1. Get more involved in volunteering - I am still looking into this, but I think the biggest obstacle is my weird working schedule.  I work from 11am to 7 or 8pm on most days.  Maybe I can find things I can do at home or before I go to work.

2. Get more than 1000 visitors to this blog daily – When I set down this goal I was only writing The Baglady.  In January I was invited to write for Wise Bread and then I started San Mateo Home Sellers in Trouble in March.  So combining all three blogs now I get on average 2000 pageviews  a day. This is a huge improvement.  So I think I will have to revise this goal to getting 4000 pageviews a day on average by the end of the year.

3. Lose a little bit of weight – Well, since getting the Wii Fit and getting some motivation from my family I have been exercising with the hubby almost everyday.  So far I lost about 2 lbs, but I feel that I gained a little bit of  muscle and my thighs are more toned. So I guess we will carry on and see what happens.

4. Help out around the house a bit more – I am working on this, really.  I try to listen to the hubby when he tells me to clean certain rooms.  This weekend he said that my bathroom is above average in cleanliness.

5. Be awesome at my job – I have been at my job for almost 8 months now and I have pretty much settled in.  I learned quite a bit of new things so now my job isn’t that difficult once again.

Financial Goals

1. $100k+ in Income - I received a  small raise at work a couple months ago.  Since I was a new employee and had only been working there for four months they prorated my raise so it was about 3.5%.  I think after taxes I am earning about $100 more a month. It’s almost enough money for gas! Anyway,  I was pretty happy about it since I was expecting nothing.  My manager actually told me it was a special raise since pretty much all the other people who worked at the company for less than six months got no raise.  I believe him since in my last company all the people that has been at the company for less than nine months didn’t get a raise.  I guess it makes sense.    Anyway, my salary isn’t 100k, yet, but my blog income has grown quite a bit.  So it’s quite possible to break $100k in income this year.

2. Increase Networth by 40% - Well, we’re actually progressing nicely towards this goal.  Our networth has gone up 21% since 12/31/2007 despite the recent stock market drop. So I think we’re definitely on track for 40% by the end of the year.

3. Turn blogging into a business – I think with the income my blogging is pulling in I would have to file taxes as a business at the end of the year so I can write off some of the expenses I have incurred.  I would have to pay income taxes anyway so I might as well deduct some of the valid expenses I had such as hosting and software.

So all things considered, 2008 is turning out to be a good year.  I think writing down my goals really helped me in working towards them. Now I just have to stay the course for the second half of the year!

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I know it’s doable because my parents earned enough to retire together in the past 10 years despite having more financial challenges than my husband and I. Ten years ago my parents were more than forty years old and their salaries were much lower than our current salaries even after adjusting for inflation. They had pretty much no savings because they just graduated from grad school and they spent what money they had on the relocation from Hawaii to the Bay Area and bought a car. They also put me through college and weathered the dot com bubble, but they managed to do quite well. If they wanted to retire now, they really could do it. My mom doesn’t think so, but actually the numbers are in their favor. So I really see their success as an inspiration and a mark of certainty that my husband and I can do the same.

My mom once said that I can’t use them as a benchmark because they are much older than us so we need a lot more money for retirement. She also said that I was a very cheap child to raise so maybe we won’t be so lucky with our future kid(s). Additionally, inflation is running wild now and the buying power of their money was greater than ours. Another thing is that their Social Security benefits will be much better than ours. I have considered all of those things and I still think it is possible for me to quit my job in seven years because we are currently saving and investing a very large percentage of our income. Additionally, I will keep on writing so I will have some income and the hubby doesn’t necessarily have to quit his job. Though he did say that if we were financially secure and he did not need to work he would design and program games on his own rather than work for a company where he doesn’t have total control over the process of creating a game. He also loves kids so he said that if he has the opportunity to be home with our future offspring he would take it. So I take those comments as an indication that if we could both “retire”, he would join me.

Don’t get me wrong. I don’t hate my job and I don’t hate working, but I hate the fact that society makes us believe we are supposed to stop working at age 65 or 67. At that age, you don’t have that many years left to enjoy life. I think ultimately retirement for me and my husband means that we can pursue our own passions rather than whoring our talents and adding to someone else’s bottom line.

Seven years is really a stretch goal for our financial independence because we would only be 32 by that time and we would have to support ourselves for many years. I calculated that we probably need at least a portfolio worth $1.4 to $1.5 million with the FIRECalc based on an assumption that we live on around 4% of the portfolio and our side income. Some people think I am a bit crazy, but I really believe that it is possible even with children. Anyway, we will see in seven years, and hopefully The Baglady is still around then so all of you can see if this grand goal has been achieved.

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What is your stance on saving for retirement vs saving for house? I’ve been reading some advice that says only save for house first (putting into high-yield savings account) and save for retirement once you have a house. Other advice says always save 10% of gross income to retirement even when you’re saving for a house.

