Writing down your goals can be a great way to clarify your thoughts, so without further ado, here are my personal financial goals for the next year, next 7 years, and beyond. Eyes on the prize!
My shortest term goal is to get debt free. As I said in my first post, I’ve never had credit card, so thankfully that’s not an issue. However, I recently took out a very small Equity Builder loan from NAB (which I’ll go into in more detail in a future blog post). The interest rate is a nice and decent 4.95%, so it’s not at all onerous. In fact, most investors would probably say that it’s not worth paying off any faster than it needs to be, because it’s positively geared and the principal repayments are easily manageable. I’m also quite comfortable being in a gearing package, so I’m not in a hurry to escape from it. If anything, I’d like to be gearing harder than I am now. However, my wife has a lower risk tolerance than me, and like me, she doesn’t have much experience with debt. So I want our first investment loan experience to be a pleasant one, which means eliminating the risks as fast as possible. Hopefully that will make us both feel more comfortable in the future when we tackle larger gearing packages. Paying off this loan is also important because of our other life goals.
Next I want a higher salary. We’re lucky to have very low living expenses, so we’re comfortable now, but it’s just not realistic for our longer term lifestyle and retirement goals. I took my current job on a somewhat meagre salary knowing that it was a short term stepping stone, because I needed to get something concrete on my resume after a long period living overseas. I’m trying to get more responsibility in my current position so that I can ask for a raise, but I’m not optimistic about that being effective. So I’m planning to look for other jobs once I’ve got 12 months on the clock for this one.
I’m aiming to keep our spending at or below current levels. Even with our modest incomes we’re saving around 50% each month, which is great. The focus will be on avoiding lifestyle inflation if I do manage to get a better job. Until then, I don’t think there’s much room to reduce our spending without negatively impacting our quality of life. I should probably bring home made lunches to work more often though.
I need to start looking after my health a bit more. This may not sound like a financial goal, but in the long term this would save on medical costs. I’ve recently cancelled my Extras health insurance (on the advice of Barefoot Investor) and I’m banking the money that I’m saving from that so that I can self-insure if I do have unexpected medical costs. Long term, being healthier would also give my investments more years in which to enjoy the wonders of compounding!
7 year plan
It’s daunting starting an investing journey at what is probably the tail end of the longest bull run in history. Everyone knows a downturn is inevitable, it’s just a question of when. I’m not worried about my investments shrinking, because I have plenty of time to let them recover. I see a crash as potentially an amazing opportunity to scoop up bargains. So my key priority in the medium term is to get myself better positioned to take advantage of the next market decline when it happens.
I already mentioned that I plan to pay off our Equity Builder loans within the next year, but that doesn’t mean I’ll close the loan facilities. On the contrary, I’m planning to apply for increased loan limits on them, and then leave them open so that they’re available if or when we decide to buy. Beyond leaving the loan accounts open and increasing the limits in preparation, we’ll also try to buy more shares in the limited list of stocks that NAB allows as security for the Equity Builder: mainly AFI, ARG, MLT, VAS, and VGS. Having lines of credit available in an economic crash will be important because we’ll want to buy as much stock as we can get our hands on. The only question is whether NAB will change the terms when it comes to the crunch.
The next item on my list is superannuation. My wife and I are currently both with Hostplus, in the low fee Index Balanced option, again on the advice of the Barefoot Investor. I like the basic idea of choosing the lowest fees possible, since we can’t control any other aspect of the performance of our super investments. But I would prefer to be in a more aggressive growth option, 100% in Australian and international stocks, without anything in defensive assets like cash or bonds. I would move away from my current 25% defensive allocation now, except for the foreboding feeling of impending market decline. So if (when!) this overhyped crash finally happens, that’s when I’ll take the opportunity to shift into something more aggressive.
I’m conflicted on real estate. Peter Thornhill has turned me off property as an investment, however I would like to own my own home one day. It’s not a very high priority because our current living arrangement is pretty good, and our rental costs are low. I would enjoy the creative freedom of having our own place, being able to renovate and decorate to our hearts’ content. But the reason why I’m putting it into the 7 year plan is because property equity is a step towards the primary goal of positioning ourselves for the next crash. It would allow more gearing options by giving us a higher class of equity for using as loan security, getting a better interest rate on investment loans, and dividend recycling.
I’m keen to retire early, although I’m not yet sure if that’s a realistic possibility. I’ve probably left it too late with too little to work with, but I’m quietly hoping that I’m wrong about that! I don’t enjoy being a wage slave, and having the freedom to do what I want is a high priority. I would probably keep working after reaching financial independence, but I’d be more selective about the work I do, and would be more inclined to follow my passions. I figure we need about $2.5 million to be able to retire comfortably. That should give us an annual passive income of around $100K, with no need to ever sell any of our portfolio. (I want a Thornhill retirement rather than a Boglehead retirement because I think it’s a more secure approach, but this is a topic for a future blog.)
Once I reach the age of approximately 45, I’ll start gradually increasing the amount I contribute to superannuation. I’m not currently putting anything more than necessary into it, because preservation age is still a long way away, and I don’t trust the pollies to keep their mitts off. I’m also focusing outside of super because I’m still entertaining notions of early retirement, fanciful though that may be. But I can’t deny the tax benefits of super, which is why I’ll ramp it up in later years.
Finally, and I know this sounds weird, but I’d love to grow a forest. Literally. If by some miraculous turn of the stock market I find myself with riches beyond imagining, I’d like to buy a vast tract of land in the Australian countryside and plant native trees all over it, and turn it into a nature reserve. Then I’d build a little house in the middle of it, and spend my days tending bees. I’d put the whole thing into a perpetual philanthropic trust structure so that future generations would have to let it continue in its natural splendour. I think that would pay dividends for many years to come, for the whole planet.