Develop A Financial Plan For Your Life Already

Develop a financial plan for the life you wantDo you have a financial plan? Apparently, most people don’t according to an old friend who has spoken to thousands of retail banking clients over the past 15 years. Not only has he spoken to thousands of people about their finances, he’s also seen thousands of banking statements as well. Frank is a regional branch manager for one of the largest banks in the world.

Sam, the middle class are just living paycheck to paycheck. They have no plan when it comes to their retirement. So many of them are in their 40s and 50s with just $10,000 or less to their name,” he explained to me.

He went on, “All they do is come into the branch, ask what the latest CD rates are, and move on if they aren’t high enough. They don’t bother to invest or learn about other ways to make their money grow. They just hope everything will be OK due to Social Security.

Hope is a very strong feeling that helps us get through many obstacles. But when it comes to our finances, let’s not leave them up to chance. It’s important for every one of us to come up with a financial plan.


The reason why more people don’t plan is because people just don’t know where to start. There's also a strong level of procrastination because there's no clear immediate reward. Let’s go through three simple steps to help anybody get started with a financial plan.

1) First, make a list of financial goals by a certain age. It’s important to have the age in there because it provides a deadline. Without a deadline, there’s no sense of urgency.

Here are some examples of common financial goals for people at various ages:

  • Graduate college by 22
  • Buy a home with 20% down by age 28
  • Save up $100,000 by age 30
  • Pay off all student loans by age 33
  • Get married by age 35
  • Have children by age 38
  • Achieve a $500,000 net worth excluding primary residence by age 40
  • Develop three income streams making $50,000 a year before taxes by age 45
  • Pay off mortgage by age 55
  • Achieve a $1,500,000 net worth by age 60

2) Second, find out where you are on the progress meter by assessing your current financial situation compared to your goals.

Take a look at these examples from the examples above.

  • You’re currently 21 years old and have one more year left of college after three years. Progress meter at 75%.
  • You’re currently 25 and saved $30,000 in three years with $30,000 left to go by the age of 28. Progress meter at 50% for a 20% downpayment and a progress meter at 67% for a 20% downpayment plus a 10% buffer.
  • You’re currently 28 years old with $25,000 left in student loans after paying off $5,000 after six years. Progress meter less than 15% with only five years left until your desired goal of being student loan free by 33.
  • You’re currently 33 years old and are only casually dating someone. You’re definitely not on track to get married by age 35 or have children by age 38. Progress meter closer to 20%.
  • You’re currently 45 years old and have $200,000 left of a $250,000 mortgage taken 15 years ago. There’s 15 years left of the 30-year fixed mortgage, but you want to pay off your mortgage in 10 years. Progress meter at 35% without further action.
  • You’re currently 50 years old with 28 years of work experience and a net worth of $1 million. Progress meter at less than 40% because you only have 10 years left to make up half of what took 28 years to accumulate.

3) The final step of your financial plan is to prioritize the top three financial goals and come up with specific action steps to take to make up any shortfalls. Your top three financial goals can also be arranged as the top three financial goals with the greatest shortfalls.

Let’s say you’re the 25 year old with $30,000 in savings, and a $60,000 a year income in this example. Your priorities are buying a home, finding love, and achieving a $1,000,000 net worth by 45.

In order to buy a $300,000 home by age 28 with 20% down and a 10% cash buffer, you’ve got to save another $60,000 over the next three years to comply with my 30% rule for home buying. The math is therefore $20,000 a year in non-401k and non-IRA savings. You could continue to max out your 401k by $18,000 a year, leaving you with $42,000 a year in taxable income. But, in order to save $20,000 a year in non-tax advantageous accounts, you’ll probably have to reduce your 401k/IRA contributions. Sacrifices will need to be made if your income stays static at $60,000 a year!

In order to get married by 35, you’re probably going to have to meet someone by age 33 in eight years. You realize that ever since you started dating at age 20, you’ve only averaged one girlfriend a year, all of which ended in tears. To up your chances for finding the one, you’ve got to increase the volume of women you meet. Finding love is a numbers game. You create a game plan to meet at least one new woman a quarter, so that by the age of 33, you’ll have met 32 women as opposed to eight. You further read all you can about becoming a more charming individual who’s thoughtful and doesn’t bore women to death. You also start a new diet and exercise regime to look incrementally more attractive.

In order to achieve a $500,000 net worth by age 45 (20 years), you need to grow your net worth by $25,000 a year on average. With an existing $60,000 gross income salary and the desire to save $20,000 a year for a home, you’re not that far off. The solution is to create a pro forma spreadsheet of what happens to your income, savings rate, and investment returns after the age of 28 when more cash flow is freed up to invest. You should create three different scenarios (Blue Sky, Realistic, Bad Case) of your income level from ages 26-45 and adjust your savings rate and investment returns accordingly.

