Financial Targets Are Always Moving: Follow Your Own Compass

Financial Targets Are Always Moving: Follow Your Own Compass

Financial targets are always moving. Just when you reach one financial target, another financial target is often made. The reason for the change is due to hedonic adaptation. We humans always seem to want more!

To make sure you’re being financially responsible, always look at the latest economic data to determine whether you’re saving enough, investing enough, and earning enough to take care of your family. The last thing you want to do is wake up 10 years from now and realize you didn't plan properly.

Given housing cost is usually the biggest cost for a family, I'm aways paying attention to the median home price and interest rates.

When the Q2 2019 data came out showing that a San Francisco household needs a minimum $343,400 income to buy the median sales priced house, I was floored.

For years, I thought a $250,000 a year household income was enough to live a middle class lifestyle for up to a family of four in San Francisco. After all, I've been living in San Francisco since 2001 and intimately know how much I need to lead a comfortable lifestyle through my musings on Financial Samurai.

It disappoints me that after deciding $250,000 was a enough for a family of three to live a happy early retirement lifestyle in 2012, and finally getting there in 2019, Compass Real Estate through data provided by the California Association of Realtors decided to move the goal post!

Median Income

I was scratching my head at the $343,300 figure because my family lives just fine off less than $200,000 gross a year. It also helps that our investment income is taxed at a more favorable rate than W2 job income.

Instead of complaining, I faced reality that perhaps my income was simply not enough. I got motivated to try and accumulate more money.

Then something funny happened. The numbers changed again.

Financial Targets Are Always Moving

I received a newsletter a couple months later from another real estate agent who had a section on affordability. In my observation, affordability has increased in 1H2021 because mortgage rates have come way down while income and the stock market have gone up.

Here's the graphic that was included in the newsletter.

Median income to afford a San Francisco home

According to this realtor's calculations, to afford the median San Francisco home, one must pay $5,928 per month, which shows a $700 fall from the previous month's median monthly payment.

The newsletter says that instead of needing $343,400 in household income to afford a median-priced home, a household only needs $254,052. Whoo hoo!

$254,052 is $21,171 a month in gross income. The newsletter calculates a home being affordable if the homeowner spends no more than 28% of their monthly gross income on the home, hence $5,928. A 28% limit is a reasonable amount of your gross cash flow to spend on your home.

However, if you want to achieve financial independence quicker, I recommend spending no more than 20% of your gross income on your home and ideally just 10% or less.

Here's the chart from my post, Housing Expense Guideline For Financial Freedom.

Housing Expense Guideline For Financial Independence

Verifying The Large Discrepenacy

There is a huge difference between needing $343,400 to purchase a median-priced home in SF versus $254,052. You need $2.23 million in extra capital generating a 4% rate of return to cover the $89,348 difference.

Doing what I always do when something doesn't look right, I asked the realtor why there was such a huge household income discrepancy compared to the Compass Real Estate group's numbers taken from the California Association of Realtors.

The realtor got back to me a week later and basically said, “Oops. Our calculations were wrong.

Here's the new data he provided. Based on the revised calculations, a household still needs $341,000 in household income to comfortably afford a median-priced home based on $7,430 in monthly payments.

Darn, I wish I wasn't so thorough.

Don't Be A Robot, Adapt To Financial Targets

If the real estate brokerage firms were marketing savvy, they'd push for a lower required household income figure to get more people to buy more homes. But clearly they've got a muddy message filled with inconsistency.

Only you can decide the household income necessary to live your desired lifestyle. The statistics the government and associations put out there are always moving because they are written by people with different tastes and agendas. Further, the median price of property and interest rates are also always moving too.

Using a 3.75% mortgage rate in the above examples is high when you can now get a 3% mortgage rate or lower. I know because I recently refinanced my primary mortgage at 2.625% for a 7/1 ARM.

At 3%, the monthly mortgage payment declines from $7,430 on a $1,280,000 mortgage to $5,397. Using the same 28% of gross income to spend on a mortgage means you only need a $231,300 annual gross salary to afford the median-priced SF home after putting 20% down.

Major obvious point: Declining interest rates have drastically increased housing affordability.

My family is happy living a middle class lifestyle on less than $200,000 a year because that's what we've lived off of for the past three years. I shot for $250,000 in gross passive income given I've got to pay taxes.

Here's a budget for a family of three comfortably living off $200,000 a year in investment income. As you can tell from the budget, it's a comfortable lifestyle, but nothing extravagant. To clarify, this $200,000 budget is for a family who is already retired, not looking to save for retirement.

