Friday, March 7, 2008

Financial goals for the next five years

I have been considering how I want to push some of my financial goals. I have mentioned what my goals are for this year. However, I would like to add more challenges to get me closer to a lifestyle I will enjoy. Suburban living is really not for me and I want to get back to the country. This move necessitates many things including additional savings I do not have. What can I do to get myself closer to my dream living situation?

Save 40% of my gross income.
Right now, I save just over 30% of my gross income. My retirement accounts, my targeted savings (e.g., to purchase a new auto), and my regular savings accounts bring me to this point. However, I would like to increase that by 2-3% a year to reach 40% in 5 years. This is quite ambitious as I am not sure what I need to cut in order to get to this point. Likely my spending plan cuts would include entertainment, eating out, personal care and utilities. The latter is tough, but I could be more miserly when it comes to using energy. A 2% savings increase would require me to save over $100 a month. I have a lot of work ahead of me to make this goal a reality.

Generate additional income to save more.
This is a great if cliched statement. If frugal living is not enough to get the desired result, find a way to get more money. Potentially, I have a raise coming up, but I will not count on such a factor. So that means a source other than my biweekly paycheck. Currently, I am selling unwanted items, but this is hit or miss. Someone might be interested or may not be. I lose some potential money to haggling, but that is part of business. But in the end, there is a finite amount of stuff I am willing to sell. That means I need to find other methods to generate income.

I have considered the possibility of having a roommate. Despite my loud protests over the loss of privacy and the concerns about sharing my space, this idea has not disappeared. It ends up in my head at least once a day so my revisiting of this idea may not be too far in the future.

I could also leverage skills I have to generate income. I can sew and quilt items to sell or ask for commission. I think the former is what I will do first if I intend to pursue this path. Basically, I am not excited about this because I have not sewed things I need or wait until the last minute to make. Would I really sew for someone else even if it is for money? I could also use my work skills for possible income, but my thoughts are limited as to how to do this.

Use my money to generate more money.
I have much of my savings in high-yield interest-bearing accounts. The rates are nothing to write home about (my highest is 3.6%), but this is more than my credit union pays. The more money I have in savings and Certificates of Deposit, the more passive income I earn. The numbers are not spectacular, but it is more money than I had when I first deposited it. Since the money in these savings accounts are for emergency use, I do not feel comfortable investing in stocks. However, this is a path I will explore further as my savings becomes more robust. Past my $15,000 threshold, I might investigate a bond or a stock mutual fund. These potentially have greater return but also greater risk. I will need to do a gut check to make sure this is okay before deciding to pursue this path.

I have no plans to buy additional real estate as an investment property to rent. I am comfortable with my mortgage and do not feel the need to take on a second. Contemplating a roommate is difficult enough. A full-blown landlord situation--that is scary.

These are the various idea that drive my financial goals which basically comes down to saving more money to give me the freedom to do what I want. I have learned so much more now than I knew even before I bought my house. While I would not trade the personal gain in having my own home for the apartment I was living in, it does mean I have committed a good portion of my income to fixed expenses associated with homeownership. I would like to find a place to live for the rest of my life, but it is hard to predict where life may take me. I will save money and keep an open mind and see where I end up.

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