The Main Financial Goals

The most common financial goals will revolve around paying down debt and achieving a certain net worth by specific times. The ideal financial scenario is where you experience zero financial stress as soon as possible, and no later than your desired retirement date.

Zero financial stress always entails less debt, and larger amounts of cash flow. Therefore, one of the best goals everyone should strive for is to retire with zero debt and generate passive income equivalent to your average annual gross income during your working career. If you can do this, you’ll be absolutely safe from financial worry because you’ll have an extra income buffer since you no longer need to allocate part of your income for retirement.

Once you come up with a financial plan that includes specific goals by specific times, you can more easily begin to take action. Try to start with the end in mind and reverse engineer your way how to get there. The hardest part is getting started. 


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66 thoughts on “Develop A Financial Plan For Your Life Already”

  1. I’m 23 years old and about to start my final year at university. My partner and I have a vague plan that we will move into our own private place once I graduate and then we will save to hopefully travel to, if not move abroad. Obviously a huge part of this involves having a financial plan but there’s not a strict timescale on these things.
    I thoroughly agree with aiming towards being debt-free by the time I retire and am also beginning to research investments and passive income so that I may gradually improve my financial situation and to speed up the progress meter on us jetting off!

    Great post.

  2. One viable financial plan is to join the Unions.

    When I was in high school a buddy said to me, “Even when things are bad, owners of businesses should pay their employees first.” I was perplexed with that statement for a long time. Later I learned that his dad worked at GM plant. He could be right, why not? A good pay and good pensions.

  3. I am 33 years old and my spouse is 32 years old. We have no children. I will earn about $212,00 this year and my spouse will earn about $100,000 plus some dividends brings us to about $317,000. With a raise and bonus target increase for 2016, we are expecting $400,000 in total combined compensation for 2016 and probably 3-4% annual increases thereafter. My spouse and I budgeted to save 56% of our combined gross income this year, but due to some lavish vacations and personal spending (e.g., we recently leased a high-priced Mercedes), we are likely to end around 43% of gross income for savings (which is about 59% of take home pay). We currently have about $13,000 in cash (low emergency fund because of access to HELOC), $541,000 in stock (including personal accounts, 401ks and IRAs), $800,000 home with an $80,000 mortgage, 2 cars worth $28,000 combined with $14,000 in total loans at 0% for 5 years, $30,000 in student loans at 1.625% and no credit card debt. It costs us around $5,000 per month to live our lives without discretionary spending. We are projecting a net worth of $2.95 million within 5 years ($830,000 of which we expect to be in our dividend portfolio in our personal account earning approx. $30,000 per year in passive income).

    Is it crazy that we are spending $10,000 per year on a Mercedes lease? What about $25,000 per year in vacations? Are these choices totally fiscally irresponsible? We feel bad about these choices but delayed gratification for a long time and feel like we want to “live” a little. It’s an ongoing struggle. Any thoughts? What else should we be doing? We are concerned about what will happen when we have children and need one of us to have a flexible schedule and also pay for childcare.

    1. There’s nothing WRONG with spending money, but you have to look inside yourself and determine what you consider gratification to be. For me, buying a fancy car would be delaying gratification, since my goal is to retire early and gratification for me is no longer having to deal with customers, sales, etc. Buying a car would ensure that I work until 67. On the other hand, saving my money and investing it would be instant gratification for me, as it would allow me to get out of the working world early.

      What does an expensive car mean to you? What makes a brand new Mercedes with a $10,000/year lease more gratifying than a $5,000 Hyundai? Do you have a fascination with cars, or is it just a status symbol? I can’t answer that question for you; only you and your spouse can answer why you would want such an expensive car, why it would be worth spending so much more on it. Personally I don’t like cars or driving, so spending ANY money on a car to me is not happening. But if you have a genuine love and appreciation for cars, then maybe it was worth it for you. If you bought it because you’re rich and rich people are supposed to drive fancy cars, then I’d say you are crazy.

      The question of whether buying an expensive car is crazy depends on you. You said you were tired of delaying gratification. What is “gratification” to you?

