In April 2014, I announced a major financial goal to ensure Mr. F2P 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, whether that includes working or not. It gives us the peace of mind of knowing we'll always have the freedom to make personal and career choices.
We currently have enough to live off for over 25 years*, 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!
2015 (Year 2) 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 66% of our net income and 55% of our gross income. That's more than double what we planned on doing and a whole 4% higher than 2014, despite making half the previous year's income! Woot woot! And, it looks like we've set ourselves up to do a repeat in 2016 by already having fully funded our RRSPs and TFSAs for the year.
2. Use tax-efficient vehicles to help our money grow faster.
- Max out our TFSAs (limit was initially $5,500 and raised by government to a one-time $10,000 per person for 2015, which we promptly topped up as soon as we learned of the increase).
- Invest in RRSPs as long as it is most advantageous.
2015 (Year 2) UPDATE = A+: We maxed out our TFSAs and invested a ton (within reason) into our RRSPs, which meant a lot more than in 2014 for Mr. F2P**, 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.
2015 (Year 2) UPDATE = D: We still didn't do so well in this category because we believe the market is really expensive right now, as I've covered in this post. 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 (despite a dip in stocks in 2015, it still just felt too expensive). We also need to move some investments to lower cost funds and there's no reason why we haven't done so yet—in fact, that inaction has cost me over $500 this year. That's definitely going to be a focus for 2016.
All in all, 2015 was a very good year. Our savings rate is what makes our results so strong against objectives and, lucky for us, by far exceeds returns considerations, at least over the short term since starting on this path toward aggressive additions to our net worth total.
We're happy with the result and we're looking forward to a repeat for 2016 and we're already well on our way with over 20% of our expected 2016 gross yearly income already squirrelled away at the time of this writing. Having a high savings rate is definitely doable, even more so than I initially thought possible with such modest effort. A big part of the ease though is that we have very few fixed monthly expenses. Being debt-free makes a HUGE difference in the savings rate anyone can achieve, and in what's needed to maintain a FIRE lifestyle***.
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.
*The 25 years assumes is very conservative, assuming we would make 0% interest and earn $0 income during this time. Pretty unlikely!
**I have no RRSP room at this point, given I have no personal earned income to report. All income currently goes to our company and I have not earned a wage in 2015.
***FIRE: Financially Independent and Retired Early