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X marks the spot

What does your X marks? A pot of gold at the end of the rainbow? Buried treasure? Or like me Financial Independence? Every journey starts with some sort of a goal even if it is to completely get lost!

For me it’s taking the small steps now to semi retire in a few years and fully retire most likely at age 40 or later if I feel like working for a few more years. So, before I discuss budgets, I would like to talk about goals specifically short and long-term ones.

To do this, I firstly needed to calculate what the size of my final X would be which led me to review my fortnightly budget. I managed to put at a decent $540 to cover all expectant expenses living in Auckland. It used to be $600 but I have managed to trim some fat which is added to my emergency account.

So, say I want to retire today, I need $14,040 yearly of passive income after taxes to maintain my current lifestyle. That’s $19,500 before taxes (14040 ÷ 0.72) which needs to be earned. Most managed funds pay taxes (28%) on dividends/interest earned and then pay the balance into the owner’s nominated account.

To date, the total average return on all my investments in the past 10 years has been 10% but let’s be conservative and go 7%. When divided by 0.07, to earn $19,500 I would need an investment of $278,571 not including any fund management fees.

As of today my net worth (Total investments value minus debt) is $150,000, which leaves me to save $128,571 to achieve my goal. Maxing out my savings at $40k a year and adding it to my $150,000 at 7% interest annually I would reach my goal in less than 2 years.

But let’s say I want a couple of holidays ($5000 yearly), new clothes ($1000), more entertainment on a regular basis ($10,000) and an emergency account ($4500). In short, I want to be extremely comfortable in my retirement, a passive income of $40k after tax would be required. Using the calculations above, now I would need an investment of nearly $800,000 which will take me around 10 years.

With these calculations in mind, I have recently updated my long-term plan of fully retiring at age 40 especially since I like being a nurse but would like to be part time when I reach 40 to enjoy travel and the finer things in life.

I still plan on going hard with saving, working 6 days a week while I can to aim to save and invest $40k a year, for the next 2 years to reach my minimum short-term goal. Then until I reach 40 to work 5 days a week and save as much as I could. After 40, to work 3 days a week to cover personal costs and let my investments grow with compound interest until I reach my goal.

What are your goals? Please do share. Remember to make them with a specific time frame with an end date which will change as circumstances in your life changes. The important thing is to write them down.