      ARB–Angry Retail Banker

      1. ARB, you make really good points. Like the Financial Samurai himself, I spent several years of my life in a pressure cooker job. Recently, I have taken a different direction professionally where I basically work 9-5, as does my wife, but I have taken a $100,000 annual pay cut in doing so. With all of this newfound free time, I have found myself taking on new extracurricular activities like golf, tennis, sporting events, weekend getaways, wine tasting, fancy dinners, new Mercedes sports car, etc. I didn’t do any of this before in my old job. As for the car, I have never had any fascination with cars or even liked them generally. I just viewed it as an outlet to do something that I might “enjoy.” Basically, now I am bringing in less money and have more going out. Is this a natural progression when people make the type of job/lifestyle change that I have and/or once they hit $1 million+ in net worth and feel like they have a secure job and things will be good forever? I used to always say I wanted to retire at age 50 because I hated my job. Now I can conceivably imagine myself working past age 65 because the lifestyle is not bad, but I still want choices because I don’t know what the 50-65 year old version of myself will be like or how he will think. How do people stay motivated once they see they are inches away from being debt free and can easily support their lifestyle? (I can sell stock in my personal account and be 100% debt free tomorrow morning and I only need $60,000 per year to live.) What goal should I be shooting for? $5 million by age 40? Take on debt and buy a rental property so I have a new goal to payoff that mortgage next?

        1. Spending a bit more on life is okay, as long as that’s what you want for you and you stay within your budget. That said, I do think you are absolutely insane for buying that Mercedes. Not because I don’t like cars, but because you said YOU don’t like cars. Unless I misinterpreted your statement, it seems like nothing but a status symbol for you. If that’s the case, get rid of it. You should be less focused on impressing others and more focused on impressing yourself.

          Now while I said that spending money shouldn’t be something you run screaming from, what you are talking about (having less money coming in and having more going out) is lifestyle inflation. Actually, lifestyle inflation is having more money go out as more money comes in, but whatever. It depends on what you want in life. But like you said, the you of twenty years from now may want a choice of what he is able to do. If the you of today is taking $25,000 vacations and buying expensive cars and eating fancy dinners all the time, then the you of twenty years from now is going to be working extra hard to make up for all of that.

          Did you ever read the beginning of the book “The Wolf of Wall Street”? There was something Jordan Belfort (the author of the book and founder of Stratton Oakmont, an investment firm through which he organized a major pump-and-dump scheme and got rich at the expense of others) spoke about in the beginning that really made me think about how terrible lifestyle inflation is. If you made it into Stratton Oakmont and became one of their stock salesmen, you were expected to Live The Life. That meant custom suits for thousands of dollars each, dinners only at the most expensive restaurants, and mansions. Even kids fresh out of high school were expected to find a way to get their name on the title of a mansion. Now a Strattonite could make hundreds of thousands a year (a good Strattonite was expected to make $1,000,000 in his third year). The paycheck was astronomical. But so were your expenses. Imagine if that Strattonite started to become disillusioned with his job. He hated it, I’d even say, and wanted out. But he was addicted to that lifestyle. He’s got the new $80,000 Rolls Royce sitting next to his $100,000 Corvette inside the mansion that he still makes monthly mortgage payments on. He wants out of Stratton? Too bad. He’s stuck, and if stops working, he stops making the money he needs to keep all that stuff. If he avoided lifestyle inflation instead, living a normal middle class life and living relatively frugally (not being cheap, just frugal), then that Strattonite could walk out of there that day and he’d be fine. He wouldn’t even have to work anymore if he wisely invested his money into dividend stocks.

          So my point is to avoid lifestyle inflation, which is what you seem to be slowly drifting towards (based on your comments. I obviously don’t know you in real life, so I could be wrong). Because right now you can picture yourself working until 65. Two years ago, so could I. Today, I’m not sure if I’m going to be able to make it to the end of the year. For me, the ability of the future me to choose between working and retiring is more important than any material possession could possibly be. For you, I don’t know. I don’t know you.

          ARB–Angry Retail Banker

    2. Don’t feel bad. You are a .1 percenter who can pay off mortgage, car loans, student loans, etc in one year if you chose to do so.

  4. The part in the beginning really was something i can relate to, mainly because I, too, am a banker. It’s sad how many people—young people in their 20s and 30s–avoid stocks because they are too risk adverse. That mentality is the difference between early retirement and working for an employer until 65. And I now have to convince the old CD-philes to put their money into fixed annuities.

    As for myself, I know I’m not even close to my goal of financial freedom in five years (I only started late 2013). But you are right, Sam, in that having a set age really helps motivate you. Having small scale goals does too. I decided that I will only add capital to my brokerage account in $5000 increments. So this has supercharged my savings rate by forcing me to get my bank account to a certain figure by any (legal and ethical) means necessary. I’ve forgone frivolous purchases I once would have otherwise made in order to pursue this goal (which serves my greater goal of financial freedom sooner rather than later), and am even in the application process of getting a second job to reach those goals.

    Folks, take Sam’s advice and plan backwards. It will give you motivation when you have a quantifiable end goal in sight. But also set up incremental goals for yourself. This way, rather than having a large intimidating number at the end and a never moving “progress bar” (“Hmm, goal is to save $1,000,000 in 20 years. I just earned my first paycheck of $300. Oh screw it”), you have easier goals to hit and eventually you’re nearing your major life goal without realizing it.

