin writing, down actionable steps you will need to take to be successful. I like to write short, clear, concise goals with Specific, Measurable, Actionable, Realistic, and Time-based (SMART) criteria for each goal. If you are bold enough, you can even share your goals publicly with friends and family. Two years ago I began posting my intended goals on social media, and to my amazement, I found that I was more likely to meet and exceed my goals when I published them for all to see.
Choose a mix of easy to accomplish and challenging goals that seem just out of reach of what you think is possible.
In 2017 I plan to push myself into very uncomfortable territory, if I am successful I should be able to increase my net worth and generate an additional $3,000 to $5,000 of yearly passive income. That’s enough to pay for my car, auto insurance, and gasoline indefinitely for the rest of my life!
Goal 1: Max out my 401k by May 30th. The maximum limit for 401k accounts will remain at $18,000 for 2017. I have never contributed more than enough to receive my employer’s company match. This has usually been about $6500 a year + a $3,250 employer match for a total of $9,750 a year. My goal for 2017 will be to contribute $18,000 to my 401k contribution rate within the first 5 months of the year. With my employer’s match, the total will come to $21,000 in tax-free money for the year. 100% of the money will go to Vanguard’s VTSAX and VTI Total US Stock Market ETF. To reach this goal I will take a significant decrease to my bi-weekly paycheck which will force me to live off of less money each month, but it will also reduce the amount of income taxes I have to pay at the end of the year. I actually started on this endeavor a month ago, and I saw a -$704.59 decrease in my paycheck. This was a huge hit to my wallet, after the first paycheck I was tempted to reduce my contribution rate to ease the pain, but then I told myself I need to embrace the pain and learn to adapt.
Goal 2: Contribute $15,000 to after-tax investments. I will eventually become accustomed to the lower paycheck, and once I reach the maximum $18,000 401k contribution in May, I should see the additional money come back into my paycheck at the beginning on June. Once that happens, I intend to use the Mega Backdoor Roth IRA strategy to invest the money into LendingClub, Betterment, or RealtyShares and make the future profits tax free.
Goal 3: Invest 75% of my tax return savings into short-term real estate investments, with a 12 to 18-month hold, via RealtyShares or individual stocks, depending on how the markets look during the first quarter of 2017.
Goal 4: Invest 85% of my 2016 savings ($10,000) into a commercial real estate investment with a 4 to 5-year hold via RealtyShares.
Goal 5: Cut my food expenses by 53%. One of my co-workers has a family of five and have a strict budget of $140 per week for all of their groceries. That is a total of $7,280 a year for five people, an average of $1.33 per person per meal! Our family’s total for 2017 for two people ran about $9,801.57 for the year or an average of $4.47 per person per meal. My goal is to get our average down to $2.06 per person per meal by cooking larger amounts of food for dinner each night and take the leftovers to work for my lunches. Breakfasts will consist of two boiled eggs and an avocado each morning or a bowl of oatmeal. The reduction in the cost of our meals will help make up for half of the hit to my paychecks from my aggressive 401k strategy.
Goal 6: Reduce my online spending by 15%. I have problems with impulse online purchases, I spent $13,800 through Amazon this year, most of the purchases were necessities, but about 15% of my purchases were unnecessary wants rather than needs. To regulate these spending habits I have removed all shopping apps from my smartphone and I intend to limit my online order placements to one per month. If I see something that I want to purchase, I plan to put it into the shopping cart, but not place the order until the end of the month. That way I will give myself a cooling off period to determine whether or not I really need the item and give myself an opportunity to remove the item from the cart.
If I am able to achieve all of these goals I should be able to reduce my excessive spending on meals and impulse purchases by $6,000 and invest a total of $53,000 through pre-tax and after-tax accounts. As a baseline for the start of 2017 net worth is $220,198 with an asset portfolio mix as shown below:
Reader’s do you set financial goals for yourself? What are you looking to accomplish in 2017?