In April 2014, I announced a major financial goal to ensure my husband and I are assured to remain financially independent with no worries about now having "enough". We deeply value the ability to decide what to do in life on a day-to-day basis, whether that includes working or not. It gives us the relief of knowing no one will have dominion over us. Ever.
We currently have enough to live off for decades, but it just doesn't quite feel like enough, so we decided to set a goal.
How Much Is Enough?
We set our sights on one million dollars in investments, which would enable us to live a comfortable lifestyle while allowing us the freedom to pursue our long term goals. Given that sum felt right (at least for now), we decided to take the pledge and join J. Money’s Million Dollar Club.
How are we doing to plan?
Here are the three yearly goals we pledged to achieve, starting in 2014:
- Save at least 30% of our yearly net income.
- Use tax-efficient savings vehicles.
- Achieve a 7%+ rate of return.
Here are the goals, stated more explicitly and our performance against them. We even gave ourselves a grade.
1. Ensure we save at least 30% of our net income yearly:
- Continue to automatically set aside 30% of all income we receive.
- Put all income windfalls automatically into long-term savings. It will only get us to our goal faster!
Year 1 UPDATE = A++: We blew this one out of the water. Effortlessly. I wish I could say it was hard, but it wasn't. We killed it by saving/investing over 51%* of our gross income. That's double what we planned on doing, given our goal of 30% of net income. And, it looks like we've set ourselves up to do a repeat in 2015.
2. Use tax-efficient vehicles to help our money grow faster.
- Max out our TFSAs (current limit is $5,500 per person per year).
- Invest in RRSPs as long as it is most advantageous. That meant $14K for us in 2013.
Year 1 UPDATE = A+: We maxed out our TFSAs and invested a ton (within reason) into our RRSPs, which meant a lot more than in 2013, without dipping into too low of a tax bracket.
3. Achieve a reasonable rate of return on our investments, 7% or more, over the long term.
- Focus on purchasing equities via low-cost index funds.
- Buy when value stocks are "on sale."
- Minimize transaction and MER costs.
Year 1 UPDATE = C: We didn't do so well in this category because we feel that the market is really expensive right now, as I've covered in this post. We focus on value investing and the yields are just not very good right now. So, we're biding our time waiting for a sale and we're very comfortable with that. We intend to buy and hold, hold, hold... Of course, we have invested some, but we're still waiting on the side lines for a better deal. We also need to move some investments to lower cost funds and, there's no reason why we haven't done so yet. That's definitely going to be a focus this year.
All in all, 2014 was a very good year. We feel we deserve an "A" overall, given that a high savings rate by far exceeds returns considerations, at least over the short term.
We're happy with the result and we're looking forward to a repeat for 2015 and we're already well on our way. Having a high savings rate is definitely doable, even more so than I thought possible with little to no effort.
Yes, I admit, I kept rechecking the numbers throughout the year because it felt it should have been harder. A big part of the ease though is that we have very few fixed monthly expenses. Being debt-free makes a heck of a big difference in the savings rate anyone can achieve, and in what's needed to maintain a FIRE lifestyle*.
Want to know how we did in 2015? Here's our 2015 update.
What about you? Have you set a savings goal? A net worth goal? Are you focused on financial independence? I'd love to hear about it.
*I initially reported 42.8% when I first posted this update but I erroneously included repayment of business expenses, which is hardly income!
**FIRE: Financially Independent and Retired Early