    And for all the people who see a bit of themselves in the people that Sam’s friend was talking about, learn to invest. Learn to manage your own money. It will be one of the most valuable skills you ever have. Learn how to save and learn how to build a stream of passive income. Not doing so puts your money–and your life–in the hands of your employer. Do you trust your employer to act in your best interest? No? Didn’t think so. Learn to invest your money. It’s much less risky than not investing.

    ARB–Angry Retail Banker

  5. Mrs Whipple

    Hey Sam, I am looking to refinance as part of my wealth plan to not pay taxes whenever I can ;) I ran across this startup Lenda ( that promises a no-cost refi. Any experience with them? I don’t see any reviews online so I’m wary, but I thought you might have come across them or know someone who has used them before. For various reasons specific to my situation, I’m looking at a 30yr fixed rather than the ARMs you normally recommend.

  6. Hi Sam, I was wondering over this passive income thing on my own blog this week. In order to “retire early” with the lifestyle and income I had while working, I have no option but to start spending my capital reserves. I’m currently doing this, but it is so painful! It feels wrong, and a lot of the advice I read strongly advocates not dipping into your investment pot. There are not many screaming from the rooftops that at some point you should start to spend what you’ve saved. Everyone seems to want to err on the side of caution, and it makes me nervous!

  7. Larry

    I don’t think anyone has downed social security. In the end, it is a forced savings program and has worked. Anyone receiving income now probably will only take a very minor hit given the funding status. Anyone below 50 will probably only receive 78 to 80 percent of the projected payment as illustrated on the SS statement.

    The real issue with social security is how the pot of money has been invested. If it had been run like a true pension, there would be no solvency issue.

    1. I don’t want to take the time to argue what anyone so inclined could learn through a simple Google search. Opposition to social security was as intense in 1935 as resistance to Medicare and Obamacare was when those programs were first proposed, and among certain right-wing, small-government, conservative factions all these programs remain points of contention. By now, however, social security has become so much part of our national framework as to have obliterated memories of its difficult birth.

      Suffice to append a few words from Wikipedia:
      “‘Starving the beast’ is a political strategy employed by American conservatives in order to limit government spending by cutting taxes in order to deprive the government of revenue in a deliberate effort to force the federal government to reduce spending.

      “The term ‘the beast’ in this context refers to the United States Federal Government and the programs it funds, using mainly American tax payer dollars, particularly social programs such as education, welfare, Social Security, Medicare, and Medicaid.”

  8. I’ve always had a general idea of a plan – mostly just, make sure I don’t spend all my money. But this year, I am kicking it into high gear. I’m setting a 20K savings goal (cash) for the next 12 months, which will not be easy on 45K take home. But if I can make it happen, I will finally be where I need to be to feel comfortable moving to London!

  9. Let me start with this statement: “They just hope everything will be OK due to Social Security. “ This implies that those who live largely off social security are in dire peril. But it just isn’t true. When the program was enacted in the 1930s, 50% of senior citizens were living below the poverty line. Now it’s 10%. I don’t want to get into a debate over how social security is being funded, or whether it will run out of money, or whether it’s a Ponzi scheme, and the like. Each generation has to solve its financial problems its own way. But for someone like myself who just turned 67, social security will be a valuable addition to the income I now realize primarily via withdrawals from my IRA. (Since benefits rise 8% per year for each year one waits to collect, I intend to take social security starting at age 70, at which point it could easily fund 50% of my expenses.) But whatever happens in the future, in the 80 years since it was implemented, social security has worked, and that is a thorn in the side of those who are convinced that government, and the federal government above all, is a hopeless failure.

    I nonetheless agree absolutely that a financial plan is advisable for everybody. I may not meet all the stated goals above, but each situation is different and I think that given my expenses and other considerations I’ll be just fine.

    You (and every commenter so far) do however leave out a couple of the most critical elements of any good financial plan. The first is life insurance to cover your spouse and dependents if you die early. The second is a good estate plan. No matter what your age, you need a will, a health care proxy, a financial power of attorney, a living will, and possibly a living revocable trust. Any one of us could die tomorrow and you want your assets distributed according to your own wishes, not those of a probate court.

    1. 40 years from now SS will be broke, and the majority of folks (that majority living paycheck to paycheck) won’t have enough $$ saved in their personal retirement accounts.

      If some stupid politician tries to raise taxes on our retirement accounts and redistribute everything we’ve sacrificed for, there will be civil unrest in this country.

    2. And how has it worked exactly if it is going broke?
      The $$ I am contributing now if funding someone else’s retirement; Yet, I don’t expect to collect a dime from SS in 40 years.

      Financially speaking, this program is horrendous.

