FIREd up about 2018 Goals

I’m a planner by nature.  I like to set goals.  None of this should be too surprising if you read my last post revealing my Upholder tendency.

Several years ago I read Chris Guillebeau’s fantastic post about his Annual Review process and have been using it as a guideline ever since.  As 2017 wraps up I’m pondering what 2018 has in store.  2018 goals will span several different fronts – creativity/blogging, work, travel, relationships/motherhood, health & fitness, learning, and financial.

Here’s a sneak peek at a few of the big goals:

Financial

  1. Max out 401(k).  I feel like a fraud having a personal finance blog and saying this, BUT…I have never maxed out my 401(k).  I’ve always contributed enough to get my company match, and in most years significantly more than that.  Last year was about working on liquid savings to pay for expenses for the baby on the way and the partially unpaid maternity leave.  It wasn’t until I came back from leave earlier this year and reassessed our financial situation that I realized that this was actually a very realistic goal going forward.  I’ve been doing some catch-up on my 401(k) contributions the last part of this year and will actually have to reduce my % at the start of the year so I don’t max out early and miss any company match.
  2. Make 2017 IRA contribution (amount TBD).  For some reason I thought that you couldn’t contribute to a 401(k) AND make a deductible contribution to an IRA, but this amazing post by Justin at Root of Good corrected that mistaken belief.  As long as you meet Modified Adjusted Gross Income (MAGI – not to be confused with MAGA!) limits, you can contribute to both a 401(k) and traditional IRA.  The amount of the contribution will depend on a few factors, including the amount I’ve contributed to my Roth for 2017 (you can only contribute $5,500 to both – not to EACH), our exact MAGI number, and the amount of our tax refund.
  3. Finalize will.  I posted about this earlier.  We’ve met with our lawyer for the initial consultation.  I’d like to have a final document early in 2018.
  4. Fund 25% of Financial Freedom goal for non-retirement funds.  This will partly be dependent on how the markets do.

Blog

  1. Average one post per week.
  2. Share quarterly updates on progress against the Financial Freedom goal.

I’m really early in this blogging experience, so I’ve left these goals pretty open for now.

STRETCH GOALS

  1. Attend FINCON 2018.  Money nerds unite!  Whether this becomes a realization  will depend on a lot of things including life in general and how much I engage with the personal finance community in 2018.
  2. Get 2nd mortgage balance below $10,000.  Are piggyback mortgages still a thing?  We did an 80-15-5 mortgage back in the pre-2008 housing meltdown days, and they were pretty common then.  The higher rate on the second mortgage outweighed the higher payment with PMI.  The first mortgage has been refinanced and this second mortgage just needs to go away….

One final note

I am great at setting goals but sometimes not so great at letting go of things that no longer add value.  Jillian just wrote a very timely post on her blog about knowing when to quit something that no longer serves you.  Check it out!

Do you set annual goals?  What do you hope to accomplish in 2018?

 

 

 

Are you an Upholder, Questioner, Obliger, or Rebel? Take the quiz to find out!

I’m currently reading Gretchen Rubin’s Better Than Before: What I Learned About Making and Breaking Habits–to Sleep More, Quit Sugar, Procrastinate Less, and Generally Build a Happier Life.  Many of the principles in her book can translate to the world of personal finance.  Today I’m writing specifically about her Four Tendencies framework.

The idea behind this framework (which is also the subject of her latest book) is that we all face two sets of expectations:  outer and inner.  Outer expectations are those placed on us by others, such as family, friends, bosses, and society in general.  An example would be a due date for a big work project.  Inner expectations are those we place on ourselves, such as setting a New Year’s resolution.

How she describes the framework in her own words:

Depending on a person’s response to outer and inner expectations, that person falls into one of four distinct types:

Upholders respond readily to both outer expectations and inner expectations

Questioners question all expectations; they meet an expectation only if they believe it’s justified, so in effect they respond only to inner expectations

Obligers respond readily to outer expectations but struggle to meet inner expectations

Rebels resist all expectations, outer and inner alike

If you want to know your tendency, she has a quick quiz you can take on her site.

I am an Upholder with Questioner tendencies.  If I commit to something, I don’t have problems sticking to it.  Most of the time I’m a rule follower, but sometimes I question external expectations if they don’t make sense.

