Long-range financial goal setting

I did a thought exercise the other day: where do I want to be in terms of finances and possessions in ten years? In thirty years, when I’m 66? I have some possible retirement housing options in mind, but I also want to think about how to get to a point where I have $40,000 in yearly income (in today’s dollars). That plus Social Security should give me a very comfortable life; right now I’m only spending about $17000 a year on life stuff! Add to that $10000 a year for travel and general fun, and I’ll be all set. 🙂 (The rest is for taxes and medical care, of course, and also because I assume I will not end up paying the equivalent of $400 a month for housing forever.)

I am not a spreadsheet maven, but luckily some members of the PF online community are, so I decided to use a couple of recent tools and plug in some goal numbers to see what I’d have to do to get there.

In ten years, at 46 years old, I’d like to have $100,000 in tax-advantaged retirement accounts, and $20,000 in a taxable brokerage account. According to J. Money’s Early Retirement Spreadsheet, that amount plus a yearly contribution of $15000 should get me to retirement at age 64. Looking at my parents and their friends, that seems about right; they are all in their mid-60s and obviously slowing down. I think by 65 or 66 I will want to move away from the daily grind of work, although depending on how my life is going I may well do a little teaching or take on other finite projects.

I also have some shorter term goals:

  • While my immediate e-fund goal is $5000, and this should be reached this fall, I’d like to get to another $5000 in e-fund money. I don’t expect my monthly expenses to stay this low forever and I’d like to have $10,000 in cash available within the next three years (starting now).
  • by age 40, four years from now, I’d like to be able to pay mostly cash to replace my car, assuming I haven’t done it already because my current car broke down. (If that does happen, I’d just like to have “as much as possible” on hand for a down payment.) Due to needing to build my e-fund up, I can’t start saving for that goal seriously until early next year, when I’m 37, so let’s say I have three years, and let’s further say I want $10000 for that, in order to minimize what I have to finance. (I’m assuming I’m going to want a nice new-to-me car; if I were replacing my car today, I’d be getting a 3-4 year old Honda Fit from Carmax, and they are running $12-15K.)

All this savings has to be on top of whatever I’m putting away for normal life expenses, travel, etc. Ouch. It’s feeling kind of intimidating. However, last year I thought I’d never get my e-fund up to six months’ expenses and I’m well on my way to that now, so I’m going to try to buckle down on this. It’ll help if I get a better paying job at some point in there, of course, although my expenses (which are insanely low right now, especially for housing) might also rise.

At this point, I turned to Bridget’s Millennial Money Spreadsheets. Although I am not a millennial, they are still very useful and pretty 🙂 I used two of them to make these calculations. In one, she lets you plug in figures that show how you can save $100,000 in seven years. My goal is actually $120,000 in ten years, but that’s close enough for me 🙂 I gave it my starting balance of $14000, which is what’s in my retirement accounts right now, and told it to assume 6% returns. According to that, if I keep adding $1000 a month as I am right now, I’ll actually have $124,000 in seven years! Even when I told it to assume a 0% return, I still got to $133,000 in ten years. At 6%, I’d have $184,000. My takeaway: I think I should keep up with the $1000 contributions for a while anyway. I can always reduce them later if I need to save up for another goal, and feel reasonably secure that I’ll get where I need to be. However, I should consider moving some of that contribution into a taxable brokerage account instead of having it all in tax-advantaged accounts, I think.

Then I turned to my car goal. If I’m going to save $10000 for that in about three years, Bridget’s second spreadsheet tab, the “Two Year Simple Savings Plan,” tells me that $275 (beginning January 2016) in a “new car fund” ought to do it. This is assuming I save up for the car in my savings account, which right now is giving me 0.75% interest (sigh). I wonder if I shouldn’t save up for it in a taxable brokerage account instead — but a three-year time horizon seems tricky for that.

As far as the emergency fund: using the same spreadsheet, $204 a month ought to get me to my goal within two years (also beginning January 2016.) Let’s say $205 which is a less weird number.

Well, this is actually pretty interesting. According to these calculations, I can get to where I want to be by age 40 and by age 46 (and thus, eventually, to age 65 or so) by saving:

$1000 towards retirement a month, divided between taxable and tax-advantaged accounts (leaves a lot of room for elasticity, market crashes, etc; as long as the markets at least break even, I’d still beat my goal.)

$275 a month towards the purchase of a new-to-me car (starting January 2016)

$205 a month towards the emergency fund (starting January 2016)

And right at this very minute, I’m saving…$1000 towards retirement, and $500 towards my emergency fund. (And $250 for travel, but I expect to spend that, so.) So, without my salary increasing at all, I can keep saving pretty much exactly what I’m saving now, and get exactly where I want to be. I can even redirect $20 towards some other savings goal without, again, changing a thing.