      Let’s say you work a minimum wage job, making $10 an hour, or $20800 a year.
      If anyone invests 6.2% of that (what SS takes from paycheck) or $1290 in the SP500 for 40 years, with the 10% average rate of return, you end up with $570K.

      That’s with minimum wage, in the country that we live in. With all due respect, SS is a joke.

      1. What shouldn’t be forgotten was that in 1935, when SS was enacted, average life expectancy beyond retirement was two years.

        I have no knowledge of what will happen in 40 years, and believe it or not, neither do you. Kindly keep this post and come back in 40 years to tell me if you’re collecting a dime or any other amount from SS or not. I most likely will be dead, but no matter; I predict you will be pleasantly surprised.

        The point of SS was to provide a guaranteed, federally funded supplemental income to people’s savings and pensions, never to fully fund a retirement and never to be a program investing in the inherently volatile stock market. (I pass over the important fact that it is also a disability program.) And yes, I am paying for my parents’ SS just as you will be paying for mine. (If that outrages you, kindly find out how much of your personal funds are paying for my personal funds, and I’ll write you a check each year for the two or three cents.)

        I don’t condone or excuse anyone who fails to save or invest for the long term, and I put a lot of money over the years into my 401(k) and IRAs so that I could retire comfortably with partial assistance from SS. But the fact that over the past 80 years SS has reduced the poverty rate for seniors from 50% to 10%, is proof enough in my mind that it is far from a “joke.”

      2. And oh, while I’m waiting for my first, longer response to you to show up: you don’t appear to understand how FICA works. The 6.2% for SS deducted from your paycheck as an employee is matched by an equal 6.2% contributed by your employer, thus making your total SS contribution 12.4%. (FICA also includes another deduction for your Medicare, to a total of 15.3% so long as you’re within the payroll caps.) If you were self employed, you’d be paying that 15.3% as self-employment tax, though 1/2 of that is an above-the-line deduction.

        1. Social Security’s two trust funds will become insolvent by 2033. Social Security will no longer be able to pay full benefits to retirees after 2033.

          You can have faith and believe in social security as much as you’d like, but you are NOT exempt from doing math.

          Unless the birth rate explodes, the only to keep it viable is by raising taxes.

          So, how has this worked?

          I guess it worked for some, but won’t work for others then.
          Hope you enjoy your SS, I am not counting on it.

          1. “Not being able to pay full benefits” is not the same as “not getting a dime.” I cannot control what happens to SS, and if taxes are raised then taxes will be raised. You don’t like higher payroll taxes, then vote for the candidate who won’t raise them. But don’t complain then that SS benefits will be reduced. You cannot have it both ways, and each generation has to do the best it can with the hand it is dealt. Had I been born in my father’s generation, or if I had worked for the federal or state government, or as a teacher, policeman, etc., I would probably have seen a pension now. I don’t have that leg of the supposed three-legged stool, perhaps neither do you, and your SS leg may have a few inches sawed off of it. But I built my plan with the knowledge that I would have only my personal savings plus SS to rely on.

            As it is, even now many recipients of SS don’t know how to maximize their benefits, which means often that they start too early, or they fail to understand the tax consequences, or they adopt a claiming strategy that could cost them thousands.

            Your entire argument boils down to: “It isn’t fair!” Well, maybe it isn’t. Last month we buried my brother-in-law from cancer at 63, and he never saw a dime of his SS either. But he paid into it. Life isn’t fair. You just gotta do the best you can with what you have.

  10. I started to plan when I was 28. I had zero $ and was a renter. Now I am 49.5 and have approximately $1.75m in investable assets. I just wasn’t happy being broke. I know some people can live like that. I wasn’t one of them. My wife wasn’t as well. The keys to me are the following and basically dove tail on what Sam writes:

    1. Discipline – we paid ourselves first.
    2. Patience – you have to ride out the storm at times.
    3. Earning power – you have to find a way to make money to save money. Get the proper certifications or licenses in your field and be willing to work hard. Accept the tough assignments.
    4. Always accept that there is more to learn and more than 1 right way approach.

    For example, I never bought in, or gave much thought to, creating income streams. I basically believed in the power of the equity market to rise over time. I still believe that but I now see the need for creating passive income streams. In my case, I will probably only get to about 3K a month. I need to get out of what I am doing for a living but my wife runs her own business and can make 7K clear after taxes, expenses and SEP contribution. Even though we at the zenith of our spending years, this should ensure that we don’t dip into principle unless it is for a business opportunity of my own.

    If I hadn’t found Sam’s blog, I probably wouldn’t have considered creating passive income streams and would have been dipping into principle. This would have exposed is to potentially selling index funds at inopportune times.

    Thanks for passing your knowledge on Sam!

