Tag: Budgeting

Personal Financial Forecast

This is something that I recommend to everybody trying to do better financially regardless of where you are at in your financial journey.

Every year I make sure that I take the time to set up financial goals; realistic ones! Based on what I know, meaning my incipient financial literacy, and what I have experienced in terms of my investments’ performance I start each year setting some new expectations for the new year.

Last year, just like the previous years, I surpassed my goals, which is totally fine and it actually boosted my confidence. With that said, I still keep myself grounded and continue to base my expectations on my real numbers.

Last year was truly exceptional with a 67% net worth increase. Part of that increase was a 50K legal settlement, but even without that windfall the increase would have been 48%, which is still amazing. Especially for a household of 2 adults and 4 kids living on one teacher’s income.

For this year this is how I see things going down…

My paper-pen planner is all I need to figure out the year.

First, I start with a very broad and general appreciation of 3% of the total amount of our real estate assets, including the home we live in. That’s the first big number at $39,300.

Next is our tax return that usually comes at around 10K. I get a lot of deductions because of the 4 kids, and all the morgage interest we pay. I am starting to think about changing my witholdings so that I can invest the money right away instead of loaning it to Uncle Sam for free.

Then, there is the break-down of the rental income. We have two rental properties, and we just bought a vacation rental in Michigan. We are in the process of figuring out how much we could rent it for. It seems like, according to market prices, we could rent it somewhere between $1,800 to $2,300 per week. So, I calculculated the rental income of this properrty at $1,850. We get about 10 weeeks out of the whole summer season and we are planning on using it for 2 weeks. 8 weeks will pay for the mortgage, and even at the lowest rate we should be left with about $900; maybe for unexpected expenses.

Finally from my teacher salary I manage to save $716, which was originally our student loan payment and after paying it off we repurposed the payment into our savings pot/bank. That amounts to $8,592 yearly.

Investments: I haven’t really put much effort into my 403B plan(Same as a 401K) because we have focused more in real estate investing. Why? Because I like the idea of building more cash flow and the leverage you get with real estate investing. My current balance is $74,441 in FSKAX(Fidelity Total Market), VTASX( Vanguard Total Market), FXAIX ( Fidelity SP500), and very little FXNAX(Fidelity Index Bonds). However, I think I am getting to my limit of how much property managing I want to do. From now on, I will use the cash-flow from our rentals to fuel my 403B plan. Once I hit 100K, I will move on to build up a 457 fund, in case I retire early, quit my job and want to access some of the money earlier than 59 1/2.

All this income comes to a total of $84,911, or 20%. This is how much I am hoping to increase my net worth in 2022. I will be more than thrilled if I shattered my goal/prediction like I have done in the last 3 years. We’ll see!

I just realize I have a disparity between my Mint and Personal Capital net worth. Mint shows $412K and Personal Capital $437K. I am not that concern about it. Mint lately has given me a lot of issues synching with Zillow, so I may consider going by my Personal Capital net worth of 437K instead.

If you read this, I hope this gets you excited about the power of getting a hold of your finances. The hardest thing is getting to the point of starting, committing and wanting to do it. Once you start everything falls into place.

If you have any question or I can be of any help I will be more than happy to share ideas with you for free. Just drop a comment below.

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Setting Goals for 2020

New year means new financial goals.

A bit late confessing my 2020 resolutions but this has become a must for me. Setting up financial goals for the year helps me stay focused and stick to the plan. If you have not set yours I hope this inspires you to do so.

So far, from the moment that we started our journey towards FI, besides getting out of debt, my second goal was to free up some cash. We didn’t have big amounts on credit cards and it was relatively easy to pay them off once we got on a budget. However, my wife’s student loan was a total  @#$**!!! We had acquired it around 2003, and by 2016 we had barely made any progress. After moving to our new place and settling in we became   landlords but we were still sitting on the debt pile for the student loan  for $22,000.

After looking at our budget and sticking to our guns we decided to go hard at the student loan. If our calculations were right, after two years of making extra payments the loan would be gone. A little miscalculations made us miss the finish line but not by much, and we actually had some unexpected gains that we didn’t account for, which I explained in my previous post here.

But finally and without hesitation, I can say proudly that we have accomplished our goal. We have completely paid our student loan!!!
Now we have available to us all the cash we were using towards that payment. The regular payment was $235, but we were paying $716.
Now we have set free those seven-hundred-sixteen bucks, who are now diligently working for us 24/7 helping us to increase our net worth.

What’s next?

