Welcome to 2017! It’s a new year, which means that it’s time to get some of my financial goals moving. Assuming everything goes well, I’ll be putting away close to 60% of my income this year towards savings and investments.
My 401k contribution is now set to its maximum percentage that will give me an additional $18,000 in my account by the end of the year. Unfortunately, my current company plan is pre-tax only. If there was a post-tax option, I would definitely be opting for that instead. What I’m really excited about, however, is that I will now have company matching on my contributions! I don’t know yet how much it is (poor communication from HR; for shame), but whatever it is I’m maxing it out.
This year is also the first year I will max out on my IRA contributions as well. The contribution limit for this year is $5,500; I’ve set up a $500 a month auto-deduction from my checking account. In total, that will give me $23,500 in retirement investments, which will be a huge increase for my currently tiny account. If I can keep this up for the next 10 years, until I’m 35, and contribute not a single dollar more, I’ll have at least 830K in my retirement account by 65. That’s assuming a conservative growth rate of 4%. Do the same until age 38 instead and I’ll have 1 million dollars when I retire. Compounding interest is the shit.
Of course, my ultimate goal is to retire early! These are the auto-deposits I’ve set up for 2017:
- $1,000 a month towards the last of my student debt. This will only be for the first 6 months of the year; then I can funnel this money towards building up my emergency fund or adding it to my investment account.
- $200 a month into my “Rainy Day fund”. I depleted my emergency fund back in September to open a Wealthfront investment account; I’ll be more comfortable with handling unexpected expenses once this is built back up.
- $100 a month into my Wealthfront account. This is such a small amount compared to my other goals, but to be honest it’s less of a priority for me until my debt is paid off.
- $200 a month into my Wedding savings account. Don’t worry, I’m not engaged, or even close! I know that I want to get married one day and that my parents will not be comfortable paying for it (nor will I let them). Obviously, that means I need to pay for my own wedding. As of right now, I want it to be somewhat glamorous, so I need to prepare for quite a few expenses in this department.
Total: $1,500 a month towards non-retirement accounts (that’s basically a paycheck).
2018 will most definitely be a year of personal investments, but I’m thinking of this year as my retirement on-ramping, aka my prep year. The important thing is to get things like my student debt and emergency fund out of the way, as well as adjust my budget to account for a decreased income due to increased retirement contributions. I honestly can’t wait until I’m funneling all of my savings into my investment account. Does that sound dorky? Oh well, don’t care.
How will these goals affect me?
Assuming there’s no promotion coming around this year (which would be highly unlikely anyway), my increased contribution amount is going to decrease my monthly take-home pay by about 15%. My savings goals will eat up another 14% out of what I currently budget out per month. Basically, I need to survive with $800 less a month. That’s tight, but doable as long as I 1) don’t move, 2) stop shopping, and 3) reduce eating out. Picking up a side hustle wouldn’t hurt, either.
If all goes well, my current net worth of ~$40K will grow to $70K by the end of the year. That’s a good growth rate. If I can reach a six-figures net worth by the time I hit 27, I’ll be extremely pleased with myself.
Happy New Year!