2020 Financial Goals
I’m a goal setter. Always have been, probably always will be. While some people despise the New Year and new year’s resolutions, I love it. I always feel like it is a fresh start, a time to reflect and shoot for something great. Finances are no different.
One of the primary goals in writing this blog is to share my journey to financial independence, so today I’d like to share the personal financial goals my wife and I have set for 2020.
Pay Off Student Loans
Our primary financial goal for 2020 is to finish paying off my student loans. If you haven’t read any of my previous posts, you might be surprised by the fact that we still have student loans. The primary reason for this is that my wife and I decided to save for and build a home before paying off the student loans. We really wanted to have a place where our kids would want to hang out with their friends, so we could know where they were and who they were with. If we had paid off my student loans first, we likely wouldn’t have finished building our home until our oldest son was about to graduate from high school. It’s a choice I am glad we made and I would make the same decision again
When I finished residency we had ~$220,000 in student loan debt. During medical school and residency it didn’t seem like real money. The reality of having to pay that money back didn’t really sink in until after I had completed my training and the bills started to come. Minimum payments were ~$1200 per month. This was more than we were paying in rent for our home in Rochester, MN! And at that rate, it would take about 30 years to pay the loans off!
While we were saving for and building our home, we continued to just make the minimum payments on the student loans. Although we were making a dent in the principal, it wasn’t by much. By the time we moved into our new home, we still had a little less than $200,000 left to pay off.
After we had finished building our home and had paid off all of the furniture we had purchased, we began focusing all of our efforts towards paying off the student loans. Although we continued to maximize contributions to our tax advantaged retirement and college savings accounts, everything beyond this was going to our student loans. Month after month we would make as large as payments as possible to whittle away at this massive amount of debt. And with time it truly was getting smaller and smaller. It was extremely satisfying to watch the balance shrink over time.
Finally, the end is in sight. We are about 2 months away from paying off our $220,000 in student loans. With our anticipated tax return in 2020, we will finally be able to make the last payment and close the accounts. Other than our home mortgage, we will finally be debt free. Considering we began taking out student loans to live on in 2003, it will have been nearly 17 years living under those shackles of debt. Needless to say, I am excited to be free from this.
Real Estate Investing
Our next financial goal for 2020 is real estate investing. I have been itching for quite some time to make real estate a part of our investment portfolio. There are a number of reasons why I am so interested in real estate and I plan to write about these in an upcoming post. But despite this interest, I didn’t feel comfortable investing in real estate until we were free from all our debts, with the exception of our home mortgage. Now that we are about to pay off my student loans, that time has come.
Part 1: Saving Money
The first part of this goal is saving money. While I know there are strategies out there for investing in real estate with little to none of your own money, this is not what I am interested in. I am not looking to use other people’s money to invest in real estate. And I don’t want to be over-leveraged and take on an excessive amount of risk. I plan to use our own money for our real estate investments. This will require consistent, disciplined savings over time so when the right opportunity presents itself, we are ready.
How do we plan to do this? Well, all of the money we were putting towards student loans each paycheck can now go towards other things, such as increasing our investments in the stock market in our taxable brokerage account, increasing our home mortgage payments, and investing in real estate. I have a high yield savings account set up to hold the money we will use for our real estate investments.
Part 2: Learning
The second part of the goal is to learn more about real estate investing. I have already listened to/read dozens and dozens of podcasts, books, forums, and blog posts on real estate investing and will continue to do so throughout the course of the year. I also love learning directly from other real estate investors and their past experiences. There is SO much to learn on the subject and I believe the more you know the higher your chances are to be successful and limit risk.
Another thing I have started doing to learn more about real estate is to review properties on Zillow (residential real estate) and LoopNet (commercial real estate). I have the apps on the home page of my phone so I can look at them any time I have a few extra minutes. Rather than waste time on social media or watching Netflix, I’d rather be building my skills of analyzing properties.
