Most members of the personal finance blogging community have determined a number that they’d like to get to in order to achieve financial independence. We are, unfortunately, a few steps behind them and don’t have a particular number or timeline in mind just yet. Our overriding goal at this point is to manage our finances with intention. The biggest takeaway I’ve been able to glean from the personal finance blogging community is how much progress you can make just by being intentional with your money.
Having said that, our short-term goals up to this point are fairly simple in nature. Here are the ways that we plan to be intentional with our finances in 2016:
- Increase overall savings rate to 25% of gross income: Our current savings rate is a measly 14% of our gross income. This does not include contributions to the kids’ 529 plans as we don’t currently consider those balances to be part of our net worth. It also does not include amortizations on our mortgages, which some in the community include in their savings rate (makes sense since those amortizations contribute to net worth). Our decision not to include them is a matter of preference. It forces our savings rate to appear low, which really lights a fire in me to up the rate. Anyway, 14% is a ridiculously low number. We currently have some excess spending that I think can be eliminated to help us meet our goal of 25%.
- Open and contribute to a brokerage account: You can tell that we’re newcomers to the FIRE movement by the make-up of our financial assets. Currently ALL of our financial assets are in retirement accounts, which will do us no good if we want to retire prior to normal retirement age. This will change this year as we start funneling some of our savings into a brokerage account. We won’t be able to make much of a dent in 2016, but I’m hoping that in 2017, we’ll be able to put as much into the brokerage account as retirement accounts.
- Increase allocation of retirement investments to post-tax vehicle: As of June 2016, a whopping 83% of our retirement accounts are in tax-deferred vehicles. At this rate, we’re setting ourselves up for some huge tax bills during our retirement years. I’d like to start balancing this out this year by contributing more to our Roth accounts. We don’t plan to do any conversions on the existing balances, but we will start funneling our contributions to after-tax accounts. We have to be very careful about this one, though, as we are right on the cusp of the IRS’ income limits for Roth contributions. If we funnel too much into after-tax accounts, we run the risk of not being eligible to make them.
- Cut back on amount allocated to food in monthly budget: We’ve been fairly lackadaisical with regard to our budget in recent years and though we’ve consistently been within said budget, we could probably tighten the purse strings a little bit. The biggest room for improvement falls within our food spending. We love to dine out and also tend to spend a hefty amount on groceries (damn you, Whole Foods!). I’d like to hack away at this excess spending and re-allocate the funds to help us with Goal #1 above.
So there you have it. Now that I’ve proclaimed these goals to the world, there’s no turning back! I’d like to see how we progress with these goals in the near-term and in the process of doing so, try to gather some data points to be able to arrive at an actual FIRE number. In the meantime, we’ll be tracking our net worth and how we’re doing on these goals here.
Stay tuned for that and in the meantime, thanks for visiting our little corner of the world wide web!