Monday, March 6, 2017

Financial Resolutions

We're now into March, which is about the time when I realize that this is not the year that I'm going to finally lose those fifteen pounds, or learn to play guitar, and I'm going to be the same, overweight, non-musical slob I was last year.

Now, maybe you're one of those annoying people who "betters themselves" and "uses an accountability partner" and "doesn't eat four doughnuts for breakfast" which, if so, good for you. I am not one of those people. Still, I set goals each and every year, even if all past evidence points to me falling short again.

I'm no different with setting financial resolutions. If I want to actually retire by forty, then I'm going to need to invest crazy sums of money, every month, for the next four years. I re-evaluate in January, set new net worth and investment targets, as if it's all in my control. Still, a lot of months I slip up and if I don't course correct, I know what that means for that really, really big resolution in 2021.

We have a lot of other financial goals for 2017, too. As we're hoping to bring another person into our family in 2018, we want to pad our emergency fund now. We'll sleep better at night knowing we have a bit more cash in the account. And as babies apparently cost money, what constitutes three to six months of our expenses might simply be a larger amount than it was for just Mrs. Done by Forty and me.

As you know, we want to buy a new home this year, too. (More to come on this on a future post.) And that means putting down an obscene amount of cash for a 20% down-payment, forking over another few thousand for transaction costs, paying for new appliances, and some new furniture, just for good measure. That's a lot of cash to stack up, complete with massive opportunity costs.

That also means we'll be selling our current house, and all the fun DIY home repair that entails. It's funny how many things that need to be repaired show up when you're trying to sell the place. That paint that didn't seem so bad for all those years now isn't quite right for a buyer. Cracks in the grout start to show. Those fixtures seem a little dated, and has that back fence needed mending all this time? Little things here, a few big things there, and suddenly we have thousands of repairs to complete before we even list the house.

All of these financial resolutions for the year seem fine on their own. But, unfortunately, each goal kind of cannibalizes the other. If we want to save a few hundred dollars for a down-payment, that money can't be used for repairs, or for appliances, or for padding the emergency fund for some non-existent, pricey baby. Back when we were paying off our student loans and personal loans, we couldn't use that same money to invest for retirement. I suppose it's the same with any goal: you usually have to prioritize, and choose between something that's good and another thing that's a bit better.

The setting of goals in January is easy compared to the inevitable prioritization that follows throughout the year. If you're someone with the means, who has the time, money, and determination to follow through on all the things you set out to do, then good for you. But I've found that, when time or money or will power prove to be a bit scarce, then the silver lining of having to choose is that I get to figure out what's really important to us. Like Paula Pant says: you can afford anything, just not everything.

For us, it turns out the goal that really mattered to us was a new house. We stopped investing for a couple months to make sure we had enough for the down payment, and to put a couple new appliances in. We'd have loved to have enough money to keep investing all the while, and to keep on schedule to retire by forty.

But I've come to find that maybe reaching financial independence, or at least reaching it by a date I picked back in 2012, isn't quite as important as I'd initially thought. That's the best part of goal setting, at least for me. We draw up achievements we think we want for ourselves, and then as reality sets in throughout the year, we get to find out how important those goals really were. At their best, these resolutions help refine what we think is important.

And at their worst, they just make me feel bad about eating all those doughnuts.

All the best in achieving what you set out for in the rest of 2017.


*Photo is from rayb777 at Flickr Creative Commons.

41 comments:

  1. Good luck. Sometime, life just gets in the way of your resolutions. :)
    Keep at it, though. You may need to set more realistic resolutions if you can't accomplish them in past years.

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    1. It really might just be as simple as that, Joe: setting more realistic goals. I tend to focus on process & work ethic, but sometimes it's all about setting a proper target.

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  2. "Now, maybe you're one of those annoying people who "betters themselves" and "uses an accountability partner" and "doesn't eat four doughnuts for breakfast"

    What? What is the point of living if you can't eat 4 donuts for breakfast? *crosses arms*

    So I guess you decided to go with buy new house and sell the old, rather than stay and renovate or rent it out? Yeah, that could get costly. But hey, I trust that you ran the numbers and if that works for you than great!