  11. Hey Sam,

    Good article. Goals are an important part of getting to where you want to be! (Which is why I suggest the Average Net worth of the Above Average Person if any of my friends are looking for a goal)

    On a completely different topic. Since reading ‘Stock Market Meltdown Implications For Everyone‘ I took the advice and spoke with my private wealth manager and he brought a new type of security to my attention. What are your thoughts on Business Development Companies as a form of investment? (I really enjoyed your write-up on Structured Notes and perhaps this is a similar topic that people aren’t commonly exposed to.)

    1. Thanks for sharing, and reading. All I know is that BDCs have gotten CRUSHED, and are now providing huge yields. I know very little, and would welcome insights from others on why BDCs vs. plain vanilla index ETFs to keep things simple.

      1. I just went to a sales pitch for BDC’s. My takeaway is as follows

        1- No liquidity. They charge 10% surrender fee if you take your money out early.
        2- The company managing the loans decides when you cash out. This particular fund was managed by KKR. They had a target date of 2018 for the liquidity but can change at their discretion.
        3- Interest rate quoted was 7.5% “Very Nice” but they can change it if they want. The representative said very seldom rate will change. After all if they get people in and they change the rate people get mad and no longer buy there products.
        4- Your initial investment is linked to a share price that I believe is reset weekly. During the August turmoil their share price dropped by 5%
        5- At the liquidity the company tries to liquidate at the the highest share price quoted during the contract. “No Guarantees”
        6- If you reinvest your dividend income you buy in at a 10% discount to the share price quoted on that given week

        Hope this helps

  12. As a kid my financial goal was to be able to buy whatever food I wanted whenever I wanted. I remember going to the local pool during summer. Afterwards, we always went and got a snack. If I had enough money burger, fries, and a shake. Usually though I wouldn’t have enough money and settled for 2 cookies from Albertsons. The first 1 was free the second was a quarter.

    Fast forward 35 years I’ve achieved financial freedom and no longer have to work if I don’t want to. The 1 thing that still brings me the most satisfaction is the ability to go to any restaurant and order whatever I want.

    I truly believe setting that goal as a kid shaped my financial future for the better.

    1. Awesome story! As a kid, I once put a candy bar in a big slurpee cup and filled it to the top so I wouldn’t have to pay. And older friend taught me that. I was a bad kid. And I realize looking back that when you have no money, there’s the temptation to do bad things.

  13. I want to be done before age 45 (7 years). I currently expect to be done at least a year ahead of that, but we may have another child. The last 2 years have been excellent in terms of increasing savings rate and net worth growth, I only hope I can keep up the pace (and the market does not tank for an extended period of time).

  14. I’ve been a lurker for the site for several years. Thank you Sam for the fun and informative read. I’m 33 years old and (finally) have been working for the past 2 years. I average about 620k a year pre tax, with no debt and no loans. I’ve been able to save about 600k these past two years in the bank but am so afraid of investing in stocks, houses or anything else. I don’t think I can work this much for many more years but once I cut back to normal level, I’ll still average about 500k pre-tax. I hope to start a new relationship soon and get married by 35 :-). My parents and friends have been on my case for awhile!

    1. Share more! Were you unemployed or underemployed before 2 years ago? What occupation are you in that allows you to earn $600K+? That is huge!

      Nice job saving $600K. Bet you don’t regret it one bit.

  15. I’m 33 years old today and I started taking financial goals and planning seriously 4 years ago. My initial 10 year goals were to pay off 6 figures of consumer debt my new wife and I had together, finish my MBA debt free, buy a house, and start maxing out retirement accounts. These were all goals I wanted to reach by 40, but finished this year. Now I’m building some much larger goals for 40 because I see how much we can achieve if we have definable goals to focus on (kind of like your last post brought up!).

    1. $100,000 cash emergency fund by 34
    2. Pay off my wife’s medical school loans by 35
    3. $10 million net worth by 40 (including primary home)
    4. 4 separate income streams bringing in 6 figures or more by 40 (2 1/2 now)

      1. Our consumer debt was from cars and credit card debt before we met. Meals, vacations,clothes, etc. The usual stuff you buy when you want to keep up with the Jones’. We had about $200,000 including the cars and motorcycle. We went cold turkey when we got married, which to my mind is the only way to successfully get out of debt like that. I’ve never seen anyone nickel and dime their way out of a large consumer debt bill.

        My wife is a specialized physical therapist and I work in management in the aviation industry. We also rehab and sell houses, and I’m working on a couple of other side hustles as well.

        At this point I don’t have real desire to spend beyond my current comfortable lifestyle. I love the work and hustle, but I realize that I may not feel the same way in 10 years. My main motivation is to give me and my family financial options down the road, as opposed to fancy junk that we won’t even remember.

  16. I’ve had savings goals in the past. It was only at age 40 I started to put down some passive income goals and have been converting the savings into passive income as much as possible. I am now slightly above where you were in 2012 passive income wise. Now it’s a matter of just gutting out the challenging job and adding more fuel to the passive income fire!