At the present time I am learning about all different types of real estate investing, including flipping houses, real estate investment trusts (REITs), crowdfunding, syndicated deals, etc. But I am most interested in long term buy and hold residential rental real estate and commercial real estate, particularly multifamily and office space. This may change as time goes on and as I gain more knowledge.
Part 3: Pull the Trigger
So will we be ready to invest in real estate in 2020? Probably not. But at some point we will be. I don’t want to put an artificial time constraint on our goals and then purchase something we probably shouldn’t have due to the deadline. At the same time, I don’t want to get caught in the analysis paralysis trap. So at some point, probably in the next 2 years, we need to pull trigger on something. In the mean time, I want the savings and knowledge base to both be in place so if and when the right opportunity comes, we will be ready. I’ve always felt that opportunity favors the prepared mind, and I don’t think real estate is an exception.
Continue Positive Habits
My last goal is to keep doing the positive things we are already doing. Since discovering FI in 2018, we have made a lot of positive changes in our finances; habits that we need to keep up. Here are some examples:
Tracking Income & Expenses
I continue to track all of our income and expenses every day. It has just become a habit. Plus, I enjoy it (as ridiculous as that sounds). I use Personal Capital, so it is all automated and doesn’t take much effort or time. If you are trying to reach FI, I believe it is imperative to understand how money comes into and out of your life.
Paying Ourselves First
I strongly believe this is one of the key behaviors to reach financial independence. I wrote about this in my post 5 Unconventional Choices for an Unconventional Life. It comes from The Richest Manin Babylon by George S. Clason. Basically this means that whenever you receive some form of income, before you start paying everyone else by paying your bills or spending the money, you need to pay yourself first. Practically speaking this means saving a percentage of your money before spending it.
We always pay ourselves first through a number of behaviors/habits. First, we maximize my employer sponsored retirement accounts, namely my 403(b) and 457(b). Second, both my wife and I make maximum contributions to our back door Roth IRAs. Third, we make the maximum contribution to our HSA. Fourth, we contribute up to the maximum state income tax deduction to a 529 plan for each of our four children. Finally, we save and invest beyond this for our other financial goals. Only after we have paid ourselves first do we begin to spend the money.
Avoiding Lifestyle Inflation
This is critical to reaching financial independence. If you elevate your lifestyle every time you get a raise or increase your income, you will never reach financial independence. It’s not about how much you make, but how much you keep. While my wife and I did elevate our lifestyle to some degree after finishing medical training, we still live far below our means. This is what has allowed us to maximize contributions to our retirement accounts, save for and build a nice home with mortgage payments that are less than 10% of our income, and pay off our six figure student loan debt (soon).
There will naturally be some temptation to elevate our lifestyle after our student loans are paid off, as this will free up a significant amount of income that we have been putting towards the loans every month. However, my wife and I are committed to use that money to accelerate our home mortgage payments and invest for the future.
What Are Your 2020 Financial Goals?
Now that I’ve shared my goals, what about you? Have you made any goals for the upcoming year? There is no better time than the present. Here are some ideas to get you thinking about what might be right for you:
- Determine your net worth
- Start tracking your expenses
- Start an emergency fund
- Create a financial plan
- Pay off some or all of your credit card debt
- Pay off some or all of your student loan debt
- Contribute enough to your 401(k), 403(b), or other employer sponsored retirement plan to get your full employer match
- Open up/contribute to a Roth IRA or traditional IRA based on your situation
- Open a taxable brokerage account
- Maximize contributions to your retirement accounts
Conclusion
I hope you are having a great start to the new year. I challenge you to review your own financial situation and make some goals for 2020. Talk it over with your significant other. It doesn’t have to be anything overwhelming. It’s ok to start small, and you don’t have to have a perfect plan. Just do SOMETHING. Take action. Let 2020 be a year you move closer to Freedom through FI, not farther away from it.
Thanks for reading. I hope you are doing well in your progress towards reaching FI. If you have any questions or comments that might help other readers, please list them below. In the meantime, keeping working towards Freedom Through FI!
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