It shouldn’t comes as a big surprise that I’m all about goal setting. There’s no better time than the start of a new year to lay out some new financial goals.
With no financial plan for the year, your money ends up wearing the pants in the family. That usually means it will get to do whatever it wants, which is almost always getting wasted.
Like I’ve recently written, I use 5 key financial metrics when evaluating the financial health of my household. It’s useful for me to set some 2018 targets for those metrics, so I can be properly motivated throughout the year, and so I can evaluate my progress this time next year.
Money In | Earnings
I’m estimating our combined household income from all sources (excluding investments) to be up around 5% in 2018 compared to last year. This is largely a result of expected small raises and slightly better bonuses.
We’re now a high earning household so the increases are less impressive than when we were ramping up to this point. The trump tax plan may end up bumping up our net income, but we’ll find out in a year if that’s the case.
I’ve also been working towards taking the next step up at my company, and it’s possible that something may materialize this year. If that’s the case, and if my negotiating skills don’t let me down, I can expect a healthy bump in income.
Money Out | Expenses
Our expenses have stabilized over the past couple of years. Our target spend level will be $50,000 for 2018. Very close to what it was last year. This effectively keeps our spending flat, despite a potential increase in income.
The great thing about our 2018 projected spend level is that only 55% of our expenses will go to covering our fixed/operating expenses. The other 45% will be used for travel and fun throughout the year. This is an improvement from the 60/40 split from last year.
One of the best things about paying off our mortgage early is the ability to keep expenses flat while redirecting funds to discretionary expenses such as travel. We’ve got a couple of fun trips planned this year.
Money Kept | Savings
With income increasing slightly and expenses staying flat, I should be able to increase my savings rate. I’m targeting a 78% savings rate in 2018. This assumes no unexpected expenses occur during the year of course.
With that kind of savings rate, I should be able to free up $185,000 in cash for the year. That will go a long way to boosting my FIRE fund, which is where all that extra cash will be parked.
I’m looking to fund as many freedom years as possible over the next 5 years. To achieve that goal, I’ll need to generate that kind of cash flow each year from here on out.
Money Growth | Investments
I’ve been fairly conservative with investing over the past few years, my timing of course hasn’t been stellar. Since my cash flow has been fairly strong, I’ve been able to overcome the impact to my overall financial health.
In 2018, I’ll be looking to make some investment adjustments to ensure I’m at least keeping up with inflation. Here are a few investment goals I’m targeting for the year:
401(k) – Mrs. Max and I will continue to contribute to our respective 401(k)s. I’ve been maxing mine out for many years, and we’re gradually working up to doing the same with Mrs. Max’s. Between contributions and market exposure, I expect these funds to go up by approximately $50,000 in 2018.
Emergency Cash – I’ve set aside about $25,000 in emergency cash to cover any unforeseen events. Rather than have it sit in my savings account earning next to nothing, I’ll try and find a better home for it this year. Stay tuned for my next post on this subject.
Crowdfunding Investments – I’ve been experimenting with crowdfunding this past year, and I think I’m ready to increase my exposure in 2018. I started with $30K, but would like to increase to >$100K this year. That should generate about $10,000 in interest for the year.
Equity Investments – I have a couple of brokerage accounts where the bulk of my FIRE fund resides. Only about 25% of those funds are actively invested at this time. I’ll be looking to add to my exposure at a slow rate monthly throughout the year. I should expect about $10,000 in growth from these funds this year.
Money Impact | Net Worth
With all the other financial metrics laid out for the year, I can now estimate what my net worth should look like at the end of 2018.
I’m starting the year at $1,890,577 as detailed in my recent summary. That number is split across 3 primary buckets which I expect will grow as follows:
Bucket # 1: Home / Staying Conservative at No Growth
Bucket # 2: Retirement Fund / +$50,000
Bucket # 3: FIRE Fund / +$185,000 Cash Infusion +$20,000 Investment Growth
Using my previous estimates, I can expect my net worth to end 2018 at approximately $2,145,000 which would be an increase of 13.5%. The 3 primary buckets should end at these levels:
Bucket # 1: Home / $550,000 / 26% of Net Worth
Bucket # 2: Retirement Fund / $730,000 / 34% of Net Worth
Bucket # 3: FIRE Fund / $865,000 / 40% of Net Worth
That should translate to an increase in net worth of about $250,000 for the year, which would be a bit higher than what we achieved last year.
Since my overall investment exposure is only 30% at this time, any market drops or investment failures should have a minimal effect on the results. I’m currently fairly conservative since I don’t want to jeopardize my ability to reach financial freedom. I don’t need to take on additional risk to achieve it.
If the market decides to go on sale over the next few years, I may decide to increase the exposure further.
The exciting prospect for 2018 is reaching “multi-millionaire” status. Even though this is the lowest threshold to claim that status, it’s still an entertaining milestone.
I’m looking forward to comparing the actual year end results to my estimates this time next year!
Readers, are you projecting 2018 to be a strong financial year? Are you generally conservative with your outlook or more aggressive? Do you have a FIRE fund, or are you concentrating on traditional retirement? Share your thoughts and comments below! – Max