Some observations on this framework and it’s intersection with personal financial habits:

  • FIRE folks are impressively goal oriented; I would guess that most do not have a hard time meeting inner expectations, or if they do, they have figured this out about themselves and created hacks to make themselves accountable.
  • I envision the most hardy FIRE people – the Mustachians – as Questioners.  They challenge societal expectations.  You don’t have to work until you’re 65 (or even 55!)!  Of course you can save 70% of your income!  (or maybe they are Rebels?)
  • According to Gretchen’s survey results, Obliger is the most frequent tendency.  External accountability helps obligers meet goals.  Just as an obliger might benefit from hiring a personal trainer to form an exercise habit or joining Weight Watchers to lose weight, an obliger seems like a good candidate to work with a financial planner who will help keep him/her accountable to financial goals.  Alternatively, sharing goals publicly (such as on a blog) or with a trusted friend could also serve as a way to provide accountability.  Or perhaps the Frugalwoods Uber Frugal Month Challenge might create the sense of community that would inspire an obliger?

What is your tendency?  How does it impact your financial habits?

Financial Freedom Part 2: The plan (with charts!)

Last week I wrote about my view on financial freedom.  Today I want to write a little bit about our financial freedom goal.  The financial freedom amount is not enough to be financially independent, but it could be thought of as an intermediate goal on the way to FIRE.  It’s the amount that would make me (a somewhat risk-averse person) feel comfortable with a large financial life change.

I’m not one to share actual numbers, so everything will be percentage based.  Here’s where we stand as of today against this goal:

Capture
Actually, making this graph was kinda nice, we are closer to the goal than I realized.  Who-hoo!

This includes all our investable assets (401(k)s, IRAs, taxable, some company stock).  It does not include our daughter’s 529, cash savings, or home equity.

If the markets cooperate and we continue to save at the same clip, I think we’ll hit this goal sometime in 2020:

Capture2

Most of our investments are tied up in retirement accounts, so I’d like for 10% of the financial freedom goal to be easily accessible should we need it:

Capture3

As you can see there is some work to be done here, though depending on how we choose to crunch the numbers, our emergency fund cash savings could be included in this bucket.

Of course the markets could go sideways in the next few years; who knows what financial crisis lurks in the shadows.  But I’m pretty FIREd up about being this close to goal!

FIREd up about the Flexibility of Financial Freedom

I was comforted to recently read this post on Adventure Rich where Ms. Adventure Rich admits that they don’t have a set FI target date or amount.  I felt some imposter syndrome setting up a FIRE blog when we don’t have an FI date or number, either.

But in reality, this isn’t a blog about me retiring early.  Ideally I am done “working” before 65, but I’m not going to be bowing out of the workforce decades early.  What really interested me in the FIRE community is the Financial Independence facet.  Money = Financial Freedom.  So rather than having a FIRE goal, it is really a Financial Freedom goal, similar to the FFLC (Fully funded lifestyle change) espoused by Slowly Sipping Coffee.

So what does Financial Freedom mean to me?

Career Flexibility

Most days, I actually don’t mind working; I enjoy the mental challenge and the social interaction.  I have worked for my company for a long time and have some great benefits, generous PTO, and a manager that respects me and doesn’t micromanage.

But I also don’t want to be tied to a job because it pays a lot, or have to work on someone else’s schedule for the next 25 years.  Companies get acquired, managers move on, job responsibilities shift, and sometimes great jobs become stifling or downright horrific.  Financial freedom means that either I or my husband can choose to quit a job if one of us lands in a bad work situation; or that we can weather the storm if one of us gets laid off.  Working towards a financial freedom goal also means that we will have the flexibility to shift careers, work part-time, take a sabbatical from paid work, or start a business.

Time

Maggie at Northern Expenditure wrote:

“…it is so unfair that the most important working years coincide with the most important years for our children. Why did parents have to spend so much time trying to build careers at the same time their children were trying to figure out how to walk and talk and learn?”

We had our daughter at the beginning of this year.  I don’t want to sacrifice these early years we have with her just to retire a few years before she leaves the nest. For me, saving and investing means we have the financial flexibility to make lifestyle changes that align with our values – spending time with our daughter.

Overcoming Uncertainty

My dad died unexpectedly at 52.  My mom is a cancer survivor.  I’m 39 now, and even though I work to maintain my health, there are things outside my control that could lead to physical limitations as I age.

On a trip to Italy a few years ago, my friend and I stayed at the property featured in the photo at the top of this post, in one of the towns in the Cinque Terre region.

