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Jim’s 10 Year Financial Plan

26 February 2010 7 Comments

Today, I present an entry in the Financial Plan Writing Contest. Just a reminder that you can win $250 by participating.  Here are the brief guidelines, to read the full description of the contest, click the link above.

  • Answer the question: What is your financial plan for the next 10 years?
  • Be sure to to hit on things such as income, job security, budgeting, expense management, real estate, investing, retirement planning, etc. – the more detailed within specific areas the better!
  • Be sure to discuss how the economy might affect your plan – what if we fall into a double dip recession?  Or worse, a depression?  Or inflation?  What if you lose your job? What are you doing to prepare for any economic scenario?
  • Be specific about certain financial goals you might have
  • Include your age and your age-specific concerns & goals
  • A minimum of 500 words is required – again, more detail improves your chances of winning the contest!
  • Send your contest submission to kevin (at) 20smoney (dot) com with “Writing Contest” in the subject line

You still have time to submit your entry to the contest!  Be sure to enter soon!

My ten year financial plan is primarily based on three goals.

  1. Boost my income
  2. Pay off my debts
  3. Invest in other assets

I will explain each of these goals and how I’m going about accomplishing them.

Boosting My Income

My wife and I are both working and have fairly secure jobs.  We make pretty good money for our ages (27, 28) and are able to contribute to 401(k) plans and also towards other savings accounts.  Since my job is in the computer science field, I also use my skills to earn a few hundred bucks a month on the side doing graphic design and other web design stuff.

By being fairly frugal and having modest living expenses, we’re able to put a good deal of money away each month (anywhere from $1,000 to $1,500) – this doesn’t include the 401(k) contributions also.

Our goals for income are to continue to grow in our careers and hopefully receive some promotions and raises.  Additioanlly, I’m hoping to continue to develop my web design business to something more sustainable and consistent.  I believe in a year or so, it will bring in at least $1,000 each month with minimal additional hours of work added.

As you can tell, if we keep our living expenses consistent which we will definitely do, unless we have children soon (we’re planning to wait a several more years), in a year or so we should be able to stash away $2,000 to $2,500 each month in addition to the 401(k) contributions toward our retirement.  So, what do we do with that money each month?

Pay Off My Debts

I’ve already paid off my student loans.  We’ve also paid off our cars, so the only thing left is our mortgage.  We currently owe about $160,000 on our home.  With our current income plan, we believe we can pay off our mortgage within 7 to 8 years.  Since our 401(k) will continue to fund retirement, and we have a decent emergency fund, we decided to start focusing on getting rid of our mortgage.

By killing off our mortgage, we will be completely debt free and we will also significantly decrease our monthly living expenses. In 8 years or so, when we are mortgage free, we will be able to invest several thousand dollars every month into another asset as well as other things we will consider such as our future children’s education funds.

While we could speculate on other investments and higher returns, we have chosen to go the route of paying off our mortgage for several reasons.  First, it’s a guaranteed return.  Second, we want to be debt free.  Third, we want to have very low living expenses in the future.  And, lastly, it will just feel great to not have to write checks to a bank!

Invest In Other Assets

With zero debt and an above average income, we will be in great shape to generate significant wealth for our future.  We will be able to accumulate cash quickly without a mortgage payment every month.   As we get closer to this time in our lives, we will begin to research potential investment opportunities.  For example, we might invest in another piece of real estate (and then do the payoff process again), or we might spread it out over a couple areas.  The goal though will be to generate nice returns with low to medium risk.

Long Term Plans

With this plan, we should be on track to be financially independent well ahead of the typical person.  Whether we officially “retire” early or just move towards more meaningful work or goals of ours, we plan to have much more flexibility and freedom in the future.

Other Considerations

A few risks to our plan might be a major depression or major inflation.  While most of these major challenges are things we can’t prevent, we think our strategy will allow us to weather such storms fairly well as we are focused on modest expenses, paying off debt, and saving money for our future.  If any major macro economic changes occur, we will modify our plan as necessary.  No plan is set in stone, but we feel like we have a good starting point with what I’ve outlined above!

Thanks and I hope your readers have good feedback!

Submitted by Jim

7 Comments »

  • Mark said:

    Jim I applaud you on your efforts to be completely debt free. However, I feel like you might be better off by paying the minimum amount on your mortgage and investing elsewhere. Assuming you've refinanced lately and your interest rate is around 5%, the after tax cost of debt is only 3.6% (5% * (1- .28)) if you're in the 28% tax group. While I know the paying off the mortgage is a guaranteed return, you could look into starting up a 529 plan for the future kids or investing more in other tax advantaged or taxable accounts. 3.6% is a pretty low after-tax cost of debt and I think there's a good chance you could do much better elsewhere. Just a thought and good luck!

  • Financial Samurai said:

    Good stuff, and great promotion you're doing Kevin!

  • Tiffany Cybrie Ameh said:

    Wow, I was looking through my bookmarks today and thought I'd drop by to see what was going on with your blog, and I happen upon a contest! I'm nowhere nearly as financially literate as I ought to be, but all of the questions you posed are more than worthy of consideration. If I get all this figured out before the contest deadline I'll be sure to enter! You're very motivating. Great job you're doing!

  • Accountants Sussex said:

    I do not agree that you should pay minimum on your mortgage and investing elsewhere. The unnecessary stress that may be imposed on your well being may out way the returns. By clearing one debt you are remaining in control with little risk to your current lifestyle and or that of your future.

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