Author Topic: Dealing with Long Term Financial Goals  (Read 8438 times)

sulaco

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Dealing with Long Term Financial Goals
« on: February 18, 2012, 02:21:48 PM »
I started my post-college life with a little bit of credit card debt, and a massive load of student loans. I was blessed with an above average paycheck and soon found the greatest woman on the planet and took her as my wife. Not only was she beautiful and smart, she is also the most financially disciplined being in this universe - spending money is her kryptonite.

Before we were married, I bought a foolish car (brand new, fully financed, but should last 100k+ miles) and we bought a house. In total, we probably had around 400k in liabilities when we were 24 (that's hard to think about).

We paid off the car in about nine months, and began focusing on the second mortgage we had. We paid off the second mortgage and rolled our payments into the primary mortgage, always trying to pay more principal than interest. Meanwhile, minimum payments were being made to the student loans.

Then the housing market crashed, despite having 80k of our purchase price paid off, our house is another 60k underwater beyond that.

This past year I was feeling discouraged about the progress being made on paying off our house, so five months ago I redirected all our additional principle to my student loans. Along with some RSU vesting, I was able to knock those out this past month, leaving our mortgage as our only remaining liability.

Over the past month I consumed Debt is Slavery and Your Money or Your Life, and Early Retirement Extreme is waiting for me at the library. I've calculated that under optimal circumstances, with our current rate of savings, we could be financially independent in about six years, while paying slightly more than the minimum payment on our mortgage (so we would not need to work for income, but we'd still have a mortgage payment). Alternatively, it would take about 5 years to pay off our mortgage if we directed all of that additional income into the mortgage instead of the `stache.

In either case, I feel like we are out of short term financial goals (things that can be accomplished in a quarter, half a year, or in the next year).

What do you do in these long cycles to ensure you are staying on track? Are there smaller goals I with obvious markers I can add along the way? Have others reached FinInd with a mortgage payment or other long term liability?

Stubbleman

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Re: Dealing with Long Term Financial Goals
« Reply #1 on: February 18, 2012, 02:52:52 PM »
Similar story here.  We have a mortgage that is more or less on par with the value of the home and part of a car loan.  I can't speak from the perspective who has already reached FI.

However I like automating the long term goals as much as possible.  I make the cash unavailable for any other use.  That being said, it doesn't sound like you have much trouble buckling down to get things done.

I like to focus on learning other related skills.  If you spend some time brushing up on investment techniques it could help you keep your FI goal in the front of your mind without causing undue stress.

Perhaps set goals unrelated to the finance aspect?  Learn to be a ski bum, or whatever it is you wish to do once you've reached FI.

Regarding the house, do you plan to stay there forever?  That should factor into the decision of how much cash to put into it.  You could work towards FI, and once you have reached it earn some money part time and put that excess cash towards the house.


arebelspy

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Re: Dealing with Long Term Financial Goals
« Reply #2 on: February 18, 2012, 03:09:47 PM »
What do you do in these long cycles to ensure you are staying on track?

Hmm.. A few ideas off the top of my head

  • Track your progress to your long term goal, update monthly.  YMOYL wall chart type thing could help
  • Set mini-goals based on amount of passive income, net worth, etc.
  • Do little "challenges" (like reduce spending by X percent or dollars is month, or don't eat out this month)
  • Start planning what you will do once FI
  • Learn more about investing, Optimize your portfolio

Really the first one is the biggie, IMO.  Track that progress and stay motivated!

One way I do that is by tracking my net worth in a spreadsheet, putting in a best fit line, and then trying to get ABOVE that line each month (so not only a data point above the previous one, reaching a new net worth high, but a net worth increasing faster than it has been.. Hard to sustain indefinitely, but a good challenge).
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velocistar237

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Re: Dealing with Long Term Financial Goals
« Reply #3 on: February 18, 2012, 06:14:16 PM »
What do you do in these long cycles to ensure you are staying on track? Are there smaller goals with obvious markers I can add along the way?

There's always some milestone you could find: net worth going positive, $100K increments in net worth or pre-retirement savings, percentages of debt paid, interest income covering basic needs, basic needs plus whatever, etc.

My route is to find ways to let it become routine and fade into the background. I have a life to live between now and FI, and I'd like to stop thinking about it so much and put that energy toward making my current life better for me and my family.

Have others reached FinInd with a mortgage payment or other long term liability?

Like semi-retirement? I've considered this. The only shortcoming I can see is that many people can't drastically reduce hours worked without reducing hourly wage and losing their health insurance. If you're self-employed (which is a good smaller goal on your way to FI), you can work it out for yourself.

Would it be worth it to pay the mortgage down to the point where you could sell the house, then move somewhere smaller and closer to work?

In my case, if the numbers work out in a few years, I might sell and move somewhere cheaper and closer to family, which would reduce my expenses and bring me a lot closer to FI.

MEJG

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Re: Dealing with Long Term Financial Goals
« Reply #4 on: February 19, 2012, 06:21:43 AM »
I second what other posters have said. 

1) Find other mini goals to work towards (Net worth up 100,000 increments, or passive income at x% your requirements)

2) let our frugality become routine, and not needing a goal.  Because once you reach FI, should you choose to retire then that HUGE goal will be gone.  I think one should strive to make saving and investing second nature, so that once you get to FI you're not left blowing in the wind.

If your mortgage rate is low it may not be worth it to pay it off early anyway.  Your assets may be leveraged well.  If your rate is higher than 3-4% (probably is if it's from before the crash)  perhaps your best bet is to max your tax sheltered accounts then blast the mortgage until you can refinance to a lower interest rate.  If the debt it in your favor, pay the minimum and focus on FI sans mortgage.

sulaco

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Re: Dealing with Long Term Financial Goals
« Reply #5 on: February 19, 2012, 08:51:13 AM »
If your mortgage rate is low it may not be worth it to pay it off early anyway.  Your assets may be leveraged well.  If your rate is higher than 3-4% (probably is if it's from before the crash)  perhaps your best bet is to max your tax sheltered accounts then blast the mortgage until you can refinance to a lower interest rate.  If the debt it in your favor, pay the minimum and focus on FI sans mortgage.

Our mortgage rate is only 3.125%, though it's adjustable, based in the libor rate. We're looking into getting a fixed rate this year, hopefully around 3.75%.

At the moment, the house is actually an investment property (maybe a poor investment). We took a job out of state three years ago, but couldn't sell the house without outlaying a significant amount of cash, so we've been renting it and go back and forth between keeping it as a rental property or moving back into it one day.

I have implemented a YMOYL style chart which tracks total net worth, monthly income, monthly expenses, and investment income. I'll try to make some shorter term goals with my wife that are slightly more aggressive than we currently have budgeted, and hopefully that will meet my need to have some tangible requirement.

I actually can do a lot to optimize our portfolio. That's likely the area which needs the most work at the moment.