Thanks to everyone that commented on the net worth snapshot post. In this post I wanted to talk more about our financial goals and why financial independence is important to my wife and me.
When it comes to money, my wife and I had similar upbringings. She was born in the US but her parents were immigrants from another country. My entire family (except for one brother born here in the US) immigrated to the US at different times. My wife's parents and my parents both came to the US for two main reasons: better educational opportunities and jobs.
We both grew up watching our parents struggle with money, from paying the bills to chasing get-rich quick schemes. Our parents also shaped some of our frugal habits, for example: we almost always get water when dining out; we gravitate towards the clearance section in stores and stuff like that.
The short end of it is that experiencing our parents respective struggles made both of us resolve to be financially independent and secure, albeit in different ways. It made me want to be rich, i.e. butlers, maids, and mansion rich. It made my wife risk-averse and crave financial stability. As a result, we compromised at financial independence and freedom :).
Ideally what we would like to do is "retire" when we are both 45. By "retire", I mean we want to stop working and do whatever we want for 3-5 years. That includes traveling around the world, spending time with our children and/or grandchildren; visiting every single tourist destination in the United States...you get the idea. Personally, I'm looking forward to being able to spend time with my wife and only my wife. It would be like when we first started dating in college, only this time we'd have more money and gray hairs.
After the initial downtime, we'd most likely become bored and decide to start working again. However, we'd be able to work in "fun" jobs. I'd like to try my hand at teaching, maybe as a high school math teacher, or how about a realtor. Hell, maybe we'll work at Starbucks! The point is that we'd have the freedom to do what we want.
To meet these lofty ambitions, I've calculated that we will need approximately $3,000,000 in retirement assets. I used a variety of retirement calculators that I found online. The main assumptions were usually that we retire at 45, die at 95 and our only source of income is our 401(k) and other taxable assets (so no social security, or pension).
The only caveat is I've promised my wife that if at anytime before we're 45 that our net worth including our primary home is greater than or equal to $4,500,000 then we would retire right away. So if the market has a huge run-up one year and we juuuuust peak over that for a brief millisecond, we have to retire. That's why I've listed our goal net worth at 4.5MM. It sort of corresponds to our target age for retirement, but it was more of a random number we could both agree on.
It's not going to be easy trying to meet that goal. While we are on the right path, I still think there is so much more that we could be doing. Here are some of the areas where I foresee improvement:
- We're going to start funding my 401(k) once my company starts matching. Looking back, I would have started right away, but we've committed ourselves to this method. Plus, instead of funding the 401(k), we're paying down credit card debt. So it's not a complete waste. After this year, I'd like to start funding a Roth IRA while we still qualify.
- We need to do a better job with our budget. I've tried using MS Money but haven't been as diligent as I would like. One weak area for both of us is eating out. We like to eat out a lot. This is especially tempting when we're both tired and don't feel like cooking, and the kids are acting up. We've thought of a few ways to deal with this. One is to budget $20 a week for eating out, and once we've used it all we're not allowed to eat out anymore. Anything we don't use, we save. Another is to try to utilize coupons when eating out, or only eating at places where we have coupons and/or specials (like kids eat free).
- Another area of weakness is impulse buying. To combat this I need to be more vigilant with MS Money (theres that program again) and as Early Riser said: "measure [my] progress and know where [my] money is going at all times."
- We don't do a very good job of living below our means. Part of this is due to the credit card debt we took upon ourselves to furnish our home, as well as a combination of the other weakness mentioned above.
This is the short list of what needs to be done. I would add to it learning as much as possible about all sorts of personal finance issues from books, personal finance blogs, and other internet resources.
I would greatly appreciate any advice from the blogosphere. I haven't the time to peruse through all the great posts that are out there that probably deal with most if not all of these issues I've mentioned. I will keep reading the personal finance carnivals on an ongoing basis as well as contribute as much as I can.