9 New Year Goals For 2016
I have never been one to set new year goals. Never one to set goals in general actually. My goals have always been things like “do better” or “save more”, however this year I thought some more specific goals may be in order. The realisation that we were accidental millionaires last year, along with paying off the house, have made me want to focus more on achievements. So these are my 9 new year financial goals for 2016.
Increase Net Worth By $100k
Initially I put $75k here, thinking that $100k was a bit too optimistic. However after I actually took the time to break out what I consider some reasonable figures, I found that $100k was defiantly achievable. My rough guess was:
- House increase of 4% = $25k
- Super increase by 5% after fees = $12k
- Cash and investment increase by about 4% = $8k
- Super contributions = $25k (maximum salary sacrifice amount after 15% tax – see below)
- After tax savings/additional investments = $30k
After some slight of hand to make the total $100k exactly, the goal was officially changed to $100k for the year. $25k is not bad for just 2 days of thinking.
There are three main areas that can derail the plan:
- A slowdown in 2016. This is especially true in Australia where we will see how well the economy is able to soldier on given the lack of mining/oil/gas performance in the second half of 2015.
- If the purchase of a rental property (listed below) does happen this year, then the fees involved in the transaction could easily eat away at a large chunk of that after tax savings component listed above. In the long run it should be fine, but initially those real estate fees will get you every time.
- Another goal listed below is house renovations. That could also eat into this net worth increase goal if the renovations do not add value to the property.
Purchase A Rental Property
This one is something that I have always wanted to do. Neither of our parents have rental properties, so this will be a family first for us. The maths always seems to come out worse off than putting the same money in shares, but that is because I am never expecting house prices to rise further, and they always seem to. The main two reasons that I am after a rental property are for the required leverage (at least with our current finances) and the generally lower volatility.
There is actually a third reason; to be real estate positive sans primary residence. The plus with a primary residence is that you don’t pay capital gains tax when you sell, the downside is that you normally don’t get any income (rent). Given you have to have somewhere to live (I am not going into the own vs rent debate now), it also means you cant just sell your main house to solidify the gains as you have to buy another house to live in. You can sell a rental property when the market is high and use the gain to pay down other loans or move into shares.
Sell Our Grandparents Land
My grandparents left me a small block of land to the north that I have put a $40k conservative valuation on. Currently this land is doing nothing. It does not really appreciate much in value. It does not provide an income as it is just land. It does, however, cost us money due to the rates we have to pay. The plan this year is to finally get around to selling the land and use the proceeds to help fund the deposit for the purchase of a rental property.
Begin Dollar Cost Averaging
I have no desire to be a full time investment manager. I am happy to play the long game. I am happy to have industry average returns. A nice simple way to achieve this seems to be to buy a portion of shares at regular intervals over the year(s). This is part of the basis for dollar cost averaging. If you put aside say $5,000 every month or two, then you are automatically hedging over the volatility for the year while still investing $35k to $50k. Yes – that maths could use some work.
Until now all our share purchases have been done because we had some savings that we wanted to invest. We looked for a set of reasonable stocks and bought them. Once that was done we sat back and let the companies do their thing. While this is not bad, it does put all your eggs in one basket on the timing front, and I knew this. I also knew what one of the answers for it was – dollar cost averaging. I will have a post on dollar cost averaging and my plans in more detail some time deeper into the new year – so until then, stay tuned. For now, the goal is to have a reasonable portion of that $100k net worth increase to be in the form of dollar cost averages shares purchased over the year.
Max Out Super
This will not be the first time I have done this. actually I have never worked a year without putting extra into super, but I want to make sure I do it again. The government lets you contribute up to $30k tax free (ok, taxed at 15% once in there) to your super account. That means that if you are earning over $37k you are 17.5% better off. Now if you are earning $37k then putting $30k into super is probably not going to work. If you are closer to the $80k end of that bracket it means that you can have $25.5k in super after tax, or $20k in your pocket (yes I am ignoring required contributions). That is five grand you can either give to the government or keep – for me the choice is easy. If you are earning over $180k then that $25.5k in super would become $16.5k in your hand, although at these levels the compulsory 9.5% super is already over half of the $30k maximum.
The one reason that I would recommend not sacrificing the maximum, is if the need for money now is greater now than the lost money you hand over to the government. A classic example would be high interest debt like credit cards. If you are paying 19% on a credit card, then salary sacrificing into super to save 17.5% is not going to be the best choice for you.
I started this blog in 2015 with a whimper. A post here, a post there. 2016 is the year that my momentum will grow. Late in 2015 I finally got around to buying the domain and moving to my own server. That is just the beginning, there are many more improvements I want to make over the coming year. For example:
- more frequent posting
- better categorisation
- getting some better stats
- actually allowing comments (should anyone wish to)
- looking into whether it is worth putting some advertising on the site
- create more posts using the financial statistics we have been capturing over the last 10+ years
Increase Charitable Giving
My partner and I are both very fortunate people. We both had good childhoods. We both have parents who have not faced financial hardship in my lifetime. We live in a country where the government provides a very good unemployment safety net (especially compared to some countries I have been to). Having been to places where people are in much worse situations simply because of where they were born, you realise just how lucky you are.
We may be hundreds of thousands of times less wealthy than the billionaires who have joined the giving pledge, but we still want to help make the world better. Even if only on a very small scale. To this end a few years ago my partner and I decided to aim to give 20% to 25% of net salary to good causes. I have yet to look at the stats over time, but we are starting to get close. The goal this year is to get into that 20% to 25% net salary.
Renovate The House
The last two goals are less directly financial, but both have direct financial impact, so I left them in. We have been living in our house for over 5 years now and there are a couple of larger things we are looking to accomplish. I don’t think they will all get done this year, and I am not sure we would want them all done in one year. It would be good to get at least two done this year.
- Landscape yard
- Renovate 2 bathrooms
- Renovate kitchen
For various reason our holiday plans for 2015 were not what we wanted them to be. So this year that will change. We plan to take an overseas trip this year. The details will come later, but now I have said it, I have to do it – no holding back. Currently I am thinking Fiji, but time, reading and sales will tell. Some of you may say that a holiday is not a financial decision, and I would disagree with you. Not only does a holiday cost money (finances – see winning the argument already) but it also helps rejuvenate you. It enables you to come back more focused at work, at play, and for all your other hobbies. Given 2015 went by without a real holiday, it feels like the time is right.