Financial Targets Are Always Moving - Budget Chart For Retiring Off $200,000 In Gross Investment Income

If you're trying to figure out how much money you need to live your ideal lifestyle, pay attention to the economic data on housing, transportation, food, and tuition.

Once you've got housing costs down, the other expenses shouldn't be too much of a problem. Public transportation and ridesharing keeps transportation costs low. Unless you eat like a horse, food costs should be manageable. While nobody needs to send their kid to private grade school.

Crunch The Numbers

For me to generate an extra $100,000 in passive income to live a middle-class life in the Bay Area according to Compass Real Estate Group, I've got to come up with another $2,500,000 assuming a 4% rate of return. I'm not sure whether this is worth my time since we're comfortable living off what we're generating today.

But something happened again while I was stewing over this post. The Q32019 data came out and the minimum qualifying income to purchase a median-priced property decreased to “only” $309,400 from $343,300 in Q22019. A $33,900 decrease in required income is huge given that is a $845,500 decline in required capital needed at a 4% rate of return.

Finally, the goal post has moved in America's favor. It used to require a minimum income of $56,500 to buy a median sales priced home in all of America. Now, that figure has dropped to $54,800 while the average income is rising.

Rising affordability is one of the main reasons why I think it's a good opportunity to buy real estate in 2021+. Mortgage rates are still low in 2021 and the intrinsic value of property has gone way up because we're all spending so much more time at home!

Minimum qualifying income to purchase a SF home

Not only should you re-crunch the numbers you see produced by personal finance websites such as mine, economists, realtors, and market pundits, you need to crunch your own numbers.

Don't let people like me tell you how much you need to be happy. Look at the data with an open mind. Then decide for yourself what's best.

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Real Estate Diversification

Look to diversify your real estate investments across the country where valuations are lower, net rental yields are higher, and growth rates may be higher. The global pandemic has accelerated demographic shifts towards lower cost areas of the country due to the work from home trend.

Check out Fundrise and their eREITs. eREITs give investors a way to diversify their real estate exposure with lower volatility compared to stocks. Income is completely passive and there is much less concentration risk.

If you are bullish on the demographic shift towards lower-cost and less densely populated areas of the country, check out CrowdStreet. CrowdStreet focuses on individual commercial real estate opportunities in 18-hour cities.

Both platforms are free to sign up and explore. I've personally invested $810,000 in real estate crowdfunding across 18 properties to earn income 100% passively.

42 thoughts on “Financial Targets Are Always Moving: Follow Your Own Compass”

  1. Hey Sam. Thank you for all the awesome content. Curious on your thoughts about paying off a primary residence early.

  2. Trying to get ahead

    My wife and I have a net worth of $2.7mm and grossed about $550,000 combined this year, or $407,000 after taxes. We spent about 20% of that to live, or about $82,000, and saved the remaining 80%, or about $325,000 (including retirement savings). We live in an average house in a nice neighborhood, drive 2 economy leased cars, and take 2 budget international trips per year together. We are in our mid/late 30s. All of the personal finance sites say you should keep the pedal to the medal in your 20s and 30s to enjoy life “later.” When is “later?” When do you pump the brakes? We also feel like maybe we need to delay that date somewhat because we haven’t done as well as we could have saving to date (b/c our savings rate wasn’t quite so high in our 20s).

  3. Hello,
    I read this article as you suggested, but actually for me it seems the story of another planet (I live in Italy).
    In my opinion to live without working should first of all be based on a simpler life, and not based on to buy a medium level house in one of the most expensive place in USA. But of course this is only my opinion and I m writing it to get a feedback from you, as a financial expert and successfully early retired person.

    Moreover I disagree on two pillars of your investing strategies:
    – to buy so expensive house with a loan instead of invest also your down payment and rent an house
    – to invest everything in so conservative assets.

    Finally I can suggest you to evaluate to move in europe. You may find amazing places where you would live like a king with your investments incomes :)

    Thank you

  4. “Listen to all, plucking a feather from every passing goose, but follow no one absolutely.” – Chinese proverb.

    It’s absolutely imperative to follow your own financial compass and drown out the noise and chatter that can take you off your set path. Reset and re-evaluate when necessary.

    Being from Hong Kong and moving to the US in 1982, and then having lived in Atlanta, Houston, San Francisco, San Mateo County area, and now Lexington, KY with my wife and two young kids, my entire compass for all life facets has definitely shifted countless times. YMMV but stay the course while staying alert when changes need to be made. Cheers!

  5. AspiringFIRE

    Hi Sam ,
    Thanks for the amazing work that you are doing by educating people like me . I have learned a lot just by reading your website. Im 38 and my husband is 42. We have a 10 year old daughter . We just have 125k in our 401k . We do have 600k in investment accounts being managed by personal Capital . Do you think we are doing ok ? Looks like from these numbers we will have to work till 65. Any suggestions please ?

