The following is a guest post from Ross at Cash Rebel. He’s a 20-something engineer who writes about frugality, sustainability, and stick-to-itiveness. He’s striving to reach financial independence by age 35.
I read a statistic the other day that claimed only 17% of people had long term goals, and only 3% have actually written down those goals. It went on to state that folks who write down their goals are 5X more likely to actually complete their goals.
A few years ago, I would have told you that these statistics were hogwash. That of course everyone has goals, most people just have a tough time achieving them. Over the past few years, I’ve thought (and written) quite a bit about my dreams for financial independence and what I want most over the next ten years. It’s changed my relationship with money and it’s helped me to focus on what really matters. It’s also made me realize that most folks never really take the time to set their long term financial goals. And without a long term goal, it’s difficult to form a cohesive, values-based action plan to get there.
Where Do You See Yourself In 10 Years?
Sure it’s an interview cliche, but it’s an incredibly valuable exercise to repeat every once in a while. I graduated from engineering school about three years ago and I’ve been working in the field of environmental sustainability ever since. So far I love it, but that doesn’t mean I want to do it forever. In 10 years, I’d like to be preparing myself for “retirement” from my traditional full-time job. I don’t know what it will look like exactly, but at that point I’d like to change my focus to either raising a family, being a high school science teacher, or running an environmental non-profit (I’ve got some time to figure it out).
I hope to have a net worth of around $700K invested in stocks, bonds, and real estate, yielding a safe withdrawal rate (4%) of $28,000/yr (22% more than I live on now). I plan to get there by saving 50%+ of my salary each year and investing it in diversified index funds and real estate. I’ve got an incredibly complicated spreadsheet, which you can see here, that I’ve used to set my goals. So far I’ve beaten my financial expectations for the first two years, so I’m hoping I’ll be able to keep it up. Sure, there are a ton of ways I could fail, or my priorities might change, but just having a goal with actionable steps to get there has made all the difference so far.
The Decisions I’ve Made So Far
My long term goal of financial independence has had an impact on a few key areas of my life. They aren’t gigantic life altering choices on their own, but when you put them all together, they make all the difference.
- My Housing Choice: I live in a reasonably nice apartment on the north side of Chicago. I’ve got a roommate, it’s no especially big or super fancy, but it gets the job done. If I wanted to, I could certainly afford a classier place all to myself in an expensive neighborhood right next to the fanciest bars and restaurants in the city. I could be closer to everything I like to do, but it would cost me about twice as much. Some of my friends have decided that living in the hippest area of town is most important to them, so they are sacrificing large portions of their paychecks to rent or buy. If I didn’t have clearly laid out financial goals, this would sound like a pretty appealing option, but because I’ve got a better use for my money (buying financial independence) I’ve been able to resist the temptation.
- Driving Is Soul Crushing: Driving is just a part of normal life for most people, and I don’t think we realize how much money and life energy it really sucks from us. Before I considered whether or not driving fit with my long term life goals and priorities, I drove pretty much everywhere. My commute was 30 miles each way in stand-still traffic. It was a mind numbing existence that actually ended up costing quite a bit in fuel, maintenance, depreciation, and impulse buys. Once I examined my long term priorities, I realized that driving really didn’t fit in my plan. It was a time and money suck, so I focused all my effort on finding a way to reduce the number of miles I drive. Now I’m commuting by train and biking/walking everywhere else. I’m driving about 4X less than I did before. Meanwhile my friends are upgrading their cars and dropping obscene amounts of cash, and going into debt into do it.
- Don’t Try To Beat The Markets: Before setting my goal for financial independence, I thought the stock market was like gambling at a casino. If figured the odds were stacked against you and the house always won. After reading a ton about the subject, my feelings on the matter have evolved. I understand now how the system works, and why index fund investing is a reasonably safe way to grow wealth over the long run (10+years). It also became abundantly clear that the fastest path to financial independence was not by picking winners (something average folks just can’t do consistently), but instead by consistently investing a steady amount in the whole market over a long time frame regardless of boom times or busts.
- Shopping: It’s fascinating to check out my Mint.com account and filter for shopping. Before I considered my long term priorities, I just bought stuff whenever I felt like it. It’s not that I was irresponsible with my money, I just never gave it a second thought when buying a souvenir, tee-shirt, or a cup of coffee. Because I determined that my long term frugality goals were more important than trinkets and knickknacks, I went on an impulse-buying diet. I dropped my monthly shopping allowance by 62% and I haven’t noticed a decrease in my quality of life. It was a simple but powerful change that has helped to streamline my spending.
- Enjoying Life: Before taking the time to examine what I truly wanted out of life, and my dreams about money, I pretty much assumed that buying crap made me happy. I knew it wasn’t a 100% correlation, but it seemed to make intrinsic sense that buying a new Ipad would increase my life happiness points quite a bit. Now I see that there’s almost no correlation between buying crap and long term happiness. Now I spend a lot more time outdoors, laughing with friends, enjoying nature and staying healthy. These are the things that increase my long term happiness points, and they cost next to nothing when you do it right.
Is That Enough?
Is it enough to have a somewhat ambiguous FI goal, and a 10 year action plan to do it? Who knows? So far it’s gone well but you’ll have to stay tuned for the next 8 years to see what happens.
Plenty of people set super lofty financial goals and fail. They burnout too quickly or never follow through on their action plan. But there’s the thing. Even if I fail in reaching 100% financial independence by age 35, I will have built up some passive income streams, reduced my unnecessary spending, and focused on what truly brings me happiness in life. That doesn’t exactly sound like failure to me.
The internet is also littered with examples of folks like Pauline who have succeeded and gone on to tell their tales. They are the people who’ve convinced me to give it a try. By setting large, hairy, long-term, ambitious goals and actually writing them down, I’ve built more than just spreadsheets and a game plan. By putting my goals on paper I’ve increased my chances of success 500%.
What long term goals have you set and actually written down? What goals do you want to accomplish that you haven’t written down yet?