Our room was at the VERY TOP.  So.many.stairs. There is often a level of physical fitness that is required for the type of travel I enjoy, such as sightseeing or hiking through the wilderness.  If I postpone all this traveling until I retire, my physical body may not be quite as willing to cooperate.

Meaning

Do you find meaning in the work you do every day?  I’ve spent my career in the corporate world.  I care about the overall mission of my company, and believe we are doing good work.  But it’s usually hard to find meaning in the day-to-day of the actual job.   I think quite a lot of people in large organizations feel this way, especially those who are seeking FIRE.  Financial freedom means the option to pursue ‘work’ that provides meaning and fulfillment, rather than just focusing on a paycheck and benefits.

What are your reasons for pursuing Financial Freedom?

Hamilton tickets, and some of the other ways I fail at being frugal

I’m more thrifty than the average Joe and will compare my squeezing-the-last-bit-of-toothpaste-out-of-the-tube skills with anyone out there.  But compared to some of the FIRE bloggers I read, I am a spendthrift!  Just a few examples:

We pay someone to clean our house.  This started when my now-husband moved in with me.  I saw the state of his bachelor apartment (GASP!) and did not want to spend time arguing with my new roomie about standards of cleanliness.  Hiring it out was a easy way to reduce that friction.  Now that a little one has entered into the family dynamic, paying someone to clean frees up precious free time in our evenings and on weekends.  FRUGAL TIP:  We did reduce the frequency of the housecleaning to accommodate the budget post-baby.

Salon styling.  I like to have my hair cut and colored professionally.  FRUGAL TIP:  adopt a low-maintenance hairstyle and coloring strategy to reduce the frequency of visits.  (Related:  anyone have a recommendation for a good product to cover up gray roots?!?)

Fancy daycare.  When asking for recommendations for daycares last year, only once place was consistently mentioned to us.  That is where our daughter goes and we’ve been quite happy.  It’s not cheap, but is any good daycare cheap?  (Unless it’s Grandma.  Grandma daycare can be amazing.  AND cheap.)  I’d rather spend just a little more and not worry about my child’s safety or quality of care.  FRUGAL TIP:  I contribute the annual limit ($5,000) to a dependent care FSA at work to maximize tax savings.

Expensive groceries.  I don’t usually shop at Aldi and Wal-Mart.  I’m certainly not opposed to shopping there, but at this stage of life, convenience sometimes trumps money.  It is a struggle to get to one grocery store per week, much less two or more.  So the streamlined choice is a regional grocery chain that is not the cheapest, but has the full variety of items we buy for our weekly meals.  FRUGAL TIPS:  We buy lots of store-branded groceries (canned goods, frozen veggies, etc.); I plan meals around the store’s weekly ad; and as members of the chain’s shopper program we max out the various coupons that we receive.

Hamilton tickets!  My husband has been obsessed with Hamilton for a couple of years now.  He knows most of the songs by heart.  And he recently bought tickets for the touring show.  They were ridiculously expensive but he is over-the-top excited.  We have months to look forward to it and will always remember it afterwards.  We don’t do these types of experiences very frequently either, so when we do, it feels more special.  FRUGAL TIP:  Is there any way to frugalize this?

How do you spend money like a champ?

Friday’s Odds and Ends: Shopping, Giving, Making a Will

  • I bought zero consumer items on Black Friday.  A handful of things were purchased in store on Monday: some candy for family stocking stuffers, snacks and gift cards for daycare teachers, and a small Crayola gift for my daughter for Christmas.  This was probably 50+% of my holiday shopping – we are keeping it simple this year.  Of course it’s great to save money, but for me it’s also about reducing STRESS.  Figuring out what to buy people, and what they should buy me (and now my child, too!) can be exhausting.
  • Our household contributions to charity have not been impressive this year.  I did, however, participate in #givingTuesday.  A donation was made to the local food bank, an impressively run organization that serves our entire metro area and beyond.  Two sets of infant PJs were also donated to a children’s charity, via their Amazon wish list.  The last time I checked over 2,500 items had been purchased!  Using an Amazon wish list is a pretty brilliant way for charities to receive the exact goods they need, in exactly the right quantities.
  • The hubs and I finally met with a lawyer about making a will.  This is definitely filed under the category of ‘boring adulty stuff,’ but now that we have a child – and  actually have some significant assets as well – it’s important to get it taken care of.  More to come on this topic as we finalize the documents!

