2016 Lessons Learned and Plan Forward

Bring it on 2017!

I know 2016 was a crazy year but for me and my family personally it was a year full of awesome. We did a lot of fun travel and added new experiences to our memory box, had a successful year at work (I moved to my dream job with about 80% stress reduction and more pay!), were healthy and created new strong friendships (which we were missing locally and what I am most excited about).

Financially, it could not have gone better. Our assets goal to end 2016 was $360k, which was already a stretch goal, but we ended the year with $388k. This should give us a nice little cushion for when/if there is a correction (gulp!).

The table below shows our general goal until FIRE. We all know nothing is this linear, but this is just to help us know how far off / on track we really are, directionally. We are assuming we will be able to put away $140k year in savings/investments (pre and post tax), earn an average of 5.5% market return (80% stock, rest alternatives/bonds) and a 3% inflation rate so that we can withdraw the equivalent of  up to $75k a year in today’s dollar when FIREd (about 3.5% withdrawal rate). With those assumptions, those $3.1 million you see at the end are the equivalent of $2.2 million dollars today.

For the 2-3 years prior to FIRE, we are hoping to no longer have a mortgage or car payments, though we will mentally put aside $100k total for college assistance for our kids to supplement their 529s, or other stuff like weddings, etc. if needed.

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Our goal for end of 2017 (year 2 on our FIRE plan) is to have $528k in liquid assets as you can see from the graph above, which we will hopefully achieve by adding the following savings and investments if our income remains relatively stable:

Total investments 2017:  $140,050 ($121.5k from our own pocket, rest company matched).
401k (2) $36,000
Match $16,800
HSA $6,750
RHSA $1,500
Post Tax Investment $72,000
Bonus Investment $7,000
Total $140,050

As far as expenses and debt, the goal is to spend less than $75k for the year ($63k for living, $12k for traveling) and continue with our debt repayment plan as per the below graph, ending the year with $118k in debt.

Within those $60k of living expenses, we will be putting aside about $500 per month for home/car replacement costs, to help as a buffer (which we have not done in the past). We will not count that money as part of our assets or savings because we assume that money will be spent, not used as income generator in the future.

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Finally, we are done adding to our 529s ($25k each, $50k total) so we will not be tracking that in 2017 (though we may show final balance then). YAY for achieving that goal in 2016!

Lessons Learned

The biggest lessons learned for me were that surprisingly, the more I focus on my finances, the less it is becoming about the money. Simplifying and focusing our finances has had many unexpected positive side effects, which shocked me since I was expecting that this FIRE focus would just be a little painful but for a good cause so worth it in the end. I was wrong!

Having to get creative about doing fun things that don’t cost money lead us to having a lot more friends over, and in turn get invited to more social events than before and increase our social bonds.

After a few months of  reduced spending, the new habit really made me feel a lot less anxious. I did not feel like I was missing out on anything and I started craving more time with friends, or being outdoors, for example, than wanting to buy random stuff.

It has also been incredible to go from ‘I am going to work forever’ to ‘what if I don’t have enough  time to reach my career goals?’ for my engagement at work. You see, because we have already taken a few years off from work during our careers, I though that the consequence was that we would have to work for 30-40 years more, which we were ok with because of the experiences that taking time off at a young age afforded us (travel, living abroad, caring for young kids).

But in 2016, looking at this FIRE thing, I realized that we would be able to potentially cut that to about 14 years (or less) instead. If you think about it, that is not THAT much time left in the greater scheme of things. Since I do love my job now it has given my engagement a new life: If I want to reach X position / level, I better get going as I only have so much time left. That sense of urgency has been amazing. It is a great feeling to know that you are bringing your very best to work and that for now you are happy to be there.

Because our plans are based on saving at current income rates, assuming we get no more promotions (just cost of living increases), in difficult days it also helps very much to know that ‘I am not going to be trapped here forever’ and ‘I don’t have to kill myself to make more money’. Nice balance for the good and the bad days.

And lastly, our young children are noticing. They are asking questions about money. They have their own money to buy their own stuff (monthly money) and are really now valuing what that is like – if they wait and not spend money in 3 months, they get a match. It has opened up the opportunity to talk about this in an age appropriate manner but start showing them by example where we can.

How about you? What has been your biggest lesson this past year in the journey to FIRE?

Next up: Mid 2017 Progress Report. where I talk about our expanded goals – from financial planning only to a more holistic approach. For financial progress specifically, follow this link.

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December 2016, Progress Report

December 2016

We did it! We finished the year exceeding every single one of our financial AND travel goals. I will say, it felt painful and slow when we started, but it has been an incredible journey to see how fast things started to progress after a few months of focus. Sure, a lot of it was market conditions which we know can drop at any moment, but we have built the necessary habits to sustain us for the long term FIRE goal (pending anything crazy) so we are very proud of that.

With that, let’s get into the fun details:

Income* Expenses Assets 529s Debt
December $175.1k $73.7k $388k $50.4k $134.9k
Goal $165k $80k $360k $50k $135.3k

I am particularly excited about the cushion we have in our assets (to have extra safety net for a market correction) and for having completed our goal for 529 savings for our children. Now that that is done, we can dedicate a larger portion of our income towards savings, which should give us a nice boos in asset results for 2017.

Also, we have hit the $500k in net worth, inclusive of our home, which is a metric we don’t really track (above is liquid assets), but nice to think about anyways!

And I will say, we are most proud of cutting our expenses from the $100k+ range to under $75k. We are doing a lot of traveling next year so we are aiming at a 2017 expenses of $60k + $15k for travel ($75k). We will see how we go.

For now, we celebrate and turn our attention to 2017 goals.

How did you end the year?! Are you excited for 2017?