  17. Financial planning and goal setting has been absolutely key to my financial success this far. I graduated from undergrad with $30k in the bank at 21. I bought a condo with 20% down at 23. I started maxing out my Roth IRA and 401(k) at 22. I’ve set savings goals every year and hit most of them, except when my bonuses were reduced. My current medium-term goal is to pay off my mortgage before the rate resets at the beginning of 2018. I am also planning financially to be able to retire in my 30s.

      1. I started college with $5k in the bank. My parents paid for my undergraduate education in full: tuition, books, rent, utilities, transportation home, etc. I had really lucrative internships, lived cheaply, and saved a good portion of my income. For example, in my last internship before graduation, I earned net $19,000 and spent $6,800 in the same time period, including rent, so I banked $12,200 that internship. I had another similar internship with spending/earning and for the rest of college had jobs that basically broke even with my spending.

  18. I love posts like this because instead of thinking “I’m not going to retire nearly as early as he did” or “why didn’t I start maxing out earlier?” I get to think: graduated with a Masters’ debt free by 24, got married, have three children, on track to pay off the mortgage in three years, and I’m just over 30! Now, the $50,000/year of other income is the next goal. We’ll see where that takes us. Thanks for the reminder to regroup about goals. They really make all the difference!

  19. SavvyFinancialLatina

    I have a financial plan set in mind with milestones at age 30 and 35. I’m only 25. I’m surprised at how many people don’t think about setting a financial plan. I think it’s really important.

    1. I didn’t really have a plan until I turned 30. I think for many of us, we go wherever life takes us without thinking too much about it. In general, you ask around “what’s your plan” to colleagues/friends, and their solution either doesn’t apply to you, or feels like it’s too much constraints. More often, your friends don’t have a plan, and because that’s the majority, people tend to figure they’ll be fine without a plan, since nobody else has one.

      1. But doesn’t everyone get the job interview question out of college, “Where do you see yourself 5 years from now?”

        I got that Q so many times.

        I had a goal for XYZ by age 30… b/c I thought I needed to make it by age 30 or else I wasted 4 years of my life in college. A lot of my peers had this attitude. Is this uncommon? I felt immense pressure as a young man to be independent and earn and save enough to provide for a family.

  20. Nice article

    Here are 3 fairly near term fplans

    1. Millionaire household by 40 – with only 1 year left will probably miss this but maybe 41 or 42

    2. Increase networth by $200k per year by 45 – not necessarily passively though

    3. Increase private investments from current 0 percent to 10 percent by 45

  21. Planning is hard. Or rather, planning for the big things that really matter like your financial big picture is hard.

    Even with all the effort I put into my personal finances and a happy, secure retirement, I haven’t sat down and put hard numbers and dates to each goal.

    Thanks for the kick in the pants to set some concrete milestones. Like the cobbler’s children, it’s ironic how the things you do for your livelihood are often the last thing you do for yourself.

  22. Hey Sam,
    I think the most important step in all of this is missing. If Success = Inspiration + Action, then you’re leaving out a big inspirational component. One needs to really understand their desire and need for things like early retirement, freedom, marriage, or high net worth. We so easily and often draw up goals without emplacing ourselves in those future situations. Would a high net worth or high passive income make us happier? Would leaving the workforce at 35 give us a better life.

    Most definitely so in many cases, but we’re swimming in financial advice, but we often lack inspiration ). Understand one’s self. That is step #1.

    1. Curious, do you think most people don’t have inspiration? And, should I rename my Motivation category to Inspiration instead? Serious question!

      I’ve always worked under the assumption that everybody has their own inspiration. We all know ourselves better than others. We all have some particular goals to achieve.

      If you lack inspiration, do you think it’s b/c life is too comfortable living in America? If you don’t lack inspiration, what is your inspiration? Just going out to Cambodia this year gave me some more inspiration.

      And as a blogger, what is your inspiration to write? And will I see you three years from now?

      Related: Suck It Up Already! Suffering Is A Rite Of Passage

      1. Let’s get the easy question out of the way. As a blogger, I’m inspired to write because I’m positively and directly affecting other people’s lives–which, in turn, enriches my own and gives me purpose, direction, and happiness. Retire29 (or some future blog) is just about the only thing I am sure about for three years down the road (as well as my marriage :) ).

        Do people lack inspiration? Heck Yeah! I say that because even I lacked inspiration for many of my own financial decisions. Most people, I’d reckon, go into a situation based on societal expectations that have been so ingrained in our psyche that it ‘feels’ like the right thing to do.

        Get good corporate job.
        Get married.
        Have kids.
        Buy big house.
        Buy big car.
        Buy big retirement (in thirty years).

