The importance of writing down your financial goal to achieve financial independence and to retire early

 

Emerald Isle Beach, North Carolina 

Welcome back!  In this post, I’d like to discuss the importance of writing down your financial goals so you can plan for your future effectively.

When I started working at my last job which would last over 13 years, the first thing I did, once I had worked there for about two years, was to write down how I thought my financial situation would look like by the time I turned 58.  Back then, my original goal was to retire at age 58 to pursue my lifelong goal of becoming a beach bum somewhere.  

I imagined living like someone who didn’t have any worries and just lived life one beautiful sunny day at a time...I thought age 58 sounded like a good age for retirement when I was 37 years old.  

What I had written down back then were the following:

  • I should have around $500k in retirement account.  I thought I would withdraw 4% of that money for around $20k per year.  
  • I should have paid off my mortgage by then, so positive equity would be used to fund my retirement along with my retirement account.  I figured I would put $100k into a money market account/savings account so it can generate around $5000 in interest each year.  Back then, online savings interest rate was around 4-5%.  This would generate about $400 per month.
  • The rest (around $250k) would be in a bond mutual fund generating about $1000 per month at around 5% interest.
  • I calculated I should have around $3000 per month in income, not counting social security.  I figured this would be a good place to be in at that age.
I wrote down on a spreadsheet what I wanted to accomplish each year.  For example, I wrote down how much additional principal to pay per month to reduce my mortgage and to end it quicker.  I wrote down when I expected to pay off the mortgage in full.  

Back then, the whole idea of FIRE (financial independence retire early) movement had not been known to me.  This would happen within the next year or so...

I thought I would be ok financially if I kept paying off the mortgage as fast as I could.  Unbeknownst to me at the time, my home would not appreciate even a paltry 1% yearly as I had expected.  This was a bad calculation on my part...

I had been spoiled by my two previous real estate purchases.  The first one was a co-op in Queens, NY (first purchased home) which turned a hefty profit of $110k when we sold it after about 4 1/2 years.  The second one was a condo in Hawaii (second purchased home) which turned a profit of $115k.  We had lived there just over two years.

The important part of all this is to allow some mistakes to happen (like with my real estate purchase in Pennsylvania), but write down your best plan as best you can.  It’s the act of writing your plan or goal that helps to solidify your future.  You need to take responsibility for your goal/plan.  You should do the best you can, and try to follow your plan month by month, year by year.  

As you saw in my future plan, the real estate thing did not work out.  But my investments did work out better than my original plan/goal.  

You can always tweak your plan if they don’t work.  There were months where the additional mortgage I was planning on paying didn’t materialize.  Water heater broke is what happened, or the roof started to leak...You will have hurdles along the way.  It’s part of life, but you work around it.

If you have a month which changes your plan, just do better the following month.  No one can see the future.  You might as well PLAN for it as best you can, but be flexible enough to deal with it...

Here are my recommendations on how to put your financial goals to writing:

  • Start one for the next month this month.  Commit to what you’re going to do.  Whether that’s paying off your mortgage quicker, student loan quicker, or saving more towards your retirement account, put in writing what that amount will be.  
  • Lay it out for the whole year the same way.  Commit to the amount and write it down.  
  • Plan out how you see your financial situation in 3, 5, and 10 years.  This will be a best estimate based on what you know (money coming in/money going out).  You need to be able to see a brighter financial future in writing so you can get motivated to do well.  
  • Each month, sit down with your significant other (or by yourself) to see how it went.  Did your plan work this month?  In the beginning, it won’t be easy to see the big picture, where your future financial situation is bright!  Keep at it, and push forward.  Just keep in mind, whatever you’re paying or saving towards retirement will be helpful down the line.  Savor the little victories every month, then repeat it.
  • Repeat this process at the end of the year to see how you’ve done.  Pat yourself on the back if you’ve met your goal.  If not, don’t be discouraged.  Just keep pushing forward and do better.  This is a long game.  You won’t get to financial independence overnight!  
Putting your financial goals to writing should be something you do immediately for financial well-being.  It helps fortify your plan and make you responsible for your plan.  It holds you accountable to your commitment.  The act of looking at your better future in writing, will motivate you like it motivated me, to want to achieve financial independence and to retire early.

Thank you all for reading!


Jake

Wandering Money Pig 



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