    We all have to prioritize what's most important to us. And that differs from person to person.

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    1. True, true. We're going to go a very different path than a lot of the others in the PF community, and one that's way, way different than that of the average Joe. But I guess that's the point!

      More to come in a future post, but we're taking on an extra $176k of mortgage debt (holy shit!) but will clear between $130k and $160k in additional investments. When we run the math at 4.2% mortgage interest, even the low end of our sales estimate, our extra investment of $130k will outpace the extra debt on an average year...certainly over 30 years. For us, it's a net positive to put our equity to work in the market. At least that's what the numbers say.

      And we should have enough extra income left over to buy donuts every weekend. :)

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  3. I'm always wrestling with what I want the future Tonya to have vs what the current Tonya wants. I always speak in the third person. :) I still have not found the magic bullet. I think they call it...priorities. Huh? What? :)

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    1. Man, you've just described my whole life dilemma. Future Brian is a jerk trying to get me to do crap I hate.

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  4. A long term goal such as retire by 40 must be open to ammendments if necessarily without feeling like you've Failed. It would be crazy to think you might feel bad for retiring at 41... Haha.

    My plan that I stated on my blog has changed about 5 times since I started it but I see no issue wit this. You can't be expected to predict A) exactly how events in your life play out and B) how your own desires may change over the years.

    So yea, keep those plans and resolutions totally liquid my friend!

    Oh and 4 donuts for breakfast, my fave! :)

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    1. I'm just glad I'm not alone with my third-of-a-dozen doughnut breakfast.

      You make a good point about the plan needing to be open to amendment. Like any multi-year plan, it has to be flexible enough to adjust as circumstances change.

      And I LOVE the phrase of keeping plans and resolutions liquid. That's a future blog post for your site, I think. Thanks, buddy!

      We'll also be in Scotland for a few days in July, if you're anywhere close to there!

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    2. Ah not a bad idea there, it is quite catchy isn't it :)

      I'm down near London so quite a trip from bonny Scotland unfortunately, but if your plans change and you do end up down this way let me know?

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    3. I don't think we'll make it down there this time (kicking myself for not meeting up when we were there two winters ago). Next time! We loved London (maybe the best city in the world) so we will be back.

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    4. No worries mate!
      Plenty of time to meet up when we're both retired/semiretired in a few years ay ;)
      We also love America so sure we'll cross paths at some point soon.

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    5. Right on. Let's make it happen.

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  5. Also you never know you might have twins ��

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  6. The only constant in life is change and we just have to be flexible and roll with it. And I know I'm gonna sound like a typical parent but having a kid (or twins if super money woman is right =) is life changing. Your perspective and mindset on these decisions may change again...and that's okay.

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    1. Well put, Andrew. We can always count on more change.

      I am definitely waiting to have at least one kid before pulling the trigger on ER, and will ideally have both of them by then, just so I can really get a sense of the impacts those little buggers will have.

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  7. "But I've come to find that maybe reaching financial independence, or at least reaching it by a date I picked back in 2012, isn't quite as important as I'd initially thought."

    Wait. What? Does this mean you have to rebrand your blog?!!

    I kid of course. I personally have always taken your "donebyforty" brand as a proxy for "stop slave wage (W2) work on your own terms at a time of your choosing", but I'm not sure everyone sees it that way. When I first started reading your blog I thought "he sure is boxing himself in with that title".

    I myself am turning 50 this year. And I've built an aggressive plan to see if I can "do whatever I want, including nothing" at 55. Believe it or not, that 55 year mark in itself turns out to be super aggressive, when you start looking at how retirement fund payouts, tax treatments, support programs, and healthcare payouts work practically (in short, the entire ecosystem works against you before 65, but then at 65 makes things easier to utilize/consume...regardless of your financial wealth).

    Anyway, long winded way of saying I totally get it and support your adjustment. Makes total sense to me. 40 is just a random number. Nothing magic about it.

