Our Financial Plan for 2019

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.
The amount we have left over after doing the above will be thrown into an after-tax investment account. If we can retire early, this is the account we would use first.

Other Goals

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.
We got a check for around $5,000 from our home insurance to replace our roof from hail damage last year. I want to save an additional $5k-$6k on top of that, just in case it costs more to replace the 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.
Right now we are in a 1,300 square foot space. We talked about things we can do to improve the space and allow us to bring on more booth renters. Having more room would make the location more suitable to use long-term and opens us up to other options with the salon.

Continue to iron out our long-term budget.
Over the last 3-4 months, we have been tweaking our budget. I anticipate we will continue to change things. As we bring in more money, we hope to increase our savings rate over time.

Long-Term Goals

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.

Summary

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.

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Grokking Money
Guest

This year I am focussed on the following:

1. Max out my 401K and my wife would do about 15% and with match together we should be at about $37,000 this year.
2. Max out my Roth IRA
3. Started my son’s 529 plan with $250 per month contribution.
4. Saving about $8,000 a month towards our house downpayment fund. We plan to hit our magic number of $170,000 by 2020 December.

Hope I am able to knock them off this year. You seem way ahead of me on the house ownership and I am inspired by your pay off plan.

Regards,
Grokking Money