Well, after surviving our first run as landlords we have stepped up our game bringing some extra rent income. Now we have some extra cash-flow in rent and $716 that were previously going into student loan payments. All this together gives us a lot of flexibility and brings awesome investing opportunities.
Besides all these good news, we have always had an awesome tax return averaging about 10K . This year we broke that mark!
I know. We loan money to the government for free but we love that juicy check in the spring. It’s like a forced saving stash of cash.
In the past, we have used whatever we get in tax returns to just pay credit cards and do few little repairs around the house. We would stay afloat for few months, and then around November we were gasping for the next tax return again to pay off debt. A pretty frustrating cycle. Sounds familiar?
Luckily, that’s a thing of the past. After working our budget, we were able to brake that cycle and become more intentional with our hard earned income.

Debt Snowball Method

If you haven’t heard of the snowball method to pay debt, it is one strategy that can really help you further your financial success.
How does it work? It’s pretty simple. You determine what debt you would like to pay off, such as a credit cards, student loan or even mortgage; the general recommendation is to choose the smallest amount of debt with the higher interest rate; most likely credit cards. After paying one debt, and eliminating that liability you will repurpose that payment and dump it on the next bucket of debt.

To illustrate, I would use my own case. We first chose to pay off our credit cards by making not only the minimum monthly payments but also paying additional cash towards the principal we owe. Once we paid the credit cards, instead of saying, “look! Now we have extra cash to spend,” we pretended the money was not there and kept a tight budget. We looked again at our budget and chose what debt was next. In our case the student loan was next, with a balance of 22K at a 6.5% rate. We used the regular monthly payment of $238 we were obliged to, plus the cash we had freed up from the credit cards debt. Our final number was $716. Now, instead of continuing paying $238 to the student loan debt, we were paying a total of $716; $478 extra towards the principal every month.
Was it easy? Well, some months were better than others. Some months were a real squeeze. But we stuck to the plan.
One of the strategies we used to help us out a bit paying off the student loan was using a home equity line of credit. By doing so, we reduced the interest rate from 6.5% to 4.5%. This gave us an estimated saving of $416 yearly if we committed to pay the debt within two years.
However, if we didn’t pay this debt and continued on the minimum payment track we would have stayed on that same track until 2028; that was the loan’s maturity date and it also included accruing $1430 of interest payment yearly (22K x 6.5%)!
Instead, we saved 8 years of burden saving us $11,440($1430 x 8 years) of interest payment! This is nuts! Now I can expect that number to eventually come on my side of the ledger as years go by.

Next target

Now we are aiming to pay our rental’s mortgage off. That is what I envisioned as part of our blueprint to reach FI. This one is not going to be an easy goal and will require some perseverance to endure 4 years of sticking to a plan. By doing this, we will increase our yearly income by 35K.
17K from gross rental income, 8.5K from cash that we have freed up from debt( Student loan and credit cards), plus approximately 10K that we get yearly in our tax return.
In 2024, we are thinking about getting one or two more rentals, in the same area we have the current rental. We feel like we could comfortably manage one or two more properties as the first rental will be completely paid off.
In 2024 I will have only four more years left before I reach my goal of retiring in the summer of 2029. In this mix, of buying real estate we also would like to buy a small house in Michigan. This may be the place where we think we would like to retire once the kids are done with high school. That’s a bit ahead of the game and will remain a thought for a while, so more on that in future posts.

Silent Weapon

Something that I highly recommend and has helped us tremendously as well is technology. I like using regular Excel spreadsheets or even Google Sheets to keep track of our budget. But I also like using Personal Capital and Mint.

With Personal Capital I can really look closely to all my accounts, budget, and even take a quick snapshot of our Net Worth.
Mint, on the other hand is what I use on my phone for just a quick look of bank accounts and ongoing expenses on a daily basis.

However, the ONE silent weapon that we use all the time is automatic money transfers through our bank. We look into the budget, set up a goal and schedule these transfers as a one time event or re-occurring events. By doing so, all you need is to figure out your strategy, setting it in motion and forget about it.

In our case, we sat down to determine the amount we needed to pay toward the student loan in order to meet the pay-off date we desired and we were done. At times we just made sure we were still on track and simply kept on going.
If you are in the same situation of trying to pay off debt, start with your budget. That is really a financial GPS. Determine what is the maximum extra payment you can make and schedule that payment to be made as soon as you get paid. Don’t wait for the month’s left overs in your account to figure it out; that’s a recipe for disaster. Pay yourself first. Figure out how many payments will be required for you to reach your goal and stick to it. Ask yourself what will be your next goal? Pay more debt or invest? Likewise, is there anything you could do to increase your income? Maybe a side hustle or cutting off some unnecessary expenses like cable?

Conclusion

Financial literacy is a must for everybody. I wish I would have taken a more active approach in my early years and set some financial goals as my younger self. However, I am amazed at how much progress you can make financially by just paying attention to your expenses, determining your priorities and setting financial goals every year. It’s never too late; never too early.
You don’t have to be on a beans and rice diet to achieve financial goals. I still have an amazing life with my four kids and wife. I have become just more intentional with my money.

I would love to hear about your financial goals for this year 2020 or any achievement (Big or small) you feel proud of on your FI journey.

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