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    1. Right! The only 'magic' I get from the goal is that it does motivate me to push for that date in 2021, the last day I'll be 40. There's no way to know for sure, but by boxing myself in as I have, I bet I'm investing more than I would normally.

      And I have no doubt that even at 55, there are a ton of hurdles and forecasting that still has to go in to the next 10 years or so before full retirement age in SSI, Medicare, and all that.

      I like the way you framed the goal: stop wage slave work on my own terms. I think that's a healthier way to see my resolution.

      Thanks as always for the great comment!

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    2. By the way, I should have added in that I could probably get away with "doing whatever I want" now, except for two factors:
      1) I have a 9 year old who still needs education dollars (as well as a good role model example of a working father) and
      2) I have a wife who is never quite secure enough, no matter how much savings we have. "Earn, earn, earn" is basically her motto.

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    3. That's an interesting take: whether having a working career has salient benefits for children, and if they outweigh benefits of being around them more in something like early retirement. Something to look into!

      And nothing wrong with being driven to earn a bit more, right? ;)

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  8. I'm with ya! It's all a balancing act and unfortunately, it means that some goals just don't get worked on until another one is done.

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    1. Truth! And often that's fine: better to finish one goal than to half ass two of them. As Ron Swanson says, whole ass one thing.

      Love the blog name, too.

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  9. I think the best part of this post is that the process helped you realize what was truly important to you. Money isn't everything. :-)

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    1. Thanks, Laurie. That's been the best part for us, too.

      First world problem alert, but for the past few years we've had enough financial security that we haven't had to choose between that much. We could always just choose "both". Now that we're trying to buy a house, sell ours and a rental property that needs FIVE FIGURES of repairs, buy appliances, and save for a crazy early retirement at the same time...yeah, we're having to choose because we can't do everything all at once or at the level we want to. We've gotten to see what is most important.

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  10. Hi Done By 40,

    I have kept my New Year's Resolution - I have eaten pasta every day of the year so far. ;-)

    In reality, life is messy and hitting a goal for the sake of hitting a goal is sometimes worse than failing at it. What was the saying about not letting perfect be the enemy of good..

    For example, I am on track to be FI by 2018. But when I set up my goals, I was on my own and had no idea I would meet someone to make my life whole and complete and happy.

    The issue is - together we are not FI. But I am fine with that, because being alone and FI is not as fun as being with someone else ;-)

    DGI

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    1. Pasta every day?! You are living the dream, my friend. You'll have to share some recipes with me -- I seem to make the same pasta over and over.

      I'd love to hear more about how you and your SO handle FI with different situations -- how they blend.

      And yes, having a partner to walk through life with really is much more fun than simply being FI.

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    2. I don't think it is a big issue - because our shared goals are to have a happy and healthy family, and doing everything to achieve that. What I love about my wife is that she is normal, so she counteracts my extreme frugal nature. It is also unfair to say she is not FI, because she has an above average NW for age/income. But I have tried to influence her to really try and increase that savings. ( living together also creates synergies that create money saving opportunities as you are aware of)

      It also depends on what FI means to you. FI to me is more about security and peace of mind, rather than accumulating physical possessions. It still gives you a few extra options.

      The funny thing is that plenty of other people who state/have stated that they are retired have spouses that work/have worked in traditional jobs for years after that. Joe Udo, Pete Adeney, Justin from ROG, Jacob from ERE, the Mad Fientist etc. I think my spouse likes her job, so she will continue doing it. I like what I do, so I will likely continue doing it as well after FI.

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    3. Right, the "purists" of FI will probably say things like "So and so isn't really retired because of X, Y, and Z and they are, gasp, making money!" But screw those people. I like thinking of how bitter they are going in to work on Monday...it makes me feel better.

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    4. Oh yeah, the IRP definition of retirement is just too restrictive.

