Our 2019 financial plan is looking exciting. For the last few years, we have focussed on paying off credit cards and personal loans. This year we are going to finally get consumer debt free and start focusing on building our net worth.
I’m excited because I’ve never felt more prepared or motivated to get to this point in the past. I’ve gotten so used to trying to pay off consumer debt and repeating that cycle, and it seems different to think I don’t have to do that my whole life.
We are ready for the next wealth building phase of our life!
Goal #1: Finish Paying off Credit Cards and Personal Loans
This first goal in our 2019 financial plan is to tackle our remaining consumer debt. If we can make our goal this month, we only have one more payment on our last personal loan before we are credit card and personal loan debt free!
Paying off these balances will save us thousands of dollars per year on interest. It also frees up a lot of funds for our monthly budget.
Goal #2: Build Emergency Fund
To prevent the need to go into credit card debt in the future, I want us to have some cash that we can access for emergencies. Our rain day stash of cash will give us margin in not having to touch our investments.
We plan to have around 4-6 months of cash available to cover our base expenses, just in case. Also baked into our emergency fund is the idea that the money we are making in the current month is covering the budget for the next month, which not only makes budgeting easier since we already have the cash for our monthly budget, but it also means we have an extra month baked into our emergency fund.
This money will get thrown into a high-yield online savings account. The goal is that we will not touch our emergency fund money unless we have to (emergencies only).
In addition to our dedicated emergency fund, I’m shooting to have a “cushion” budget item that we can use for small overages in our budget. Having a small cushion fund will help make sure we prevent having to dip into our emergency fund or go into credit card debt, in the future.
Goal #3: Max out Investments
This phase is exciting as we can focus on increasing our net worth towards financial independence. Based on our current budget, which includes all pre-tax money, we should be able to invest around 58% of our after-tax income towards our future.
Max out 401k
My employer provides a match, and we will be contributing the maximum amount possible to my 401k per year. In 2019, this maximum is $19,000 per year. I will focus on low-fee index funds. The good thing here is that we lower our current tax burden by investing with pre-tax dollars, and I get an employer match. So this fund should grow fairly quickly.
Max out Roth IRA’s
The 2019 limits for a Roth IRA are $6,000 per year. I will set up an account for both Andrea and myself for a total of $12,000/year. Contributing to a Roth IRA uses after-tax income, but the growth is tax-free. I know there are a lot of thoughts on whether prepaying taxes is wise. But since I don’t know how much taxes we will pay during retirement, this gives us some tax diversity.
Save for children’s college.
We aren’t going to save a massive amount of money specifically earmarked for college. But we want to open up a 529 plan and deposit $500 per month towards our kid’s education. The idea is if our girls go to college, we have some money they can use directly for education. But we also want them to be smart, and consider cheaper options where they can live at home to save money. We think to work through college and being conscious of how much school costs is vital for their future.
Pay extra towards the mortgage.
We aren’t exactly sure at this point how much we want to pay extra towards our 30-year mortgage loan. But we do know we don’t want to wait to have it paid off in 26 years. Many people have pointed out that the amount you can earn investing the money is more substantial than the 3.6% interest we are paying on our home loan. But the idea of not having a huge mortgage payment to cover in our mid/late 40’s is enticing and could open other options.
Invest in post-tax accounts
Get rid of PMI on our mortgage.
Since we did not put 20% down on our house, we pay $139.33/mo for Private Mortgage Insurance. By making some extra mortgage payments, and hopefully an increase in the value of our home, we are hoping to get the house re-appraised and have at least 20% of equity, which will allow us to get rid of the PMI payment. We may avoid getting it re-appraised until we get to that point by making extra payments.
Save extra money to replace our roof
Create an emergency fund for our salon business.
Our salon is doing great, but I would like to build up our emergency fund to help cover when times are slower or when we take time off. This money can also be used in the future for investing money into the business for repairs or expansion.
Improve the salon space
Continue to iron out our long-term budget
At this point, we are hoping to reach financial independence around our mid-50’s. It is too early to tell if that will be possible, or if we could retire earlier than that. But at this stage, we are more concerned with saving as much money as possible and setting ourselves up to not have to go into credit card debt in the future.
As we get to a better spot financially, I want to take a closer look at how we can increase our income to achieve our goals faster and provide more options.
When you can save a large portion of your income, you can knock out debt faster and save more towards your future. We have lost some valuable time getting to this point in our mid-30’s, but the future is looking bright.
Chris Roane is a financial blogger who loves to be transparent about money-related issues. He’s paid off massive amounts of credit card debt and is the blog author of Money Stir. His main focus on Money Stir is talking about how money relates to our relationships, personal development, and how to plan for the future we want. He’s been quoted on Market Watch, The Ladders, and other publications.