Reaching goals feels fantastic. When we drop those 10 (or 20) pounds that we’ve been working so hard to lose, we leap off the scale and do a pirouette in the bathroom. (Wait…am I the only one?)
And with saving for retirement, it’s no different. (Well, minus the scale and the bathroom.)
When my husband and I first dug ourselves out of our $40,000 pile of debt, and started really saving for retirement a few years ago, we laid out a plan. But first…if you didn’t know, I’m an Excel junkie. I love numbers, formulas, forecasting and finance. So naturally, I used this to my advantage. I built out a spreadsheet that tells me where we need to be at the end of each year, to reach our goal of $1,000,000 in 7 years from now (based on a 9% average return on investment). Here’s what my spreadsheet spit out…
Year 2013 was a great year. We saw record-high returns throughout the summer into the fall. We beat our target by several thousand dollars, and passed the $90,000 mark. Sweet. Now we’re looking at 2014. And to help us know if we’re on track, I calculate what our balance SHOULD be at different points in the year.
On January 1st of this year, our balance was $90,897. Our first official benchmark this year was to reach $125,000 by June . And as of last night, June 4th, WE DID IT! We hit $125,070.77. (Our total NET WORTH? According to PersonalCapital.com, we just hit $220,827!)
Which means that from a combination of savings, employer matches and investment returns, we increased our balance by $34,174 in just over 5 months! It’s a relief to know that we’re on track to make our savings goal for the year. A lot can happen between now and the end of 2014, but I’m choosing to be positive. Our next benchmark is to reach $150,000 by September. I promise to post another update then too, good or bad. So we’ve got just under 4 months to save another $25,000, and if things go as well as they have so far, we should make our goal. By the last day of 2014, our balance needs to be $174,153 to meet our total annual savings benchmark.
This is the point where someone says, “How do you do it? How do you put away that much money?”
Well, we’re not like everyone else. We’re a dual-income family, which of course helps immensely. But the real key? We live on one income, and save the other. That’s the part that so many find difficult. I realize that single-earner households can’t save like we do and living on one income can be a struggle. But trust me, it’s a conscious, but not-always-easy decision NOT TO SPEND EVERYTHING WE EARN.
So many dual-income families in America spend like…a dual-income family. Duh, right? But it’s true. What is even more sad is that even the dual-income families cry and complain that they “don’t have enough.” The likely scenario? They have plenty. But they choose to spend it…on enormous flat-screen televisions, new SUVs and sports cars, boats, McMansions and “things”. They’re too busy keeping up with the Jones’.
Well, you know what? I don’t want to be like the Jones’. When I’m living my life free from the daily grind…on my terms…without an alarm clock…traveling the world in (hopefully) 7 years, there won’t be a single regret. There aren’t enough cars, clothes or luxury homes to make me give up my dreams of early retirement. In fact, when we reach our goal, we’re going to drive by the Jones’ house and wave goodbye, as we take off to celebrate our newfound freedom. Meanwhile, Mr. and Mrs. Jones will continue to sit in a cubicle for the next 30 years, wasting away their lives, all so they can pay for things they don’t need with money they don’t have, to impress people they don’t even like. No thanks.
Rob says
Well, Mrs. N,, I agree with your viewpoint 100% We’ve always spent with a keen eye to differentiate between our needs vs our wants, always keeping within our budget. Investing steadily over time, usually in a balanced conservative but distributed portfolio, has increased our holdings to the point where our passive income (dividends, portfolio growth, etc. ) now surpasses our directly earned incomes. Not to mention, it also helps to have fully paid off the mortgage some years ago on our house which is currently in a hot local real estate market, increasing over 9% each year in value. And, like yourselves, we too started out living on one income while saving/investing the other. Congratulations on your progress!
Mrs. Nickels says
Thanks Rob! Everything you said was right on the money (no pun intended, really)
Where you are (passive income surpassing earned incomes) is amazing. In addition to our high savings rate, we also double-pay our mortgage every month. We have $68k left on it, with my crystal ball (aka spreadsheet) saying it will be gone before our 7-year plan is complete. 🙂
Rob says
Well we found that once our portfolio balance had finally reached a certain critical mass it wasn’t very long before the generated (passive) income, due to the benefits of compounding and automatic reinvestment, pretty much started to quickly increase. Of course, given that we’ve been in a bull market for quite some time now, this could trend could change but then, if that should happen, we then would not sell off but instead look for bargain quality investment purchases. And, the day that your mortgage is gone is definitely an emotionally satisfying day for celebration. It sure was for us! 🙂
Mrs. Nickels says
Exactly. When the market turns downward, it’s not time to sell, it’s time to BUY! 🙂
Your success is inspiring Rob!
