If it’s January, then it must be time to check on our previous year’s savings goals and set new ones. There was a lot going on last year. Through it all did we remain on target or did we miss the mark?
Our 2019 Goals
You can read the original post HERE. But briefly summarizing it, the goals are:
- Increase our savings rate by 5%
- Reduce Discretionary Spending by 20%
- Save $12,000 in our high-yield savings account
- Contribute a minimum of $5,000 to our taxable investment account
- Develop or acquire an additional income source that earns at least $500
Increase our Savings Rate by 5%
Your savings rate is defined as what percentage of your income goes into savings. Maximizing your savings rate is a critical when you are pursuing financial independence. There are a number of ways to calculate this, so first I will explain what method I use.
The savings component consists of contributions to 401ks, HSAs , our High-Yield savings account, and our taxable investment account. The income component is after tax income, plus 401k, HSA, and FSA contributions as well as employer matches for the 401ks and HSAs. In 2018, our savings rate was roughly 46%. A 5% increase gave us a target of 51%.
This year we had a savings of $73,560 divided by an income of $183,415, yields a savings rate of 40%. While not shabby, it falls well short of where we wanted to be. FAIL.
There were a few big ticket items purchased that make up the majority of the shortfall. Namely, we bought and paid off a car for my wife, we refinanced our house, and we had to replace our hot water heater. I wasn’t planning on any of these items when we set our 2019 goals.
Reduce Discretionary Spending By 20%
I am including retail purchases, dining out, entertainment, vacation and booze in this category. In 2018 this spending was approximately $26,972. In 2019 we rang up $24,219. This results in a reduction of 10%.
This is entirely due to reduced vacation spending. In fact, when you remove vacation expenses our spending INCREASED 25% from 2018! Yikes!
The overall number is trending the right direction, but the granular details are troubling. My wife and I both felt we took our foot off the gas a bit in the spending department. In the end, this is a Fail.
Save an Additional $12,000 in our High Yield Savings Account
We made this goal a little more complicated than originally intended. We purchased a new car for my wife at the end of April paid it off in the second half of the year. Additionally, refinanced our house into a 15-year mortgage which increased our monthly payment about $300. As a result, our monthly savings contributions dropped a bit.
For the year, we only netted an increase in this account of $2,336.
But wait, there’s more! Part of the reason this number is so low is because we had a change of mindset and decided to max out our Roth IRAs in lieu of building up the high yield savings account. I am happy to report we were able to do so, which amounted to an additional $12,000 in savings. When added to the savings above, this total $14,336, which beats our target of $12,000.
I am going to count this as a WIN. (I will take what I can get at this point!)
Contribute a Minimum of $5,000 to our Taxable Investment Account
The intent of this goal was to have some cash that is accessible for shorter term opportunities that wasn’t languishing in the savings account. Additionally, if we want to retire early then we will need some savings to bridge the gap until we can draw down from our retirement accounts. This could be at least 5 years of expenses, so we need to get money into the market and let compounding do its thing.
We ended up investing $3,050 into the taxable investment account. Which seems like a FAIL.
However, when you include the additional ROTH IRA contributions (which we can withdraw at any time, tax free) then we met our goal when viewed from a total savings/investment standpoint (our goal was $17,000 between the high yield and taxable account compared to $17,386 between the high yield, taxable, and ROTH IRAs. So, overall I am grading this as a WIN.
Stretch Goal: Develop or Acquire at Least One Additional Income Source Earning at Least $500
The intent of this goal was to help reduce our reliance on our W2 jobs. We did not make much progress in this regard with the exception of selling a few no longer needed items on Craigslist which generated roughly $250. FAIL.
Savings Breakdown
Below is a breakdown of where are savings have been placed:
| Category | Amount |
| 401K Contributions (includes employer contributions) | $49,423 |
| Health Savings Account | $7,000 |
| High Yield Savings | $2,336 |
| ROTH IRA Contributions | $12,000 |
| Taxable Investment | $3,050.00 |
| Grand Total | $73,386 |
| Average Monthly Savings | $6,151 |
Savings and Investment Income
I mentioned earlier that I wanted to develop passive income that can be generated year over year. Here is a breakdown of dividends and interest received so far this year:
| Category | Sum of Amount |
| Dividend Income | $6,318 |
| Savings Account Interest | $440 |
| Grand Total | $6,758 |
| Average Monthly Income | $563 |
$563 a month doesn’t sound like a whole lot. But it’s important to note that we literally have to do nothing to earn it . Further, as we continue to contribute into our 401k, HSAs, ROTHs, and Taxable Investment Account, this number will steadily grow.
In Summary
In total we achieved 2 out of 5 of our goals. Not. Great. But when I factor in that we were able to pay off a second car, refinance our house, and replace our water heater, I don’t feel so bad.
Further improving my perception of the year is that we maxed out all of our tax-advantaged accounts for the first time ever. So at the end of the year, we wound up putting significantly more of money to work than in 2018.
2020 Goals
Increase our Savings Rate to 50%
We backslid pretty hard on our savings rate in 2019. Mainly due to some a few larger expenses that we don’t anticipate for 2020. With those out of the way, here’s hoping we can get to 50%.
Reduce Discretionary Spending By 20%
This is a rehashing of our 2019 goal, but we really should make an effort to reducing discretionary spending. That would bring total discretionary spending down to $21,600; a reduction of about $5,400. We’ve established monthly spending goals for each of the targeted categories to help provide direction. I also need to do a much better job of communicating with Mrs. HoF about how we can achieve this.
Max Out Our Tax-Advantaged Accounts
We maxed out the tax-advantaged accounts in 2019, including our 401ks, HSAs, and our ROTH IRAs. We should be able to do so again this year, but I don’t want to take it for granted. The tax savings now (with the 401ks and HSAs) and in the future (with the ROTH IRAs) is too good to pass up. Additionally, we love that we can withdraw ROTH contributions tax and penalty free in the event of an emergency or unique opportunity.
Contribute $23,000 In Our Taxable Investment Account or Other Investment Vehicle
To meet our taxable investment account goal we will need to come up with an additional $17,664 ($1,472 a month) over what we did in 2019. Considering we spent over $16,000 on a new car last year and we hope to reduce discretionary spending by $5,400, this just might be possible. Can we swing it? Only time will tell.
Hopefully, this time next year I will be reporting that we met all 4 of our goals. With a little more planning effort this year, I am optimistic we can do so!
