One’s mindset is perhaps the greatest predictor to success. It’s obvious to most that goals are much more difficult to achieve if focus and determination are lacking, which is why it’s not often that people just stumble onto success. In most cases, you don’t hear stories about multimillionaires or CEO’s who didn’t work hard to get where they are today. One of my favorite quotes demonstrating the importance of mindset comes from Yogi Berra, the famous New York Yankee, who once said:

“Baseball is 90% mental, the other half physical.”

Bottom line, if your head isn’t in the game, you aren’t going to win. The same logic applies to money. If you don’t put thought into your investments, spending habits, and earning potential, then you will struggle to find success in personal finance.

i eat success for breakfast

Take, for example, the $21,000 I’ve received in merit based raises over the past three years. Yes, I received those raises, in part, because I simply asked for them. If you look a little deeper, though, I also received them because my head was in the “game.” I knew what I needed to do in order to achieve my income goals. I worked toward those goals and it payed off. I could have easily just coasted by, earned my $43,000 salary (plus 2% raises ever year) and been happy. After all, that’s a reasonable salary for a 20-something year old. My focus and determination, though, was on raising my income, and I now make $67,500 per year.

Even after receiving excellent merit based raises, which increased my income from $43,000 to $67,500 within five years, I could have been happy. That could have been enough. It would be for most people. However, I also had been working on my side hustle, which I grew from $0 to over $15,000 per year in a three year time frame. I was able to do this because I was focused on my income and earning potential. Opportunities came my way, and I took advantage. I knew that if I could earn that first $3,000, I could turn it into $6,000 (and then $9,000, $12,000…etc.).

It’s all about mindset. Mindset makes the difference between reaching your financial goals and struggling to get by. In my experience, there are a few things everyone can work toward to get into the right mindset.

How to Get into the Right Mindset

It’s difficult to get your mind in the right place without first knowing what you hope to accomplish in the future. So, it’s essential that you have a financial plan in place. Personally, I spend a lot of time thinking about my financial goals. In doing so, I map out my plan in 5 year increments (then adjust annually, as needed). I know that I want to retire at 40, so If i work myself backward from that date (11/06/27), I can begin to map out what I need to reach my goals.

Creating A Financial Plan

I created my first financial plan 5 years ago (2012), when I became really interested in personal finance. I started with a few goals in mind:

What I wanted to accomplish between 2012 – 2016

  1. Fund my emergency fund (3 to 6 months of expenses)
  2. Become debt free
  3. $100,000 in retirement investments
  4. Invest for the short/mid term (e.g., Vanguard)

Once you outline goals, it’s easy to begin working toward them in in short spurts. Instead of saying I have to pay off $40,000 in debt, I figured I needed to pay off $12,500 in year 1, $12,500 in year 2, …etc. By creating mini-goals (that also aligned with the “big picture), I was able to stay focused and maintain the right mindset. Instead of thinking about my end goal of $100,000 in retirement investments, I just needed to fund $20,000 per year. That’s simple. That’s two fully funded Roth IRA’s, my 403B contributions, and a little extra. So, I worked each year to do just that, knowing I was working toward something larger.financial plan

So, think about where you want to be in five years. Then, take it one step at a time. What do you need to do in year 1 to be on pace to reach those goals ? Then, what do you need to do in years 2, 3, 4, 5 ?

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The start to 2017 has been pretty insane in the FirebyForty household. We bought a new house on Christmas Even and sold our current house on New Year’s Eve. So, we’ve spent most of January preparing to move, which we will be doing so in early February (we close on the new house on Feb 7th and the old house on Feb 10th). None of that has stopped us, though, from posting our largest net worth increase, ever, this month ! Yes, the increase can be attributed to a large monetary gift (more below), but we have surpassed the $250,000 mark in under five years (I really started getting into personal finance in early 2011). Even better, my goal of having a net worth of $300,000 by my 30th birthday is a real possibility (my birthday is in November).

money_silicon valley_gif

Assets: 

Cash: $61,033 (+$46,129)

Our in-laws generously offered to gift us $50,000 for a down payment on the new house. We’ve used some of our reserve funds to purchase upgrades in the house (all hardwood floors, granite backsplash,..etc). When we close on the old house, I expect to walk away with about $30,000 from the equity we’ve built up. I’ll be using that money to top off our new car fund ($10,000) and our emergency fund ($5,000 or $7,5000). Plus, I’ll be setting aside $3,000 for a new lawn mower. Then, whatever is left will be put into our Vanguard account. January and February will both show dramatic changes in our cash holdings. Things will hopefully calm down in March, as we get settled into the new house.

