Moving Forward: Part Two

Step One: Establish Financial Goals

My financial goals have several time frames. The long-term goal is to be financially independent which means I will have a passive income stream each month greater than my monthly expenses.  I have chosen December 31, 2027, (sixteen years) as my completion date.

Will I achieve it by then? I don’t know. Probably not…but I decided I may as well put it out there and try! If I am 80% of the way there by my target date, I will be very happy!

To achieve this goal, I have several underlying goals which are:

1.   Finish my 12-month emergency fund of $20,000 by July 31, 2011. I have been working on this goal for awhile now so I already have $16,000 saved. Since I have several extra income sources this summer, saving $4,000 by then seems realistic.

2.   Buy 5-6 duplexes, triplexes and/or 4-plexes and pay off the mortgages on each one by December 31, 2026. These properties will provide me with the passive income I need each month to allow me to retire early from full-time employment.

a.    Save a 20% down payment for my first property by June 30, 2012. This property will probably be a duplex in which I will live in one unit and rent out the other. I am anticipating the amount will be $30,000 - $40,000. I plan to use a 15-year fixed rate mortgage to purchase the property.

b.   Pay off the mortgage on the first property by December 31, 2016. This will require me to divert every available dollar I have towards paying the mortgage off early.

c.   Save a 20% down payment for my second property by June 30, 2017. The actual dollar amount will depend on what real estate prices are at that time.

d.   Pay off the mortgage on the second property by December 31, 2020. I will live in one unit of the second property and use income from both properties to pay this property off sooner than the first.

e.   Purchase up to four additional properties with cash by December 31, 2026. The more properties I own mortgage-free, the faster I can accrue the cash to pay for the next one.

f.    Establish funds for each property which will cover approximately 6 months worth of expenses by December 31, 2027. This may be $6,000-$8,000 per property.

In addition to these lofty goals, I would also like to travel a bit between now and 2027. I am estimating I will need a total of $10,000 to do this. My completion dates will vary depending on when I actually travel, but I will save up the cash before I go on any particular trip.

Writing down each goal, estimating dollar figures, and determining completion dates makes the magnitude of my main goal of financial independence seem nearly insurmountable! To say that I feel overwhelmed right now would be an understatement! This is going to take a tremendous amount of money and dedication on my part over a long period of time, but I also believe it will be worth it. Either way, the time is going to pass. I may as well have something to show for it when it’s over! Furthermore, who knows what opportunities might arise which could speed up the process?

Alright, now that I have completed step one in the financial planning process (check!), I will move on to step two which is to evaluate my current financial situation; however, seeing that this post is already a bit lengthy, I will postpone this discussion until next time. Stay tuned!

Moving Forward: Part One

I’ve been thinking about two things today…my progress towards financial freedom and the half-marathon I’ll be running in September with my best friend. Let’s be clear: I’ve never run anything like this before. The length of the race is only 13.1 miles, but sometimes it feels like it may as well be 1,300 because the actual distance is a bit overwhelming for somebody like me. As a result, I’ve been asking myself something all day: how do I actually accomplish this fitness goal?

The Planning Process

Even though I’ve never done it before, I actually believe that I can do it...somehow. I mean others have done it before me, and I’m not in that bad of shape. Perhaps the first question to ask is whether I’m willing to do it. My will is the key. I have to decide that it’s what I want to accomplish. So step one to achieving a goal is to write down what I want, which is, in this case, to run a half marathon in September. Check. That was easy!

The next step is to evaluate where I’m at right now by collecting some information. What am I eating? How far am I running? What’s missing from my exercise routine? Do I get enough sleep? If I don’t know the answers to these questions, I need to keep a log book where I record my behavior. The key here is to be brutally honest. Guessing or “fudging the numbers”, so that I look like I’m doing better than I actually am, will only hurt me in the end. I have to accept where I am right now. It’s the quickest and most effective way to improve my situation.

The third step is to create a plan to reach my goal by deciding what I need to do between now and September to be able to complete the half-marathon. Fourth step: Just Do It (the plan)! The last step is to periodically re-evaluate my progress and make adjustments to my plan so I stay on track.

If you haven’t already guessed, these five steps can also be applied to my financial situation. It’s called the financial planning process. Easy right? Well, it’s certainly easy to talk about, but like most things in life, it’s easier said than done.

Overcoming Obstacles

With anything, however, there will be bumps along the way. Let’s go back to the half-marathon. I already know I have several challenges to overcome if I’m going to complete all 13.1 miles in a timely manner. One barrier will be keeping my motivation up to train and eat right each day. Like anything, the daily grind can get old after awhile! One idea I have to stay motivated is to reward myself when I reach smaller goals, as long as they do not set me back in my progress. Another strategy that helps me is to hold myself accountable to another person for my choices. That’s where my best friend comes in. If she knows what I am working on and when my deadlines are then she can follow up with me and keep me honest. Sometimes just the idea of telling another person that I didn’t do what I was supposed to do is sufficient motivation to just do it!

Another challenge to my success is that I’ve never done something like this. I have some general ideas about what I need to do but no specifics. I’m pretty ignorant when it comes to fitness and health. I need to educate myself, plain and simple. Luckily, I already know other people who have done this before who I can glean insight from. I can learn from their mistakes! In addition, there are plenty of resources at my finger tips on the Internet, in the library, etc. where I can learn more. In reality, ignorance isn’t actually a good long-term excuse here!

The last challenge that I’ve thought about is time; however, if I really value accomplishing this goal, then I will spend the required amount of time no matter what comes up. On the other hand, it’s easy to spend my time and resources on other things, often unintentionally. This is definitely going to require some self-discipline. I will have to plan my time so that I accomplish the most critical things first. Also, I can’t try to do it all. Some things will undoubtedly fall by the wayside, but if I do it right, the most important things will get done, and I won’t care that I’m not doing the other things.

More to come…

This post will actually come in three parts. In the next post, I will be sharing some of my financial goals and re-evaluating where I am financially (steps 1 and 2 from above). The third post will include strategies for how I plan to accomplish those goals. I will also address specific challenges to my progress and offer ideas on how to overcome them (step 3).