My 2016 Financial Adventures

2016 came and went in a blink of an eye. It was the first full year where I set out to execute my goals of financial independence retire early (“FIRE”). So far, the 1st of 12~15 years to retirement was on point. With some feet dragging, I was able to meet my savings goal of 50% (total savings incl 401K divided by gross salary minus taxes). Initially, I was hoping for a savings goal of 50% excluding 401K, however that became too ambitious of a goal with my travel bug and wanderlust.

For those interested in budgeting and financial goal setting (highly recommended for EVERYONE to do), I find the tool from personal capital to be very helpful and user friendly. It’s a free site (similar to Mint.com) where you link all of your financial accounts so everything is in one place for net worth tracking, as well as investment fees and performance monitoring. Although a chat with a financial advisor from personal capital will follow once you create a free account, there is no obligation to use their service.

Using the retirement planning tool within personal capital, I was able to forecast the probability of meeting my retirement plan, which is currently 80% probable. Basically, you’d input your projected income (savings per year, expected cashflow from social security), annual expense, current age, expected return, and expected retirement age. Using these attributes as well as your current financial situation, the retirement planning tool calculates how likely you’ll meet your plan. Although it’s just a forecast/probability and there is also standard deviation to consider, it’s still a good/fun way to gauge where you are in your planning.

The path to FIRE is not all unicorns and rainbows. It was quite difficult to grasp the idea at first, and honestly uncomfortable to execute. However once I took the plunge, it became more than just saving money. It changed how I look at material goods and consumerism. Although there were the obvious splurges (sigh….my travels), there were also some conscious cut on my spending. Gone is the cable subscription, iPhone, and mindless spending on material goods. Food/eating out is still a challenge, but with it came the learning how to cook and prepare healthier meals at home. It’s still a work in progress, but progress nevertheless. The consumerism piece is actually easier for me to trim down, although still difficult at times. Case in point: After having 500 internal dialogues on whether or not I should replace my broken fitbit, I circled back to the minimalist concept, and realized I almost let a product dictate my life. It actually felt really liberating once I decided I do not need it. I used fitbit as an example as it was something that I really wanted (for someone who works out 4 times a week) but did not need. Now, think about the purchases that you’ve made recently; how many of them were something that you really need?

On the credit card end, 2016 was a light year for me with only 3 new credit cards in the books. They were all Hilton cards (2 from Citi and 1 from Amex) totaling 175,000 hhonors points, plus 2 free weekend night certificates. These points were strategically obtained mostly for a wedding in Bali later in the year. With many new rules and restrictions from the financial institutions, my days of travel hack may be slowly coming to an end. 🙁

All in all, 2016 was a sounding board for what’s to follow. Although I cannot control how the market performs, what government policies are put in place, I am in control of my own behavior and goals. And so are you.

HAPPY NEW YEAR 🙂

Saving for retirement simplified

So you’re ready to start saving / investing for your financial freedom. The main question is, how do you get started? I thought I’d share my own challenges and questions to break the process down to the bare bone. Based on my current situation, retirement savings can be broken down into 3 buckets: 401K, IRA, and brokerage account. Of course there are other tools such as Health Savings Account (HSA), Simplified Employee Pension Plan (SEP), etc. I’m not as familiar with those, but just know that there are more options than the 3 buckets I mentioned. Also, the info mentioned is based on a single tax filer. There are different limits for a married couple.

401K –  Some general background, it’s nothing new but a refresher instead. A 401K is something most of us are familiar with. 401K is sponsored by most employers as a tool to facilitate retirement savings for employees. In most cases the employer would provide matching contribution up to a certain percentage (e.g. 100% match up to 5% annual gross compensation). For a traditional 401K, the money that an employee can contribute is tax deferred (i.e. you don’t pay any taxes now on the $ you put aside to a 401K), as well as any interest or dividends earned. In 2015, you can contribute as much as $18,000 a year. If you’re 50 or older, you can contribute an additional $6,000. Upon reaching the retirement age and when you start to withdrawal funds from your 401K, you’ll then be taxed for the withdrawal. For roth 401K, the contribution you make is with “after tax” $$$, however upon retirement, you will not be taxed for withdrawals make. Continue reading “Saving for retirement simplified”