Having gone through these calculations, I now feel simultaneously optimistic and intimidated. My current savings rate is working because I’m spending very little unnecessary money. I’d like to have a dog; I’d like to loosen up the purse strings a little more when it comes to travel and entertainment; I’d like to give money away more freely. I doubt I can expect to keep my rent at its current level forever, moreover. Last year, living on my own in a very, very modest 1-bedroom apartment, I was spending about $850 a month on rent and utilities, $450 above my current; that $450 more or less represents my emergency plus car savings, right there. I just don’t know. But this is an interesting exercise to have gone through. If I got a $10,000 raise in the next year (not implausible, actually) I could free up an extra $500 or so a month to cover some lifestyle inflation while still saving. Chewing it over….

16 thoughts on “Long-range financial goal setting

  1. It sounds like you should be able to pull this off… Especially if the market treats you well. At least now that you’ve done the math, you know your targets and have something to aim toward.
    Good luck! Also good luck with getting a raise, it would help a ton!

    1. thesingledollar says:

      Thanks! Getting some targets was my goal here. A raise (which should happen next year — the question is what will happen to my COL) can do nothing but help but at least I can move forward from here ok.

  2. I love how well thought out your plan is (albeit intimidating)! Even if you face bumps in the road, which we all do, having a goal and a set plan is better than nothing at all! Good luck!

    1. thesingledollar says:

      If there’s anything I’m certain of it’s that there will be bumps 🙂

  3. Alicia says:

    It’s a great feeling to know you’re on track 🙂 Obviously blips will come your way, but you’ll be able to roll with the punches. I loved when I did those calculations to know where I’d be roughly.

    1. thesingledollar says:

      I love me some calculations, that’s for sure 🙂

  4. Hannah says:

    I’m glad to know that being very useful and pretty does not preclude you from long range financial planning.

    Are you taking advantage of all your 401K/sep for your retirement savings? It seems like contributing to these first would save you some money in taxes and make it possible to hit those after tax goals like car/e-fund etc.

    Also, do you find the car or the e-fund to be more important to you? I’m the type who prefers to knock one thing out, and then the other, but you might be fine having two goals at once.

    PS- I tried the pickled onions you linked to last week, and those were awesome too.

    1. thesingledollar says:

      Yeah, right now I just don’t have enough income to max out my 401(k) without seriously compromising my ability to have cash on hand for needs. I make $47500 and I’m putting just over 25% of that into a 401(k) and that’s only $12000. If I adjusted up I’d be working with a really razor thin cash margin and I’m worried about things like car repairs etc. So, I’m trying to live with not maxing out, and instead divert cash into savings goals that could also be drawn on or temporarily stopped in an emergency. Yay pickled onions 🙂

  5. Bridget says:

    Woot!! So glad the spreadsheets served you well =) (I have even more under development hahaha)

    After 7 months of saving my fiance & I just bought a new-to-us car yesterday. It’s so awesome. It’s the first “big” purchase I’ve made in so long and I LOVE it.

    Whenever I’m figuring out retirement I struggle with what age to put down… I love doing my calculations for retirement at age 65 because it gives the biggest numbers, but it’s nice to know I could be ok retiring at 60 or even in my 50’s…. Money gives you so many choices and that’s the most important thing. Looks like you’re doing GREAT!!!

    1. thesingledollar says:

      Well, “great” is pretty relative, but I’m not going to starve, so, hey 🙂 Congrats on your new car! And I look forward to the new spreadsheets. I can’t use Excel at all, so I love using others’ work 🙂

  6. Melissa says:

    I’m so excited to pay off my debt so I can even think about financial goals this long-term! Currently, I just jot them down, and maintain that list (adding and deleting as things become more or less important). This is really impressive and inspiring, and I’m rooting for ya!

    1. thesingledollar says:

      I keep lists, too 🙂 All my long range plans are really, you know, suggestions and I expect there will be many changes as my life circumstances change…. I just like to plan. 🙂 Are you really in DC? That’s where I grew up!

  7. Wow – I’m really impressed by how well-thought-out this is! Reading this made me realize that I need to sit down with my husband and attach some more specific goals to our financial priorities. Thanks for highlighting some useful tools for doing so!

    1. thesingledollar says:

      Cool! I’m sure you’ll make great progress fast. I really like those spreadsheets; they helped me get from Point A to Point B a lot faster than I would have on my own.

  8. ARBM says:

    I like to dream… but I haven’t sat down and really made any long term goals or plans… perhaps it is time to do that…

    That is great that you seem to be on track for your goals already! As you say, there will always be bumps in the road, but the fact that you are already on track means that those bumps shouldn’t make it too hard to get back on track whatever comes your way. 🙂

    1. thesingledollar says:

      I mean, my long-range goals are more like “if nothing changes,” and I’m sure some stuff will change 🙂 But it’s nice to be thinking about it and realize I could maybe actually get to a comfortable point.

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