At the beginning of the year, I set a few financial goals and resolutions representing what I would like to accomplish by the end of 2009. Like last year, my progress is mixed. I’ll get to that in a moment.
I’m not a big fan of the concept of financial goal setting. Goals or targets evoke the image of an endpoint, the touchdown. If you keep running through the end zone, you will hit a wall. The financial goals I set and share each year are markers or milestones. The collection of money, even a certain amount of money like one million dollars, is not a goal. The goal is the kind of person you want to be and how you use the money you accumulate.
Nevertheless, setting time-based financial targets is helpful to measure progress against expectations, even when some variables are beyond control. Here is how I did in 2009.
Goals for 2009
Income: My goal for “Other Earned Income” in 2009 is $108,000, or an average $9,000 per month. My stretch goal is to surpass this year’s success with $132,000.
Result: success. Other Earned Income is basically any income I receive other than the salary from my day job. Surprisingly, I surpassed my stretch goal. However, the year ended weaker than it started. Just maintaining my income throughout the year required more diversity in income sources and much more work than I expected.
Investing: Contribute the full $16,500 to my 401(k). Contribute the maximum to a Roth IRA if possible; if not, contribute to a Traditional IRA and convert the account to a Roth IRA in 2010. Contribute the maximum to an SEP IRA. Invest $250 per month into an account to help pay for future children’s education.
Result: mostly a success so far. I did contribute the maximum to my 401(k) this year, a feat I would not have been able to accomplish (without a major lifestyle change) if I were working with my day job salary alone. I did contribute the maximum to my 2008 Roth IRA and SEP IRA earlier this year, and I plan to do the same before my 2009 taxes are due in April.
Now that my business has been reclassified, I may have more flexibility in how I determine how much I can contribute to the SEP IRA, so I won’t be able to determine the amounts until I work with my accountant.
In addition to retirement investing, I invested $1,000 in the total stock market index fund at Vanguard in a regular non-retirement account at the beginning of each month since May.
I did not, however, set aside $250 each month for my future children’s education. I am still undecided about how — and whether — to tackle this before having children.
Saving: After I pay my taxes, I’d like to take half of whatever I have left and earmark that amount for a down payment on a house.
Result: qualified success. The amount I have in savings accounts, including business accounts, has increased this year from $80,000 to $120,000. I consider that a success. I haven’t specifically earmarked half of that for a house. My “House Fund” at ING Direct holds about $14,000 while I’ve allowed my business savings account to accumulate.
One of the reasons I haven’t invested most of this is because, as I’ve been saying for a few years, I want to have the funds available for when I decide to purchase a house and need a down payment. I’m still not keen on the idea of settling down.
Overall result: mild success. I don’t set net worth targets any more due to the volatility of the stock market. I should end the year with a modified net worth of around $300,000. I have to extend great thanks to the stock market for recovering this year from lows at the end of 2008.
Although I earned more money this year than I earned in 2008, I also spent more money. Overall, my “savings,” what I have left of my income after expenses, decreased by about $20,000. If we take taxes out of the picture, the situation changes. I paid close to $50,000 in taxes this year, including a significant 2008 tax bill, compared to $20,000 in 2008.
Thankfully, I’m working with an accountant now who has already saved me $15,000 between 2007 and 2008.
Tomorrow, I will use some of these results to determine my financial targets for 2010. Did you meet your goals this year?