529 Plan: $5,732 (+$265)

We contribute $2,500 on my son’s birthday every year (May). Our increase is simply due to market returns !

Vanguard Brokerage: $3,133 (+$65)

Total Stock Market Index fund at Vanguard. I’ll be putting about $15,000 into this account next month (see “cash” above). Right now, increases are simply due to market increases (Yay DOW 20,000 !).

Retirement Accounts: $115,108 (+$7,069)

This includes my 403B and Roth IRA, as well as my wife’s Roth IRA and vested pension. Contributions this month included $2,036.44 (403b), $375 (My Roth IRA), $375 (Wife’s Roth IRA), and $3,505.46 (Wife’s Vested Pension).  Total Contributions were $6,291.46, which means we earned $777.54 in market returns for the month.

HSA: $4,049 (+$553)

We put $520.83 into this account every month in order to max it out (my employer puts $500 into it annually – $250 in January and $250 in July). The provider who handles our HSA changed on January 1st, and I’m still waiting for everything to clear into the new account. We used to use HealthEquity (who I really liked – they had an awesome mobile app). Payflex (who I don’t like – their mobile app sucks) is the new provider. However, I noticed that they offer Vanguard funds for the investment portion of the HSA, which I’m pretty excited about. Once everything clears (probably in a few days), I’ll open an investment account and begin putting every dollar over our our deductible ($3,000) into a Vanguard fund.

Home Value: $160,000 (no change)

This is expected to increase $100,000+ in February, as our new house appraised at $278,000.

Car Values: $25,000.00 (-$4,750)

I only update the value of our cars once every three months. So, once every three months I see a huge decrease in the value of our vehicles. My car (2008 Dodge Caliber w/ 119,900 miles) decreased in value from $3,250 to $2,000, while my wife’s  car (2016 Mazda CX-5 w/ 13,100 miles) decreased in value from $26,500 to $23,000. No big deal, cars are terrible investments, and I expect the value to go down over time.

Total Assets: $374,055 (+$49,331)

Debts:

Mortgage: $108,086 (-$253)

This is REALLY going to increase next month. We purchased our new house for $267,000 and are putting 20% down ($53,400). Our new mortgage will be $213,600. Expect a $100,000+ increase next month !

Total Debts: $108,086 (-$253)

Net Worth:

Assets – Debts: $265,969 (+$49,584)

net worth trend line_January 2017

Goals for 2017

I’m definitely on pace to achieve my 2017 financial goals (listed below).

Account Current (Start of Year)  Goal (December 31, 2017)
Cash $61,033.00  ($14,904.00)  $17,500
Retirement $115,108 ($108,039)  $155,000
Home $160,000.00  $275,000
Cars $25,000.00 ($29,750.00)  $27,500
HSA $4,049 ($3,496.00)  $7,000
Stocks $3,133.00  ($3,067.00)  $23,000
 529 Plan $5,732.00 ($5,467.00)  $7,500

Cash: Goal will be complete by end of February

Retirement: 15% complete. I’m probably at the mercy of market returns for this goal.

Home: Goal will be complete by end of February. New house is appraised at $278,000

Cars: I was WAY off on my estimate of what our cars would be worth by the end of the year. After 1 month, I’m already below that number.

HSA: Current = $4,049. 2017 Expected Contributions = $6,750. Deductible = $3,000. I should be somewhere around $7,750 by the end of the year (current + expected_contributions – deductible).

Stocks: Goal will be complete by February or March.

529 Plan: Goal will be complete in May, when I contribute $2,500 to my son’s 529 plan.

 

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2016 was a great year. It was by far the best financial year we’ve ever had, as we easily accomplished all of our financial goals (and then some). We started maxing my 403b, HSA, and continued maxing out our Roth IRA’s.  In addition, I opened a Vanguard account and began investing in low cost index funds. Then, we continued contributing to my son’s 529 plan and are on pace to fund at least 1/2 of his college tuition. Finally, toward the end of the year we bought our dream home and sold our existing home for more than list price. While 2016 was a great year, I fully expect 2017 to be just as great.

2016 Review

Retirement (403B, Roth IRA’s): +$37,764 ($108,039)

Brokerage (Vanguard): +$3,068 ($3,068)

Total Asset Growth: $77,894 ($324,724)

Debt: $-9,361 ($108,339)

Net worth increase: +$90,255 ($216,385)

Considering my goals for the year ended up exactly as I expected, I can’t complain too much about how 2016 turned out.

