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Planning for the future is probably the greatest personal finance tool you have. When you think about where you want to be in a month, in a year, in 5 years, in 40 years, time and compounding interest are in your favor.
If you put away $2500 into an asset that returned 5% per year annualized (for instance, the US stock market over the past 140 years), you'd be a millionaire in 20 years (inflation adjusted you'd only be about a $605,000-aire but that's still pretty nice).
This year, I'm expecting two big increases in pay:
- In May, I'll reach a year-in-service milestone: an increase of about $500 after taxes
- In June, we'll finally pay off our one month PCS pay advance: $390/month
That's nearly $900/month, or $450 per paycheck in additional income! What to do with all this extra money?
I think we'll probably throw $500/month of it at my student loans, bring our total student loan repayment amount to $1500/month. According to the calculations I did over at Unbury.me (simple and easy debt repayment calculator), this will move my final loan pay off date from Mar 2016 to Feb 2015.
That's a 13 month reduction in payments. I'll only be saving $400 in interest ($1200 in interest at $1000/month versus $800 in interest at $1500/month), but we'll be free of all our debts other than our mortgage before we turn 29.
And then the fun part starts. By the time I've paid off the loans, I'll have promoted again, and have another year in service increase in pay. Plus, because my student loans are all paid off, we'll now have $1500/month to do with whatever we please. That's when the net worth is really going to take off!
So what's the plan?
Okay, let's get down to it. By Dec 31, 2013 here's where I want to be:
- Net Worth: up 200%
- Student loan balance: $24,000
- Student Loan repayment: $15,000
- Travel Expenditures: $10,000
- Other Expenses: $30,000
- Roth IRA Contributions: $5500
- Gap Fund Contributions: $4500
A couple of comments:
- I'll be deploying sometime this year and also going on a few TDYs, so income may actually be higher. Expenses will also probably be higher as well though, because we try to squeeze the 1st and 15th paychecks so we can enjoy the TDY and deployment “bonuses.”
- The other expenses includes housing (mortgage interest, principle, home owners insurance, PMI, electricity, water, sewage, and property taxes), food (dining out and in), auto related (insurance, gas, upkeep), and miscellaneous expenses
- We're currently only contributing to a Roth IRA for me and not my wife. We have a few reasons behind this, maybe I'll elaborate in a future post.
- The “Gap Fund” is the collection of a taxable brokerage account, Lending Club account, and CDs that are designed to provide us with income from when we are financial independent at age 40 to when we can access our IRA accounts (59.5)
- We don't expect a large (over $1000) tax refund this year because I've properly configured my income tax withholding on my W-4. You should too, it's really easy and puts money back in your paycheck right away.
- My wife continues to work at a start-up in a field she loves. She's currently working unpaid but there is a lot of potential in the future for the business. The great thing is, our early retirement by age 40 only relies on my military income. Anything she brings in is just bonus.
Any thoughts on the plan? Where do you want to be on Dec 31, 2013?