It’s time to start the 2015 New Year’s financial goals. When you own rental property, and have a full time job, it can be difficult to coordinate any time off. When you do have time off, if you want to maximize your hours to dollars ratio, you take a class to improve your skills, get an additional license certification, or do a side hustle gig. Or, you can even do a remodel on a rental property while on a ‘vacation’ from your ‘real’ job.
While everyone needs a time to reflect on their goals, and enjoy some down time, the down time will generally cost you money, not save it. I spend the majority of my down time from my regular job maintaining rentals or taking classes. It gives me a sense of accomplishment, and allows me to buy some great tools. 😉
For now, it is time to plan on the 2015 financial goals.
2014 Financial Goals and Accomplishments
I was able to max out my 401K by mid-march fairly easily in 2014. I have been maxing out my 401K for at least the last 11 years, and have made large contributions in years prior to that. I just set my contribution rate to 75%, and suffer the smaller paychecks in the early months of the year. As soon as the IRS maximum is reached, the deductions stop and the paychecks get larger. By contributing the maximum as early as possible, the money has more time to grow. And I learn to live on less.
My annual bonuses typically occur in February, which tales away some of the small paycheck pain. My Long Term Incentive bonus is paid yearly, with money that was allocated in previous years, so that is not affected by my 401K contributions. My performance bonus is affected, but since I go the entire year without the bonus, it is easy to live on just 25% of it. That bonus greatly helps the 401K balance and puts a damper in the amount remaining to contribute.
The company also gives a 401K match of 4%, which occurs annually, in the January of the following year. Since my contribution rate is very high, I have my match virtually guaranteed by the end of January each year, 1/12 is over 8%. January pay, after adding in the 401K match, is almost like double pay month. February bonuses also make for double (or triple) pay February.
Tip: If your company matches each paycheck, make sure you are allocating the correct amount each paycheck so you do not forego any matching opportunities.
2015 Goal: Max out 401K as soon as possible with a 75% contribution rate, total $24,000.
In 2014 I contributed to a Roth IRA, but eventually had to re-characterize it to a regular IRA. I did not want to do a back-door Roth IRA due to having to pay enough taxes already. As I wind down my full time job, I will be converting some IRA cash to Roth IRA cash. I should be in a lower tax bracket, and it will save money at some point. Or I may wait until I move to a no-tax state. I will have to decide that in the next few years.
2015 Goal: Contribute the maximum to an after tax IRA, total $6,500
I always contribute the maximum to my HSA. The Company gives me $400, and since I am 55, I can contribute $3,950 or $4,350 total. I have recently learned that there is no time limit for reimbursements from your HSA. I knew it could be used for retirement at some point, but was unaware of the unlimited reimbursement time-frame. I also found out how to invest in an S&P fund. It was not difficult to find out, it only took about two minutes…
I did not withdraw any money in 2014, and do not plan to do for several years. I am saving all receipts and benefit statements so that I will be able to withdraw this money at some point. Maybe it will be enough to live on for a year.
2015 Goal: Contribute the maximum to my HSA, total $4,350
Total Retirement (after tax savings): $24,000 + $6,500 + $4,350 = $34,850. Plus any company match.
Other after Tax Savings
I typically save more than I make at my full time job, because I am trying to get a solid financial base with which to retire. I do not want to cut back my spending just to avoid going to work. 2014 was the first year I did not buy any property since 2008, although I did make a couple of offers. My property flip from 2013 was sold in 2014, so I had a solid influx of capital returned.
Each year, since 2008, I had to put up well over $100K to purchase/remodel/flip a property. With the absence of buying, and the stock market going up a bit, my accounts went up nicely. My combined annual gains for the year on my accounts (401K, Roth, IRS and after tax) were ~10%. The rental property returned even more.
Roth IRA +10.66%
Rollover IRA +14.79%
After Tax +9.45% (This account had a lot of cash, earning 0.001%, which I used to pay off a mortgage). Meanwhile the S & P returned 13.69%.
I did not hit my savings goal for 2014. It was a very aggressive one, and I was only able to achieve 94.21% of it. It was still a great savings number and amount, but short. This was due to a large income tax bill I had in April 2014. In previous years, I generally received a refund in the past, and in 2014 I had to pay. That difference was about the amount of the shortfall.
Many retirees live on less than $40K a year. The median household income is ~$55K. Many of those families have a house or rent payment, and children. My planned retirement budget is significantly higher than $40K, but while I am still working I am saving as much as possible. I want to be able to miss my retirement budget by 100%, AND miss my revenue forecasts by 50%, and still have enough to live on without impacting my lifestyle too much. There is a lot than can happen. Stock market downturns and buying new vehicles come to mind.
I do not have a house payment. I do not have student loan payments (anymore). I do not have kids. I do not drink or smoke. I have no debt, other than rental property mortgages. A single person should be able to live plenty well on $30K a year. My girlfriend will also be adding to the budget picture, so as a couple we should spend less than $40K in 2015.
I am looking at an extremely high saving rate, and yet provide a decent lifestyle.
2015 Goal: Live on a budget of $30K (or less) this year, saving everything else.
I paid off two mortgages in 2014. I paid off my personal residence and another mortgage on a rental. This brings my total buildings paid off to five. Without these two mortgages, it will increase my cash flow each month by over $2,500, or about $30K per year. If I could live on $30K a year prior to the mortgage payoffs, this effectively doubles the amount I have to live on, and is income that will be available to me if I need it.
Paying off a mortgage is not an easy decision. You lose the ability to use the cash for a potentially lucrative investment, but at the same time you increase your cash flow. As I get closer to retirement, I want more cash flow, not liquid cash. I still have a decent supply of investments just in case, but not as much as I once had.
My remaining mortgages are at 5.375%, 5.0% and 4.875%. If I can pay off all three, I can have an additional $3,340 in monthly cash flow, a significant increase.
2015 Goal: Analyze remaining mortgages to see if I may benefit by paying off another mortgage.
While this goal seems easy at first, it is more than just figuring out where the ‘off’ button is on the alarm clock. (Although that will be the first priority…) I plan on leaving my full time job on 7/5/2016.
To prepare for retirement, and achieve 100% financial independence, you need to have activities to keep yourself busy. Staying in bed watching TV will only make for an early death. It’s not something I do now, so I do not plan on starting it. Working out more, going for walks, doing more rental (and home) maintenance that is on the schedule will be some of the activities that will be done.
There is also a need to schedule more leisure activities. I am planning on purchasing an RV, likely a fifth wheel trailer, to do some travelling around the USA. I will be able to travel with the girlfriend and the dog and see many of the national parks. I have a goal to do a 60+ day trip in Alaska, possibly with a caravan company. I have already ordered my 2015 Alaska Mile Post magazine to start mentally preparing.
Of course, a fifth wheel without a decent truck will be worthless, so I will need to purchase a new truck as well. I am looking at another Ford F350, 6.7 Diesel. I currently have a 2003 F350 with a 7.3 PSD, but as the truck gets older there is a larger chance for parts to fail. Water pumps, axle bearings, transmissions, etc. can all go out, and are hard to do preventative maintenance on. Any one of these mishaps can spoil a long RV trip. I do not have a lot of miles on my truck, but I have been using it to plow snow, and haul a trailer quite a bit. Some parts have a lot of wear on them, even if I cannot see it.
2015 Goal: Begin to mentally prepare for financial independence without a full time job.
What are your goals for 2015? Did you achieve them in 2014?