Having a goal of financial freedom is our ultimate objective. Getting there will require taking several small steps toward releasing us from servitude. So, each year I try to outline what steps will take priority in the year to come.
The past year, I bought my first rental property. Then mid-year I maxed out my traditional IRA and increased the contributions of our work retirement accounts. We also payed an extra $3500 toward our mortgage. This was to accelerate the amortization to where when we reach the 5-year threshold for mortgage insurance, we will have over 20% payed off. Then we can quit paying $131/month for mortgage insurance.
Overall we had an excellent year, and are actually closer to financial independence than I had expected at the outset. Hopefully we can say the same for 2017.
Goal #1 – Get rid of Mrs. Bluegrass Dividends student loan.
We have been paying an extra $50/month toward eliminating her student loan for about two years. The loan was never a large debt, about $7500 at it’s max. Our main intention was for it to not be something that hung around for a decade. Yet we never focused on it specifically for elimination. We just set the payment to automatically withdraw a little extra to accelerate the payoff. With the extra payments the debt should be gone around October. Then we will have $84/month in extra free cash flow.
Goal #2 – Contribute $26,000 to Retirement Plans
This would be far and away the most we have invested in our retirement accounts for a year. We have contributed at an equal rate for the last six months without any issue, so success is hopefully inevitable.
Contributing $500/week, coupled with our employer match will increase our projected income by $1160/year. Which would be a major step toward independence.
Goal #3 – Save $3000 Toward Our Next Car
Our cars are getting old, 9 and 10 years respectively. They are still in good shape, however I can hear the clock ticking. Most likely we will buy a “new to us” car in late 2018. I would like to have $15,000 saved toward the purchase, with any trade in value or money left aside set to roll over toward the next acquisition.
In my experience, if I try to accomplish everything I want to at the same time, I tend to get overwhelmed. Eventually, I feel as though I’m simply not getting anywhere. Instead, I try to focus our available cash flow more heavily toward a couple more pressing goals.
This year, we are focusing most heavily on pumping as much cash into our retirement accounts as possible. In order to achieve financial independence we will also need to accomplish other less pressing goals in the future. These include purchasing several more rental properties and paying off our mortgage.
We are rolling any income produced by our rental property back into saving for the down payment on the next one. At the current rate, this will take 6-7 years. I would like to purchase one in 2-4 years, so at some point we will decrease our retirement savings to focus more on getting a down payment for our next real estate investment.
Our house is currently financed with a 3.5%/30 year mortgage. The interest rate is so low that I would prefer to put my extra cash to work in other areas that will yield a higher rate of return. I feel any extra payment on the mortgage is essentially earning 3.5%/year.
When we get closer to independence we will begin to hack away more aggressively at the loan. Our current principle + interest payment is $661/month, with an outstanding balance of 128K and 24 years remaining on the amortization. In order to produce enough income to meet that payment we would need $198,300 in investments. Simply paying off the mortgage and decreasing our cost of living would mean we would need close to 200K less in savings.
While both those goals are important, and we are still slowly working our way toward them. Putting cash to work in our retirement accounts will take priority in 2017.
The numbers work on paper, hopefully we can have an uneventful year and surpass our expectations like we did in 2016.