Account Goal Actual
Cash $16,000 $14,904.00
Retirement $105,000 $108,039.00
Home $160,000 $160,000.00
Cars $30,000 $29,750.00
HSA $3,500 $3,496.00
Stocks $3,000 $3,067.00
 529  $5,000  $5,467.00

On top of the asset growth we saw in 2016, we continued to maintain a debt free lifestyle (not including mortgage).

Planning for 2017

When I think through financial planning, I do it in 5 year increments. For example, when thinking about 2017, I actually start thinking about 2022. How old will I be (35), how old will my wife be (32), how old will my son be (7). What kind of lifestyle do we want to live at this time ? How far along on my goal toward financial independence do I need to be if I want to retire by the age of 40….etc. If I need 1 million in liquid assets to “semi-retire” at the age of 40, should I expect to have 1/2 of that by the age of 35 ?

Once I sort through these questions, I work backwards. Where do I need to be in 2021 in order to make my goals for 2022 possible ? Where do I need to be in 2020 in order for my goals in 2021 to be possible. Where do I need to be in 2019 in order to make my goals for 2020 possible ?….etc.

Goals for 2017

So, where do I expect to be in 2017 ? Let’s take a look.

Account Current  Goal
Cash $14,904.00  $17,500
Retirement $108,039  $155,000
Home $160,000.00  $275,000
Cars $29,750.00  $27,500
HSA $3,496.00  $7,000
Stocks $3,067.00  $23,000
 529 Plan $5,467.00  $7,500

Due to my house purchase (mostly), I expect my assets, debt, and net worth to finish around the following:

Assets: +$187,776 ($512,500)

Debt: +$101,500 ($210,000)

Net Worth: $302,500 (+$86,115)

Now, these are approximations. I don’t know exactly where I’ll end up, and I usually adjust my goals mid way through the year once I fully understand the trajectory I’m on.

Blog Goals

I find it difficult to quantify exactly where I expect this venture to be by the end of 2017. I will say this, though, I hope to continue working on the blog and to be income generating by the end of the year – whatever that may mean.

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It’s been a crazy end to 2016. In addition to celebrating the holiday’s with my family, we purchased a new home on Christmas Eve and sold our current home on News Years Eve (more on this later). Buying and selling property has led to an extremely stressful holiday season ! The good thing, though, is that everything is settled down (for now), so I am back with more money updates.

I’m going to start publishing monthly net worth updates, starting with December 2016. In another post, I’ll review how I’ve added $250,000 to my net worth in five years. For now, though, let’s take a look at where I stand as of the end of December 2016.

Assets: 

Cash: $14,904.00

This is going to take a hit over the next two months as we go through closing on our new house. We’ll get it all back, though, when we close on our current house.

529 Plan: $5,467.00

We contribute $2,500 on my son’s birthday every year (May).

Vanguard Brokerage: $3,068.00

Total Stock Market Index fund. Opened the account in November 2016.

Retirement Accounts: $108,039.00

This includes my 403B and Roth IRA, as well as my wife’s Roth IRA and vested pension.

HSA: $3,496.00

We put $520.83 into this account every month in order to max it out (my employer puts $500 into it annually).

Home Value: $160,000

Guesstimating the value of my home. We’ll be moving at the end of the month, so I’ll see how close this is to the official appraisal.

Car Values: $29,750.00

I drive a sweet 2008 Dodge Caliber with 118,000 miles. My wife has a 2016 Mazda CX-5 with 10,000 miles.

Debts:

Mortgage: $108,339.00

We paid a bit extra this past year as a forced downpayment savings account on a new house. By paying extra, I was unable to use those funds for other things (e.g., forced savings). Otherwise, we just pay the regular monthly payment.

Net Worth:

Assets – Debts: $216,385.

This is an increase of $2,650 from the previous month and an increase of $87,255 year-over-year. I’d say that 2016 ended up being a good year in terms of our net worth. An increase of $87,255 (67.57%) is great ! As good as 2016 has been, though, I expect 2017 to be even better. As we move out of our current home and into our new home within the next month, I suspect our net worth will climb to above $250,000, after closing and other expenses are paid out. I then expect to surpass $300,000 by the end of December 2017.

Historically, my trend line is going in the right direction.

nw_feb12_dec16

Stay tuned !

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