Freed by 50

Last year I had but one tiny little financial goal: Pay off the student loans.  We accomplished that goal during our very expensive May 2018 “spending spree” when we sent a lump sum payment of $34,865.80 to our loan servicer, eliminating the last of our college loans for good.  To celebrate that huge financial milestone, we spent $3500 upgrading the fences in our back yard from sagging, broken chain link to beautiful aluminum (this was a necessity to keep the kids from dying in the pool), and another $1500 buying $4000 worth of our neighbor’s patio furniture when they moved out.

It was an expensive month, but with the exception of the patio furniture, it was all very calculated and planned out.  We spent half of 2018 saving and getting our ducks in a row, and another half of 2018 recovering from our $40,000 late May early June spending.

I’m going into 2019 with some pretty awesome changes.  I was recently promoted, which came with a raise, and then I got an annual raise as well.  This doesn’t change our monthly budget at all.  You wont find a new Tesla in my driveway or see a Breitling on my wrist, even though I do occasionally go salivate over both online.  But it does help me start the year with a quick financial win.

Minor Goal 1: Maximize my ESPP contribution.  I am fortunate enough to work at a company with a booming stock and a generous employee stock purchase plan.  I can contribute up to 15% of my net pay over a six month period.  At the end of the six months, the plan automatically purchases company stock for 15% off of the lowest price on either the first or last day of the contribution period.  This has generally resulted in a 20-45% return on investment every six months!  Granted the profits are taxed, but as a short term savings vehicle, even after taxes the rate of return is unbeatable.  Prior to my raise I had been contributing 6%.  I just cranked my contribution up to 15%.  Keep in mind I always sell my stock the day it is purchased, thus guaranteeing myself a minimum 15% ROI even if the stock price plummeted during the six month period.

Minor Goal 2: Maximize my 401k contribution.  This is another minor goal because I’m cheating.  I currently contribute 10% to my 401k, which has me in striking distance of the maximum contribution of $19,000 for 2019.  I have to increase my contribution by 1% to reach this goal.

Both of these minor goals may seem like bragging, but I assure you they’re not.  This is how I truly enjoy spending my money.  I prefer to spend my money on things that provide value to my life, and knowing that I’m taking a pay raise and using it to solidify our financial situation makes me incredibly happy.  Plus, I need a couple of quick wins to keep me sane for the big goals for 2019.

Major Goal 1: Increase our emergency fund from four to six months of savings.  This is roughly an $8000 increase to our big savings account and it wont be easy in a year we’re planning a major home renovation as well.  I’m hoping to be able to reach this goal by socking away 100% of the ESPP savings.

The fact that I want to sit on six months of expenses goes back to my article about fear.  With my promotion at work, there is nowhere for me to hide and no room for me to be lazy.  I’m not particularly worried about losing my job, but I will always have a voice in the back of my head saying I could be demoted and lose that extra income at any time.  Best to put a bunch of that money away now and worry about spending it later.

Major Goal 2: Get the mortgage below $350,000.  My current outstanding mortgage balance is $368,004.53.  If I paid nothing but my normal payments all year, I would enter 2020 with a balance of $359,136, roughly $10,000 short of my goal.  If I can muster an additional $1,000/month for 2019, I would be sitting on a balance of $348,287, which is my projected balance for February 2021.  In short, I’d be cutting 13 months off of my mortgage.

This is a big deal for me, and a step towards my long term goal of lowering the mortgage to $281,828 as quickly as possible.  You may ask, how did you arrive at this wildly arbitrary number?  And the answer is simple: That is the point at which I will be paying more in principal than interest.  It is currently scheduled to happen in March of 2027, which is WAY too far off for an impatient person like me.  So I’d like to reschedule that for a closer date…more like 2021.

Paying $87,000 off of my mortgage in 3 years sounds insane, until you take into account that without sending a single extra payment I’ll automatically knock $28,000 off of the principal.  And by sending an extra $12,000 this year, I’ll be supercharging my principal payments by lowering my interest.  If I simply continue the $1000 extra monthly payment, I’ll hit my goal in January of 2023.  This would put me on course to pay off my home 11 years early.  I’ll have to review my long term progress at the end of the year.

What are your goals for 2019?