Friday’s Frugal Five

I’m following in the steps of Mrs. FITNB and posting a list of five frugal choices I’ve made this week!

  1. Sunday we made a trip to Target and I noticed that several categories of household goods were 15% off.  There was also a deal where a certain multi-pack of Charmin was on sale and if you bought 3 packs you also got a $10 Target gift card.  Instead of buying one multi-pack like I normally do, I stocked up to get the $10 card and save 15% on all 3.  Bonus: we won’t need to buy TP for a while!
  2. Monday I did free yoga at work over my lunch hour.
  3. I have a stash of Discover cash back and have been using it to buy restaurant gift cards.  This week I got a Panera card and a Chipotle card.  There is a Chipotle near work and it’s nice to be able to go out to lunch for ‘free.’
  4. A friend recommended a book to me at lunch on Wednesday and when I got back to work I put it on my holds list at the library.  The local library has a fantastic selection of e-books.  I typically try to have 3-4 books on hold at any given time, which means I usually have a new one ready for checkout by the time I’ve finished whatever current book I’m reading.
  5. The other night we had pork chops for dinner and I bought the big 8 oz ones instead of the smaller ones I normally buy.  Because of this there was about 1/4 of a pork chop left.  Normally I might have tossed it, but for good measure I put it in the frig along with some leftover brown rice & quinoa.  Thursday morning I put that and some leftover spaghetti squash in my lunch pail to take to work.  It was actually pretty good…and much better than spending $5-10 on mediocre lunch from our work cafeteria.

How did you frugal it up this week?

The Paradox of Choice: Retirement Investing

In a previous life I worked as a financial education consultant, traveling the US and talking to my company’s retirement plan participants about their retirement plan.  We focused on the basics.  Why they should save in their 401(k).  How the power of compounding interest can work for you.  What is diversification? What is your risk tolerance?  How do you use this information to choose how to invest your money?

I have long been a personal finance geek.  But the reality is that the vast majority of people aren’t.  And it can be downright overwhelming for the average 401(k) plan participant to figure out where to invest his or her money.

I was reminded of this fact recently.  The company I work for does its match in company stock, and the stock has done so well over the long term that a lot of people are over-weighted in it (that’s a story for another day).  A couple of months ago the stock hit a new 52-week high, and I decided it was a good time to move a little more of my match money out of company stock.  I had a coworker who wanted to do the same, but she didn’t know WHERE to put the money once she sold the stock.  The paralysis of having to make that decision almost kept her from taking any action at all.

Barry Schwartz outlined this phenomenon in his book, The Paradox of Choice.  I may get overwhelmed by the wall of 50 different types of laundry detergent at Target, but many other people are paralyzed when their retirement plan offers too many options.

So what’s the average Joe to do?  I couldn’t give advice to plan participants in my financial consultant role; I could only educate.  But at the time I was in this job, target date funds were starting to become popular additions to retirement plan investment lineups.  When our plans offered them, we would explain how they worked and how a participant could determine if it was the right choice.

So what is a target date fund?  This link to Vanguard (one of my favorite investment companies and a FIRE community favorite) gives some of the highlights.

  • You invest in one fund that does the diversification for you.  In Vanguard’s case, the target date fund is a blend of their other underlying index funds.  It is diversified to include a mix of US and international stocks and bonds.
  • The asset allocation is based on the target retirement date.  If you are far from retirement, it is more heavily weighted in stocks and as you move closer to retirement, the mix of investments gradually becomes more conservative.
  • You don’t have to rebalance your investments – the fund company automatically does it for you.

Of course there are caveats to every recommendation, and every fund company that offers target date funds has it’s own style and approach (Vanguard’s 2040 fund will not be the same as Fidelity’s or T. Rowe Price’s).  But don’t let the perfect be the enemy of the good – it’s better to have a solution that is 80% effective than to have no solution at all.  I told my coworker that in her upcoming meeting with a financial advisor that she could get advice on where to invest for the long term, but in the meantime I gently steered her towards one of the target date funds offered by our 401(k).

 

What is FIRE, anyway?

 

I sent a friend of mine a link to my new, shiny blog and she asked if FIRE is an acronym.  Why yes, yes it is!

For the uninitiated, the acronym FIRE stands for Financially Independent, Retired Early.

