Our Values, the Goal, & the Plan

Emily at Evolving Personal Finance wrote an excellent post a couple weeks ago about the importance of establishing clear goals & values before you charge off, developing strategies.  While this blog started out almost a year ago by stating our goal, which is to reach financial independence by the time I am forty, it didn't do a particularly good job of linking that to our values.  This post will attempt to do that, while revisiting the goal itself, and trying to map out a more detailed plan than I had back in September 2012.

The Goal
Achieve financial independence (investments + rental properties covering all expenses) by August 11, 2021 (the last day I will be 40).

Our Values
In trying to type these values out, I've found they are harder to articulate than our goal.  I don't know what this says about me as a person, but I have a difficult time typing out a paragraph or three about what I value. But a list, that I can do:

• We value family
• Education is important to our identities; we believe it provides opportunity and choice
• We are Christians 
• We value community and want to interact with our neighbors
• Friendships are important to us; we need people

I realize these are kind of vague and fluffy values, but they are honest.  These are the things that matter to my wife and I, Hallmark-y as they may sound. I thought I'd take up Emily's advice and to think a while on what our values are, so we can evaluate how & whether our goal aligns with them.

For the "people" goals (family, friends, community), I think our goal of achieving financial independence will give us a lot more time to spend on all three.  Instead of short visits, we could live in an RV or guest bedroom and visit family for months at a time, like the Mr. Money Mustache Family does.  We'd be more able to meet our friends' schedules rather than hoping for an evening we both have time free, and should be able to engage local charities & events more easily, too.

Financial independence should hypothetically allow us to more easily fund our children's college educations. Though strictly speaking, it'd be better for our goal of quick financial independence if we didn't care about education at all. Sorry, son, I know you want to go to college, but the truth of the matter is that I just don't care about your education, and I'd rather use that money to quit working a few years earlier.

For the final goal, I think personal finance is a bit separate from our faith at the moment, for what it's worth. I have to admit that we are not big givers -- we don't tithe, though we do donate some money to the church every week.  It is a lot less than 10% of our pretax income.  We could afford to give more.  On this front, our values and our goals are somewhat separate.  They may even be a bit contrary: every dollar we give is a dollar we cannot invest, and vice versa.  It's not something that I'm proud of, and I certainly don't want to offend anyone by preaching about religion on a personal finance blog.  But I figure if you can't be perfect, you should try to be honest, so I'll aim for that...for now.

The Plan
When setting my goals for the year, I realized that I never really planned out how I was going to achieve financial independence by the time I was 40.  While I'm on an honesty kick, I just picked that age because it's a round number and I thought it'd make for a decent blog title.  That's it.  I'm not entirely sure I'll be able to finish by that date.

So, now's as good a time as any to put some numbers around the plan.  Below is a year-over-year estimate of our cash, assets, and estimated passive income.  Our current annual spend is approximately $30k in today's dollars, but there is still room for improvement. The numbers below take into account our current savings rates into 401ks, IRAs, taxable accounts, cash savings for future homes, etc., and assume a 7% annual return (except for cash accounts).  In some cases I make very conservative assumptions (e.g. - incomes will stay flat, no bonuses, future rental income is not being applied to future investments) but I make optimistic assumptions in other areas (Mrs. Done by Forty gaining quick employment at specific dates, both of us avoiding layoffs, no calculated additional costs for Baby Done by Forty, etc.).

Time to make God laugh...

(Warning: the string of text is kind of an eye chart.  There is also a graphic at the bottom of the year-over-year bullets, which may be easier on the eyes.)

August 11, 2013 (last day of being 32)

• Cash: $82k (saving for single family home rental property)
• Investments: $115k (all retirement & taxable accounts)
• Income-producing Real Estate: Paid for primary residence ($4,800 annually from rented room)

August 11, 2014 (Milestone: Mrs. DB40 hopefully gets T.A. or R.A. position; purchase rental.)

• Cash: $10k (Emergency fund only; $96k cash plus $4k in investments used to pay for $100k rental property outright; assuming $1k gross monthly rental income.)
• Investments: $174k 
• Income-producing Real Estate: Paid-for primary residence ($4,800 annually from rented room), and a paid-for single family rental ($12,000 gross, $6,000 net income annually)

August 11, 2015 

• Cash: $25k (Emergency fund, plus savings for next primary residence)
• Investments: $231k 
• Income-producing Real Estate: Primary residence and single family rental ($10,800 net income)

August 11, 2016 (Milestones: Mrs. DB40 attains PhD; try to make Baby DB40; no income for Mrs. DB40 this year.)

• Cash: $40k (Emergency fund, plus savings for next primary residence)
• Investments: $294k 
• Income-producing Real Estate: Primary residence and single family rental ($10,800 net income)

August 11, 2017 (Milestone: Mrs. DB40 starts post-doc, gets small income. Turn primary residence into rental; rent like a college student during post-doc.)

• Cash: $49k (Emergency fund, plus savings for next primary residence)
• Investments: $354k 
• Income-producing Real Estate: Two single family rentals ($12,000 net income)

August 11, 2018 (Milestone: Mrs. DB40 becomes Assistant Professor, gets medium-sized income. Rent inexpensively and search for new home.)

• Cash: $69k (Emergency fund, plus savings for next primary residence)
• Investments: $429k 
• Income-producing Real Estate: Two single family rentals ($12,000 net income)

August 11, 2019 (Milestone: Purchase new primary residence, estimated at $150k)

• Cash: $10k (Emergency fund only; $77.5k used towards primary residence)
• Investments: $423k ($73k used towards primary residence) 
• Income-producing Real Estate: Two single family rentals ($12,000 net income)

August 11, 2020 

• Cash: $10k 
• Investments: $510k 
• Income-producing Real Estate: Two single family rentals ($12,000 net income)

August 11, 2021 (last day Mr. Done by 40 is still 40)

• Cash: $10k 
• Investments: $604k (4% withdrawl produces $24k income) 
• Income-producing Real Estate: Two single family rentals ($12,000 net income)

Here is a graph showing our liquid asset amounts over this time period:

Conclusion

It appears that, with some luck, we can potentially achieve financial independence by our goal date, and maybe even a bit sooner if I can manage to earn bonuses, raises, or start some side hustles as I see other personal finance bloggers doing.  It's great to see the possibility!  If we stick to our plan of frugality, we give ourselves a good chance to achieve our goal.  There are some other factors to consider (e.g. - we didn't work in any savings for our children's educations, and Mrs. Done by Forty actually wants to work well beyond my 40th birthday), but the overall outlook seems positive.

I'm glad I took Emily's advice and took the time to outline our values & goals, too.  After a string of posts on how to conserve water and bike in the heat, it's nice to re-focus on the reason why we're doing all this stuff. 

Cheers, and thanks for reading!

*Photo by Matt Spurr at Flickr Creative Commons