      If the cash dividends received in my brokerage account have to be moved to my checking account once per month, I guess I will not be considered truly retired per the IRP definition. ;-)

      By the way, I found a perfect cure for the case of the Mundays - work from home that day ;-)

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    5. Crap -- I work from home every day. :)

      And great point about the absurdity of the internet retirement police. Technically all dividends are income! The government taxes them as such...so you're always working. ;)

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  11. Well, I wouldn't fret too much about if you put off the RE by a year or two. I mean personal finance is personal and other things pop up. For us, having a kid is more important so I try to keep a lot of money liquid and we pay for other things (e.g. acupuncture, group therapy stuff) for IVF that cost us a bit. Could I use it for FI sure. But I would rather have a family. Just like our dog is a choice, but we wouldn't give him up for the world. He just had his teeth cleaned on Monday and I thought about you and Pepper during that time. Luckily, he is right as rain.

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    1. Thanks so much for that comment and I'm so glad your dog is okay. I know that has to be stressful to go through.

      And your point about spending money to help with the family you want to have is exactly what I was trying to say in the post. Family first. FI is just a part of that family life we want.

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  12. Oh man I died:
    "Now, maybe you're one of those annoying people who 'betters themselves' and 'uses an accountability partner' and 'doesn't eat four doughnuts for breakfast'."
    Lol. I've been kicking around this idea about goals lately. They're great, but they should be secondary to y'know, just enjoying life, because goals take energy and enjoying life energizes you. Also, like you said, when you're enjoying the process, it's easier to figure out what matters to you.

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    1. Hell yeah, Kristin. Goals are not life -- we personal finance folks have a bit of a cult of achievement going. I mean, achievement is awesome and good for us, but I really love just hanging out with friends and doing nothing at all productive, too. That's what matters to me, oddly.

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  13. This is the first year I have set any specific goals, including a financial goal of saving 75% of my income. However, like you, we are finding that life has a way of quickly changing our current reality. Our situation is a little different in that we bought our first investment property, which will eventually help move us closer to FI, but in the short-term it has forced me to really scale back my other investing. And I agree that we benefit a lot by setting our goals, but we need to be flexible so that we don't make ourselves crazy. I haven't gone as far as you to set a specific FI date/year, so mine has been more of a moving target. :)

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    1. Yeah, we're going down the investment property path, too...and man do I wish we hadn't. :/ But we are total newbs at this, and know others may have great results.

      Agree that it's totally a moving target. Need to adjust plans to reality.

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  14. Moving the carrot. Something I am definitely guilty of doing. I'll be 45 in two months. Now I'm saying 50 is the goal line and not a day more! Until life happens and I push it out again. 20 pounds not lost and my guitar is still in its case. Maybe next year?

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  15. My husband and I have been having similar conversations about competing goals lately. At least you guys are on the same page, even if your goals are cannibalizing each other. Remember - it's a marathon, not a sprint. Just keep moving in the right direction and you'll get there.

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  16. "That's the best part of goal setting, at least for me. We draw up achievements we think we want for ourselves, and then as reality sets in throughout the year, we get to find out how important those goals really were. At their best, these resolutions help refine what we think is important."

    THIS.

    I can't tell you how many times I've had to course correct. Sometimes because I changed my mind. But mostly due to outside circumstances. You have to have a healthy perspective on goals or you can get really frustrated in this life really quickly. They're good to have, and amazing to achieve, but their main purpose, at least for me, has been to drive me forward. As life changes, and I change, they may have to change. too. But that doesn't mean I'm a failure.

    It means I'm living. And living a resilient life at that.

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  17. There are times I do lose track of staying healthy, one of my goals for this year (can't say no to doughnuts, ice cream and pizza!) but I do try to hop back in my workout routine when I can. Life can sometimes get in the way of what you really want to do and achieve (financially, I aim to be more responsible by building wealth through investments) but we don't need to beat ourselves about it - we can always bounce back and pick up where we left off. :)

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  18. Additional Living Expenses: If your home is damage or unsafe, it is so obvious that you cannot live there, the insurance companies cover the additional living expenses you incur to live somewhere else.
    Todd Taylor

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