Kristin Wong has a new post over on Lifehacker that provides an overview of the FIRE movement.  In essence, by optimizing finances, a lot of bloggers in this community have been able to save upwards of 70+% of their income which has allowed them to retire in their 30s or 40s.  (Mr Money Mustache’s post on the math of early retirement is a mind-blowing must-read.)

Why has this movement been so appealing to me?  This quote explains it well:

“Financial independence ultimately means that you can shape your life without taking money into consideration,” said Tanja Hester, a recent FIRE graduate and founder of the website Our Next Life. “Most of us have to consider our finances in nearly every decision we make, or maybe even make decisions solely based on money. But once we reach financial independence, we get the freedom not to be bossed around by what we earn or what we have saved.”

 

How having a child helped us save more money

When I found out I was pregnant last year, I spent some time crunching the numbers and worrying about how we would afford it. Any time I talked to current parents about how they found money for daycare and diapers and such, their answer was typically something to the effect of “it all just works out.”

Now that we’re 10 months into this parenting gig, I have to say they were all right. We pay a crazy amount for daycare, but other than that our expenses have been manageable. In fact, this year I paid off my car (early), and my spouse and I have both increased our 401(k) contributions.

Here are some things that helped us get here:

Baby stuff. I am lucky to have a couple of close friends with kids not much older than mine. We have been the recipients of borrowed clothes, toys, baby bathtub, play mat…the list goes on. We were also very blessed by friends and family at our baby showers as we received nearly everything we needed for the first 6+ months of babyhood. In addition, we have grandparents who have gifted a few toys and clothes and send us diapers monthly from Amazon.

We didn’t go overboard decorating the baby’s room. I bought a well rated, inexpensive crib on Amazon (with my Amazon registry completion discount). My mom gave me a very sturdy old dresser to use, rather than us buying a fancy new one (and we just put a changing pad on top rather than buying a changing table). Instead of buying a glider rocker, we re-purposed an Ikea Poang chair and put a new cover on it.

Food. As a DINK (double income, no kids) household, we went out to eat quite a bit pre-baby. We are foodies. Going out to eat is a form of entertainment for us.  Now that we have a kiddo, it’s often a lot easier to eat at home. We meal plan before our weekend grocery shopping and focus on fast meals for weeknights (which my husband makes) or meals that I can prep on Sundays. I’m pretty lucky – my husband is a good cook!

Our daughter is now at an age where she is eating solid foods regularly and this has really made me look at how we eat. Most of the time she eats what we eat, and if she can’t eat what we’re eating, it’s probably not that healthy. It has made me a lot more conscious of planning meals that are well balanced and nutritional. It’s not particularly easy to find meals that meet those criteria when you go out to eat.

My spouse and I both like going out to lunch during the week too, but we’ve also cut back there. As part of our meal planning I usually target a couple of meals that will make good lunch leftovers.

Alcohol. As a new parent, I’ve found alcohol and sleep deprivation (or disrupted sleep) generally don’t go well together. While I’ll still enjoy a good beer or glass of wine sometimes after the little one goes to bed, the quantity has lessened and it typically is consumed at home rather than at a bar or restaurant where the cost is 3x as much.

Entertainment. We only have one babysitter at this stage and her name is Grandma and she lives 2 ½ hours away. So at this stage of life we don’t do much in the way of concerts, sporting events, movies, etc. We do sometimes have a date night when my mom visits but other than that, our entertainment budget consists mostly of Netflix and HBO Now.

Travel. Some people travel quite a bit with their little ones. I guess one of the advantages (or disadvantages?) of being older when having a child is that we’ve both done a lot of kid-free travel, which makes traveling with a little one sound a lot less appealing. I’m excited to travel the world with our daughter, but for the next couple years it will mostly be road trips rather than ambitious air travel.

Taxes. I contribute the max ($5,000) in a dependent care flex account through work. Even though we’ll spend more than that on daycare this year, it does help offset the tax burden. Knowing we would have a lot of out of pocket spending for medical this year since we had a baby, I also contributed the max to a flexible spending account. The flex account deductions and our 401(k) contributions all reduce our taxable income and ensure we’ll qualify for the child tax credit.

The bottom line is that we are fortunate to have a healthy household income. We had a lot of discretionary spending in our budget previously and we have now become a lot more intentional in how we spend our money.

How have kids impacted your spending and budget?

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