I admit it. I’m one of those people who loves to set goals.
So this time of year is always fun for me. I like to see how I did over the past year and strategize for the year to come. I love reading other bloggers’ reviews of their years and what they plan for 2019.
I’ve got a list of 19 goals for 2019 across a variety of categories. Here are the ones related to personal finance!
Shelter Income in Tax-Advantaged Accounts to Avoid 22% Tax Bracket
It felt really great to max out my 401(k) for the first time in 2018. But it’s probably not going to happen for 2019, for a few reasons.
- Now that Mr. FIREdup is freelancing and our household income has gone down, maxing my 401(k) doesn’t leave much extra room for other financial goals. There are other things I want to accomplish with our money next year.
- My father-in-law made an interesting comment a few weeks ago that has stuck with me. He was talking about his required minimum distribution (RMD) and how that money is being taxed at a pretty substantial marginal rate (he also receives a railroad pension). I think the point he was trying to convey is that if you don’t tap into your tax-advantage accounts until RMD time, you could end up with a pretty significant tax hit when it’s time to take that money out starting at age 70 1/2. This is not an issue for a lot of FIRE people, but we’re on a really sloooooow FIRE track. Realistically we’ll probably be working, in some capacity, for another couple decades. It’s likely that we won’t tap into our tax-advantaged money until 59 1/2 or later.
- After thinking a bit on my father-in-law’s comment, I decided to run some numbers. Assuming a 4.5% inflation-adjusted CAGR, even if we didn’t make any more tax-advantaged contributions, we would be close to a lean-FI 4% withdrawal rate in 25 years at a “traditional” age 65 retirement.
- With our drop in household income and the tax changes for 2018, the tax advantage to contributing to a 401(k) just isn’t as great for us. I ran some preliminary numbers for 2019, and the new goal is to make just enough 401(k)/IRA contribution to max out the 12% taxable income bracket. (In other words, we’ll contribute enough to make sure no marginal income is taxed at 22%, the next highest bracket.) The nice thing about this strategy is that we have IRA space that we can use at tax time to leverage any shortfall we may need to make up. (In fact, this will probably drive our 2018 IRA contribution amounts.)
Now if Mr. FIREdup ends up going back to a full time job sometime in 2019, I’ll probably revisit the 401(k) contribution. But for now, I’m dropping it down several percentage points.
Where is that money going instead?…
Total Mortgage Balance of Five Figures
I’ve posted previously about how much I hate our second mortgage. The stretch goal for 2019 is to pay that sucker off entirely. But the more realistic goal is to get the total mortgage balance (1st and 2nd combined) down into the five figures by the end of the year. This will definitely require extra payments on the second mortgage, but feels really doable! Also, with the markets being so sketchy lately, and with no longer being able to deduct mortgage interest at tax time, making these extra payments locks in a 7+% rate of return. And that feels pretty damn good.
Add $2,500 to E-fund
I’m a bag lady at heart. Having a solid emergency fund helps me sleep at night. With economic uncertainty possibly upticking in 2019, plus the the second income in our house being based on freelance work, I want to stash a little extra money in this account next year.
I also get a sabbatical at work next year (yeah!!!) and we’ll probably go on a fun family vacation during that time. Which means I’ll need to stash some additional money in this fund to pay for whatever we decide to do (if we can’t cash flow the expense).
Create “ICE” Financial Binder
In 2018 we did two financial tasks that I’d been putting off and that aren’t fun to do: we got individual life insurance policies (not tied to our work) and we got our will/power of attorney/healthcare directive paperwork completed.
As the household CFO, I’ve thought several times this year about how unlikely it is that Mr. FIREdup would know where all our financial accounts are if something were to happen to me. (A conversation at Cents Positive really brought this back into focus.) So in 2019, my goal is to put together an in case of emergency financial binder that lists out all our information. I haven’t determined the details yet but will probably use this resource from Chelsea over at Smart Money Mamas. This is another one of those really important, but easily overlooked financial tasks.
So that’s it – everything related to our financial goals for 2019! Do you have goals for the new year?