Well, first I have to say that everyone’s priorities are different, but my husband and I are saving for both. We are both contributing 17% of our income to our 401ks and we have gotten used to that deduction so we don’t miss the money at all. We don’t totally max out our 401k but 17% is a good amount that we’re both comfortable with. We’re keeping most of what we save outside of our 401ks in a Vanguard money market fund and a Vanguard index fund and we do intend to use the money to purchase a home sometime in the future.

Personally I think that saving for a house shouldn’t be put ahead of saving for retirement. The reason is that money grows exponentially in a retirement fund with time. Generally the earlier you start contributing the larger a nest egg you would have in the end. Diverting your money from a retirement fund to purchase a home would require much larger retirement contributions in the future to achieve the same nest egg. Lets use some real numbers to see what I mean.

Scenario 1: 24 Year Old Saving for Retirement for 35 Years

Suppose that I put $1200 a month into a 401k. Since this money is contributed pre-tax, I am actually seeing a deduction of about $800 from my paycheck due to my fairly high tax rate in California. I can withdraw from my 401k at the age of 59.5 without penalty, so I can keep on contributing for at least 35 years. Assuming a fairly conservative average annual growth rate of 7% a year, my nest egg will grow to approximately $1,990,611 at age 59.5. Meanwhile I can still save whatever money I have left for a home.

Scenario 2: 24 Year Old Saving for a Home Before Saving for Retirement

Suppose that I need a downpayment of $75,000 for a below median price Californian home and I am saving what I would have put into my 401k into a money market account. I would have to save after-tax money so I could only contribute about $800 per month and lets assume that I use a money market fund that pays 4% per year after tax. At this rate, it would take me just about seven years to save for the downpayment. The $75,000 is good for a 20% downpayment on a $375,000 home. Usually there are other closing costs so actually I need more money to buy a $375,000 home. Just to make this example simple, I will say that $75,000 is adequate for me to buy a $375,000 home and the entire $75k is applied to the price of the home. Suppose that I take a regular fixed 30 year loan on the remaining balance of $300,000 and I get a fairly good rate of 6% I would now have a mortgage payment of 1798.65 per month.

This scenario means that I would lose seven years on my retirement contributions. If I contribute $1200 a month to my retirement for only 28 years I would have only 1,599,377 at age 59.5.  To reach the same nest egg of scenario 1 at age 59.5, I would have to contribute about $2055 per month to my 401k for 28 years. This is not even possible without company matching because the IRS limit on 401k contributions is $15500 a year right now.

Now, some may argue that  savings are going into the home that I bought. Historically, home prices have only risen 2 to 4% over long periods of time. Additionally, there is a 1.1% property tax in California on the value of my home every year even if I have paid it off. In other states the property tax can be very high and completely wipe out the gains on a home. So, suppose that I take an extremely optimistic growth rate of 4% on my home then the home is worth about $1,216,274 after 30 years. However, I am not accounting for the effects of inflation and maintenance costs so I think I would break even at best.  If I put the mortgage money in an investment account instead I would have more than $2,000,000 after 30 years assuming a growth rate of 7%.  In that case, I could use my $2 million and buy a better house with cash.

With all of that said, I realize that not everyone live in a place with ridiculous real estate prices and in some places of the country it still makes sense to buy a home because the house payments are less than rents. In those less crazy parts of the country it doesn’t take seven years to save a reasonable downpayment so the potential time loss on a retirement account isn’t as severe. Saving for a home first could make sense for some people. However, it really would take young people years to save an adequate downpayment here in California. In fact, there is nothing decent for $375,000 here in San Mateo and a 20% downpayment on an average home is more likely to be $120000 to $140000. My stance on the subject is to save for retirement as much as you can and as soon as possible. You can still save for a home as much as you can, but you should clearly understand that a home is a cost center, and not a savings vehicle. I still want a house of my own, but I do not expect it to feed me and pay for my health insurance when I retire. I would approach buying a home as I would approach buying any other item, such as a car or a stick of gum. I want a quality home at a reasonable price, and I don’t mind waiting a while for a sale. While I wait to buy a home, I am building up a strong retirement nest egg. I hope I answered your question Anna!

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I came up with the idea of 5% goals a while back when I was measuring my monthly networth gain. Basically I set up a total of 100 networth goals, and each goal is a 5% gain over the last goal. For each goal I put a target date for me to achieve it and then I record the actual date I achieved it. I think that it really gives me discipline to save and invest and also I am competing with myself to finish my goal before my estimate. The goals get exponentially larger and thus become harder to reach so you have to adjust your estimated finish date.

I haven’t really shown anyone my goals list, but the list started at $31,500, which is 5% over my original stash of $30,000. The 100th goal is $3,945,037, which is basically 30,000 * 1.05^100, and I have an estimated completion date of December, 2027 on that last goal. However, I could finish before then because right now I finished the last goal 8 months ahead of schedule. Now my goals also include my hubby so hopefully we will finish ahead of schedule together. I like my goals system because 100 improvements of 5% is psychologically more possible than a huge number like $3,945,037. Exponential growth is a very powerful thing and successive small improvements can do more than you think.

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