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This past year was an exciting one for us, albeit a little bit of a roller coaster ride. However, we were able to pick up a new rental property, max out my 401(k) and contribute up to the match in my wife’s account. We also added to our Roth IRAs and a little bit in my HSA, and continued to save a good deal in our online savings account.
No time to rest on our laurels though – last year’s financial goals are in the past! We need to keep pushing toward moving our financial freedom and early retirement date up. So without further ado…
Our 8 Financial Goals for 2016
1) Build back up our online savings
I’ve talked about how I think online savings accounts are a good place for your emergency savings and we had built our account up to a little over $40,000. Since then, we bought a duplex and pulled out close to $30,000 for the down payment. My thinking was that we still have some options for emergencies that might come up. But, I really felt better having that cushion in place, so we need to build that back up.
I was able to recently add another $5,000 to the account so it now has a little over $15,000 in it. I have some automatic transfers in place to move $500 every pay period over to the account. So, by the end of this year, we should be back up over $40,000. The hard part will be not to pull anything from it throughout the year as things come up (and we all know they do!).
2) Invest more in my HSA
I’m seeing the light on the benefits of Health Savings Accounts (HSA), which I hope to write about in the near future. I’ve always just put a little bit into the account, but over time, it’s grown to over $10,000. This is an important number because it marks where we are permitted to invest a portion of the money in various investments. Right now, I earn about a dollar a month in interest, which of course sucks.
This year, I plan to dig into what some of my investment options are for this account and maybe I can grow it a little quicker. That’s important because the HSA is a great account to have for paying for medical costs – it’s the only account you’re not taxed on at all.
As an added perk, my company adds a little money every year into the accounts of any employees contributing to their HSA accounts.
3) Get both sides of our duplex filled
Yes, my little clip art isn’t of a duplex, but it was the best I could find! 🙂
We closed on a duplex last month and, as an added bonus on the purchase, we inherited tenants on one side of it (at least for the next handful of months). That rental income should help offset a good chunk of our costs – their rent should cover most of the mortgage, taxes, and insurance.
However, that’s not all of our expenses on this property and it’s no time to waste! We’re already getting the empty side ready to go because we need to get some tenants in there ASAP.
I leave this to the professionals. Our property management company knows better than I do what to look for in tenants that will stick. They are going to do a walk-through of the property next week and hopefully start interviewing right after that.
These first handful of months will be the roughest while we get things where they need to be. But once we can get some stable tenants on both sides and make any repairs that need to be done, we should start seeing a nice stream of income.
This will be important for our next financial goal of the year…
4) Pay down more principal on our home
This financial goal might cause a little bit of discussion because there are two points of view on this. One opinion is that when you have a cheap loan, you should embrace that leverage and drag it out as long as you can. In other words, instead of using our cash to pay down a mortgage with a 2.875% mortgage (that’s our fixed rate), we should use it elsewhere where we can make more money, such as the stock market or real estate where we would *hopefully* earn a larger return.
I get it… BUT, I also hate it. I’m like most people who hate having a mortgage payment hanging over our heads. And, for my retirement plan to work, I need to pay off our mortgage for our primary residence. I’m already paying a lot more with each monthly payment and with that extra that I pay, I’m slated to pay the loan off in January 2027 (according to Quicken). But, I need to get the payoff date to be no later than July 2025 if I’m going to meet my financial freedom goal. And, more importantly, the sooner I can pay it off, the sooner I can wave goodbye to my current employer.
As a side note, I don’t mind the mortgage on my rental properties. My tenants are paying that off. Obviously, it will be great to get them paid off as my cash flow will increase substantially, but that doesn’t keep me up at night.
5) Change our 401(k) investments
I hate the stock market. I feel like it’s just one big Ponzi scheme – if people stop contributing, the whole thing falls apart. But what can you do? It’s hard to pass up things like the match I get on my 401(k). In my Roth IRA, at least I can pick up dividend stocks that pay me every quarter instead of the old buy-and-hope-for-appreciation technique.
Another thing that keeps me on edge is Rich Dad’s Prophecy. In it, Kiyosaki predicts that the market will crumble worse than ever in 2016. Sure it’s just an educated prediction, but you never know!
Regardless, what I’ve decided to do as one of our financial goals is to move all our investments in my 401(k) to a domestic index fund and a global index fund. This should dramatically bring down all those fees for us. Then we’ll probably do the same with my wife’s 401(k) investments. I hope to do this in the next couple of weeks.
6) Open up a HELOC
When we purchased our duplex last month, we decided to use a chunk of our savings for the down payment instead of opening up and using a Home Equity Line of Credit (HELOC) or a home equity loan. My thinking was that the cost of interest on a HELOC would be more than we were getting on our savings so we might as well put our savings to use. Then we could open up a HELOC later (with no annual fee) and have that on-hand if needed.
Well, that time is now. I’ll be opening up a HELOC here in the next couple of weeks. The good news is that I found out that our credit union offers a HELOC with no annual fee. I really hate the big banks so this is a real find! I’ll keep you in the loop on this.
7) Optimize our taxes
I’m still learning a lot of the ins and the outs of this, but there are so many ways to optimize what we pay in taxes. Deductions and credits are only part of this – we need to learn to do smarter things like push everything we can toward avenues that really help on our taxes to reduce our adjusted gross income. This can be things like contributing more to our HSA or 401(k) plan (we already max out my 401). It can also be selling some stocks that we have that just suck and take a loss on them. Or buying things for our rentals like A/C units to make sure we don’t show a profit on them.
All of these are things I don’t know a lot about and need to learn. I’ll probably be working more with our new accountant to gain a better understanding and help put us on the right path for our future.
8) Further our daughter’s education and financial education
The last of our financial goals is to focus on our daughter’s education – both financially and her financial education. The somewhat easy part is to push whatever leftover funds we have into our daughter’s 529 plan. I don’t focus as much on her account because she can always get loans for school – we can’t get a loan for retirement. Right now, I contribute $125 every month with an occasional additional contribution every now and then. We’ve built it up to over $7,000, which should pay for almost one of her books when she gets to college. 😉
Ok, we probably need to up that a little, and hopefully we can once we have a little extra income coming in from the duplex.
More importantly though, I need to continue to grow her financial education. I’ve been teaching her little bits here and there (she’s only five after all). This is a tough balance as I don’t want her to be like I was (learning the path to financial freedom late in the game), but on the other hand, no kid wants to hear dear old dad drone on and on about finances.
I’ve been pretty lucky though, because she continues to ask questions and I give her just enough to keep her interested. In fact, she just asked me today why I keep writing all these articles and that turned into a good 5-minute discussion in which she seemed pretty intrigued. Hopefully that will continue on throughout the years.
So there you have it – our financial goals for 2016, which I’m sure will be adjusted as the year progresses.
What kind of financial goals have you set for yourself for the year?
Thanks for reading!!