        These are all reasonable financial-related goals, but take a step back and ask yourself, “what will my life look like if I had ______? And, will that make me happier?”

        I think that question is avoided in almost all cases.


        1. Great to hear you will be in this for the long haul! Best of luck in the journey, as I’ve seen so many of my old blogging buddies disappear or sell since 2009.

          I bought a smaller house, and a much smaller car last year.. Happiness level may have gone up since I pay less property taxes and find more parking spots!

          I’ve found enough already. Just trying to maximize experiences.

      2. As long as humanity’s existed it’s been easier for people to start a project than finish one. I think lasting inspiration has shrunk proportionately with attention spans. There’s so much emphasis on instant gratification and living for the moment that long-term visions, while people love to think them up, just don’t get played out. (Even the way they used to.) Inspiration, I think, can be put into the same categories as attention span, short-term memory, long-term memory, and some other things.

        1. Could be right. I have a habit of either never starting something I don’t plan to finish, or always finishing something, even if it sucks or kills me. I NEED to finish. It’s like reading a book 3/4 way through. It needs to be finished!

  23. Hello, in my case I’m in my early thirties and have been in a 401k plan for 10+ years. For the past year I’ve been maxing out my retirement and plan to continue doing so. With that said, how/why is it so important to create multiple income streams if one is maxing out their retirement? I mean, isn’t that what those funds are supposed to be there for? And also when you start withdrawing the money you have accumulated all those years is still growing (although in much safer investments), right? Any thoughts?

    1. I think the main idea behind “passive” income (gets debated a lot, but loosely anything you don’t have to show up at work to earn) is that it’s less risky than a very valuable aset which can fluctuate in value and is not easy to liquidate. For most of us, this is a mix of dividends, interest income, and rental property income.

      Many passive income sources tend to be less sensitive than underlying asset prices (stock prices and real estate prices). An example of this is when the housing market crashed, and many cities saw declines of 20%+, though rents decreased by far less (in many areas), and INcreased in quite a few.

      I don’t speak for anyone else, but having some level of passive income (whether it’s 10/30/100k per yr is for you to judge) can potentially help you feel secure financially far sooner than without much passive income. If your passive income is greater than your typical expenses, then you are basically free… or so the idea goes.

      1. Correct Ravi. I was a firefighter and had to retire due to injury. When I ran my #s, to stay in Santa Barbara, CA one of us was going to have to still work but we have enough to live like royalty in Nicaragua and still save $2k a month. I have 5 passive income streams including pension which bring me $84k after tax for life. Rat race in U.S. Or retired at 42 on a Central American beach still saving 2k a month? Not a hard choice for me.

        1. Nice job Justin! That sounds like an easy decision to me as well. The savings each month would let you do some travel and visit the states occassionally and add to your cushion. I am a bit jealous.

    2. Wes – basically, for flexibility and safety. If you only have one income stream, and for whatever reason you lose it, you’re going to have to scramble. You can’t withdraw your 401k money (without severe penalties) to live on before retirement age. On the other hand, it you have a number of income streams outside of your W-2 income, you could lose your job and still have money coming in to pay expenses without having to rush to find another source of income. As far as flexibility, you’d have the option to switch to a lower paying but more fulfilling job, or go part-time, or retire early. Also, you are “maxing out” your retirement. There’s no limit though on income or how much you can invest. You can supercharge your retirement savings by investing outside of your 401k.

      1. Thanks Ravi and Jonathan. I do have an after tax portfolio in which most of the holdings earn dividends (which I guess is one source of passive income). Perhaps over time as I continue investing in this, the dividends can grow more and provide a meaningful passive income stream!

    3. If you love your job and are pretty certain you’ll want to and be able to do it until 59.5, then there’s no need to develop multiple income streams outside of work!

      Unfortunately most people, including myself, can’t envision 38+ years of working at the same place. I got really bored after my 10th year doing the same thing and needed to make a change. My passive income in 2012 of ~$80,000 help me make the transition to tennis bum status, along with my severance package of course.

      How old are you? I admire all people who say they still love their jobs after 15 – 20 years. Tell me you’re in your late 30s or early 40s!

  24. Ali @ Anything You Want

    I completely agree that having a financial plan is essential. I’ve achieved many of the traditional milestones – graduating from college (debt free) at 22, buying a condo with 20% down at 24, getting my MBA (again debt free) at 27. The challenge I am facing now is that my future milestones are very fluid. I want to have kids, in which case I will need to save for their college education. But I don’t have kids yet. I want to retire at some point, but that might be at a traditional age or a more aggressive age. I don’t know yet. I know that it is dangerous not to have a specific goal, but at this time I feel that this is where I am, and the best I can do is save as aggressively as possible to keep all future possibilities open to me.

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