With 2016 coming to a close and New Years rapidly approaching, we are running out of time to publish our 2017 goals so that we can hit the ground running on January 1st and sprint towards the finish line. If you haven’t noticed, the two of us have spent a lot of time thinking about taking the right approach to the goal setting process. We are not aiming to cross a low bar here on this website. Instead, we have taken months to find purpose driven goals that are challenging and are going to push us. Will it be comfortable achieving all of these goals…no! But is that really the point of the goal setting process? We want to sweat, we want to force ourselves to scrape every dollar together….we want to feel the burn. Man, I’m starting to sound like Lanny here. After a month of brainstorming, number crunching, and debates, here they are, my five 2017 goals!
2017 Goal Setting Process
This was not an easy task this year and I feel like I struggled more than ever to set my five 2017 goals. Each year, I try to set a blend of investing and life goals. I don’t ever want to be so focused on financial goals and setting up my future that I forget to take time and enjoy what is going on around me now. Conversely, I don’t ever want to be too focused on living in the moment that I jeopardize my future financial security. There is a fine line and a perfect balance between the two that can be achieved and my goal is to find that focal point. The life goals were easy for me to set; however, I ran into trouble ironing out my financial goals.
The uncertainty of what 2017 holds for my wife and me is what made setting financial goals for the year difficult. A month ago, I wrote about five lessons I learned about the goal setting process to help me focus and set the best goals I possibly could. Lessons two and three in this article were to set goals that push yourself and are achievable, respectively. But setting these kind of goals are very difficult when there is a message cloud of uncertainty hanging over your financial situation. The cloud comes from two very big life situations that are going to significantly alter our monthly cash flow (No – I am not using this article to announce that we are having a baby). First, I mentioned a few weeks ago that my wife recently graduated from graduate school to become a nurse practitioner. Once she completes her board exam and passes, she will be able to seek employment in this new position. With new employment, she will get a much nicer, regular work schedule versus the chaotic schedule of a night-shift nurse and she will also receive a pay increase. Obviously this is a huge positive on many fronts, life and financially, and we will be able to increase our income once she settles on a position. However, we have no idea when this is going to occur because I keep encouraging her to take her time finding a new position that she will love versus taking the first position that becomes available.
The second major event is one that I have documented pretty well so far on this website. My wife and I have actively began the house hunting process and would like to purchase our first home and be settled in before the end of 2017. We have ironed out our list of must-have features and are off to the races. I think this goes without saying, but buying a home and the ensuing mortgage will put a significant dent in our monthly cash flow. DUH! Plus, there are all the extra costs of owning a home, such as insurance, taxes, maintenance, decorating, etc., that will continue to eat away at our cash flow. We will find the most frugal way to go about each of those major expenses, but they typically are not avoidable in the home-owning process. One thing I have learned with the house hunting process is that it is difficult to know when “the one” will be found. We could find the perfect house during our first home visit, our tenth visit, or our one-hundreth visit. So we could be purchasing our house in March or December, it is difficult to tell at this time.
Here is my plan to handle the uncertainty of these two major life events for the purposes of setting my 2017 goals. Plan based on my current situation, ignore the noise, and adjust my goals accordingly when the picture becomes more certain. Therefore, my financial goals will not project or account for these two situations since I cannot estimate the impact they will have on my finances or when they will occur. However, once I can measure the impact, I am going to adjust my goals accordingly and will write an article to explain my thought process. So for all financial goals in this article, you will see and asterisk (*) next to the specific dollar amount because hopefully they will change as our life changes.
my five 2017 goals
Goal #1: Add at Least $45,000* to My Portfolio
Goal #2: Cross $6,250* in Forward Dividend Income
I decided discuss goals #1 and #2 together since they are both so closely correlated. Also, please note the asterisk surrounding the number as this will be subject to change once our two major events unfold during the year. In the past, I have focused my goals on investing “New Capital,” which only accounted for funds that I transferred into my savings account for the year. Sure, that captures an important piece to helping my portfolio grow, but that really doesn’t tell the full picture about how your portfolio and dividend income can grow during the year. This realization hit as I watched Lanny’s year unfold. About halfway through the year, Lanny decided to change his contribution levels and max out his 401k contributions to take advantage of the tax benefits. As a result, he had less capital available to purchase individual stocks as he had in earlier years. Did his dividend income suffer? Clearly not considering he recently crossed $8,000 in forward dividend income. Was 2016 an investing failure because he didn’t transfer cash from his savings account to his brokerage firm to invest? Heck no – he clearly stated so last month and I can’ find a reason to disagree. So for me, focusing only on the last scenario doesn’t account for the full investing picture, especially if I decide to perform a similar tax move as Lanny. That is why my goal this year will reflect all capital placed into the market, not just cash transferred in post 401k contributions and re-invested dividends.