Melanie H says
I’m so proud of how you found an answer to your debt, put it in to action, kept at it and are meeting your goals. You rock!
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Mrs. Nickels says
Thanks Grandma Nickels! 😉
carlyb says
Congratulations!! That is so exciting. We’re living on one income so that we can pay off our debt, but the hope is to continue this one income living after we’re debt free. It makes me feel less tied down to my job, being that my income is the second. My husband is definitely keeping his job for at least the next 4 years 😉
Quick question – you refer to your investments as retirement savings. I have trouble with that because I’m a little bit afraid that we’ll have some kind of market crash that causes me/us to lose everything (I take things to the extreme sometimes, obviously). Do you call it savings as a leap of faith that you’ll never lose it?
Mrs. Nickels says
By and large, any type of ‘retirement’ savings should be investment-based. Even government pensions and company benefit plans are all just giant stock market investments.
So when you’re investing, yes, there’s always some risk, like the downturn we saw in ’08. But the great thing is that the market always picks back up. In fact, when the market goes down, it’s the time to BUY. People who sold their investments during the ’08 crash felt the hit. But those who kept their losses ‘on paper’ only, and held on to their investments, saw themselves rise back out of the ashes.
Frankly, I think fear of investing is one of the biggest blunders people make. All they remember is the news reports sensationalizing the huge drops in the Dow. But the reality is that the stock market is a two steps forward, half a step back kind of deal.
If somebody puts $100,000 into a typical savings account getting 2.0%, they think “Wow! That’s a great rate!” But letting your money sit in an account at a 2.0% interest rate not only won’t make you much money, but it won’t even keep up with inflation. You’d technically be ‘losing’ money at that point.
Emergency funds are perfect sitting in a typical savings account or money market account. But retirement savings need to be invested.
Whoo! I got a little long-winded there! Hope I answered your question!
carlyboulier says
Lol yes you answered the question. I seem to forget about inflation and your reminder makes your investing seem even more proactive! Making your money keep it’s value, whereas otherwise if you did nothing your money would be worth less over time.
I think my approach right now is similar to a lot of new investors – more concentrated on the risk and a kind of dip-my-toe-in-the-water kind of approach. So reading a blog of a person doing a joyful cannon ball makes my little scared-y cat nature want to yell at you ‘Be careful!! Wear sunscreen!’. Hopefully the more that I learn, then I can slowly take off my investor floaties.
Mrs. Nickels says
Just keep in mind that even in the world of investing, there is higher-risk investing (day-trading and equities), lower-risk investing (bonds) and a whole lot more in the middle grey area. That’s why it’s so important to diversify.
When you invest across hundreds or thousands of individual companies, instead of dumping all of your cash into a single equity, like, say Facebook, you are spreading the risk across a very broad spectrum. That’s why one of the best (THE best, in my opinion) places for the average Joe to invest is in index funds.
It’s a nice middle ground to get some growth without too much risk. So while it may seem like we’re doing “a cannonball”, (ha ha) we’re actually about average. There are much riskier investments, and much safer as well. But risk of loss is too high with the former, and growth too small with the latter.
If you stay in the middle ground like we do, you’ll be fine. Keep me posted!
J. Money (@BudgetsAreSexy) says
Way to put it all out there! Just added you to our Blogger Net Worth Tracker 🙂
http://rockstarfinance.com/blogger-net-worths/
Time to watch you climb int now! Like your husband in all his hiking adventures, haha… that last post he did on Marty McFly and his 401k was awesome 😉 Tell him I’m drinking a beer in his honor today.
Mrs. Nickels says
Thanks J! Financial transparency can be a little scary, but I think there is power in real numbers. It’s one thing to ‘blah-blah-blah’ about living debt-free and saving money, it’s another to actually say “Look folks…this is what we did and how we did it. You can do it too.”
And yes, my husband and his hiking adventures…I’m more of a “pack a lunch and find a cool waterfall”…and he wants to find a sherpa and head up Mt Everest. We have very different ideas in that department.
Enjoy the beer! 😉