I identified three main sources that will drive the $45,000 contribution and $6,250 in forward dividend income figure for my family stock portfolio, which currently has dividend income of $4,515 (post update article where I began reporting my wife’s account). These three sources will be the key to my success and here are some of the assumptions I used to calculate my totals.
- 401k Contributions and Employer Matches – Both of us contribute, at a minimum, the amount needed to receive the full employer match. This is a no brainer. For me, I have been slowly cranking up my traditional 401k contribution to automate my investing and to receive a larger tax benefit. Now, my contribution sits at 10%. Using our current salary figures, match percentages, and dividend yield on the funds we invest our contributions in each paycheck, this will account for $14,600 in contributions and an estimated $286 in forward dividend income. This amount could potentially change if I receive a raise from my employer halfway through the year or if I decide to embrace the full-blown tax benefits of the 401k.
- Dividend Re-Investment and Dividend Increases – Ahhh, the power of dividend re-investing. Isn’t this the name of the game and the reason why all of us are so passionate about finding dividend stocks that pay a growing dividend payment? As I mentioned earlier, our forward dividend income at the moment is $4,515 and we anticipate this amount being re-invested fully into our portfolio during the year. Plus, each quarter we will receive a slight increase in re-invested dividends as the power of compounding begins to set in. With each re-investment, our forward dividend will increase as well, so to estimate the impact each re-invested dividend will have in growing my forward dividend income, I multiplied each stock’s forward income by their current dividend yield. Lastly, I estimated my portfolio’s dividend growth rate at 4% to be conservative given the slowdown in dividend growth rates experienced during the last few years. There have been some surprises lately, but my portfolio’s dividend growth has been pretty meager in 2016. In total, re-investing dividends and the impact of dividend growth will account for $4,515 in contributions and $283 in forward dividend income for the upcoming year.
- Individual Stock Purchases – Finally, the plug of the equation. If I want to hit $45,000 in contributions and $6,250 in project dividend income, the remainder of the difference will have to come from individual stock purchases. This amounts to $25,885 in individual stock purchases that will produce $1,166 in forward dividend income, or an average yield of 4.5%. The key will be to not chase yield in my purchases just for the sake of hitting my goal, so don’t worry, I’m not going to buy risky high yielding stocks just to hit this mark. There are plenty of great dividend paying companies near this mark for me to choose from.
Goal #3: Stick to My Student Loan Payoff Plan – Earlier in the year, I wrote about how I am aiming to pay off my wife’s student loan debt in 6 quarters, one to match each semester of schooling she was enrolled in. I won’t go into too much detail in this article since it is covered extensively in the original article; however, my plan is to knock this goal out of the park and stick to the plan. I have my mind set on paying off our student loans quickly, which is aided by the stock market that continues to shock us all, so it is up to us to meet this goal. Following this plan will require quarterly payments of approximately $4,000 to the government. Time to put my money where my mouth is!
Goal #4: Read 1 Book per Month – And now, I enter the life goal section of this article. Earlier in the year, I wrote about how I want to read more books. You can’t doubt the benefits – a lot of knowledge to be learned, improves sleep, it is fun, time away from a computer screen, and so on. Plus, I may uncover something that really interests me that I previously was unaware of! I know and I understand the benefits, but I have never put in a serious effort to consistently read and get myself hooked on the hobby. Well, 2017 is presenting an opportunity to change that as I am challenging myself to at least finish one book per month. I’m not restricted myself to a specific genre, such as only reading finance books, I want this goal to be accomplished by reading a blend of biographies, mysteries, fiction novels, investing books, history books, and so on. Much like investing, the more diversified, the better!
Goal #5: Travel to 3 new places – Last, but not least, the famous travel goal. Most people seem to have one goal of this nature. Well, for the first time, my wife and I are not going to be in school, won’t have a wedding to plan, and won’t have kids. The last one will eventually occur, so my wife and I want to make sure we take some time to enjoy our marriage in the pre-kids, no school/planning stages of our lives. We both like to travel, but aren’t obsessed with it. We won’t be selling our stuff and backpacking around the world for the next three years. However, we also recognize that there is so much of the country, let alone world, to explore. Our goal is to identify and travel to three new places that we have not previously visited together. The place can be within a couple of hours driving, a cheap flight away, or on a different continent (most unlikely of the bunch, but I want to keep our options open!), but the important thing is that we are discovering and experiencing a new place together. I’ll keep all of you updated with pictures on our Twitter account when we finally settle on where will will be going!
What are your thoughts on my 2017 goals? Any travel suggestions for this couple from the Midwest? What do you think about how I handled setting financial goals with two major uncertain financial events looming? Would you have handled it differently? Do you have any great book suggestions for me to read during the year? Do you share any of the same goals as me?
-Bert