  6. I don’t know if you are for real or being funny. The median income in America 2019 is about $50,000 a year. At $250,000, you make 5 times the average American. You “problem” sounds like rich people problems. I have read your post and long for the day you write some articles for us who don’t have $250,000 a year income.

    1. The median household income is closer to $63,000 vs the median house price of $250,000. The house price to income ratio is therefore 4:1.

      The median home price is $1.6 million in SF. That is 6.5X greater than $250K. Why is it so difficult to understand that income is relative to cost?


      And why not read another site about making $50k instead of trying to force someone to write for you and live your lifestyle? Makes no sense.

      1. So basically, your blog only caters to the upper crust? I must remember that the next time I come here.

        The median income for SF is $96,265. You still make 3 about times what the average person in SF makes. I doubt the people who read your blog makes that. SF is trying to pass laws to help people who don’t “live your lifestyle” afford housing there. SF has a big homeless problem but don’t let the little people stand in the way of your as you step out of your million dollar+ home. I know, wrong website for that…

        I took the time to read about how you made your money. Luck does not equal skill. Luck equals luck. So, people should take what you are saying with a grain of salt and do their own homework. (Fundrise was a good idea. I may use it after I do my homework on it.)

        As a finance major, you do have valid points about money. My question was how can the average person who doesn’t have a few million laying around achieve what you have without come off as snobbish and condescending as your answer to my post.

        Lastly, I don’t have your money but a 900,000-net worth (without a house) is a pretty good lifestyle. But unlike you, I had to spend many years in the Army using blood, sweat, and tears to make my money. And I’m not a “lucky” Asian person, I am an “unlucky” Black person…

        1. Hi Kal West,

          A fellow brother-in-arms here and congratulations on just shy of a seven-figure net worth. I’m sure you will attain that metric shortly. Keep up the great work Brother.

          As for Sam, he provides fantastic content. I do not agree with all of what he writes; nevertheless, he is thoughtful and provides the basis for his reasoning.

          By learning, even though i don’t agree or it does not apply in my current circumstance, helps me make better financial decisions or affirms ones already taken. Again, Sam produces excellent content and I’m grateful that he puts the effort in producing this blog.

          If you’d like to discuss with me how I attained FI, reach out to Sam as I have no issue with him providing you my email.

          I have in excess of thirty years and I’ll be retired from the military but not life.

          I hope you had a Merry Christmas and wish you a Happy New Year.

          Semper FI,

  7. My question is how do we account for long term savings? With kids, mortgages, aging parents cost everything shifts on a daily basis. Before any of this, my husband and I could have saved 50% of our annual household income, but with everything added to the mix, we have not been able to cut down on our expenses.

    We have had decent savings, but multiplying the passive income has been an issue.

  8. My housing cost is at 10%. I save about 35%. I’m behind on your wealth targets by about 5 years. Your posts inspire me to do better. Thanks for all your hard work!

  9. Ok, I have to comment on the $200k budget for a family of three. You allocated $26.4K annually for food, which is just irrational. Your own article on Average vs. Recommended Expenditures… showed that the average American household spends $8k on food annually with a recommendation of spending no more than 10%.

    Not only does the $26.4K break the 10% rule in this case, but food isn’t one of those things that scales well as a percent of income. It doesn’t make sense for someone with a $1M+ income to spend anywhere near 10% on food. A person can only consume so many calories a day and there is a limit to what a calorie can cost, even for very healthy or even chef-prepared options.

    To assume that this family of three needs triple the money that the average American household needs for food, especially when that average household is already spending 50% of their food budget eating out, is absolutely extravagant.

    1. You make a good point. And my point is that everybody’s budget and preferences are different. This is just a sample budget.

      Limiting your food expense to 10% of your gross income or less is recommended, if you’re still striving towards financial independence/retirement.

      But this budget is living off gross investment income as the household is already retired. They don’t need to save for retirement or follow any FI guidelines because they are already there.

      That said, I did make some corrections in the budget chart b/c I miscalculated the after-tax income. thx

      1. My parents are retired and eat out every night and spend at least $50k a year on food. It adds up quickly!

  10. Financial data is always changing. That is why I update my financial models at least once a year.

    For instance, in saving for college, I update my college savings model at least once a year with the current cost of private university and the rate of tuition inflation going forward.

    At a certain point, I believe you should have a sense of what makes for a comfortable lifestyle. It might be in your late 20s, 30s or even in your 40s. But at some point, you should have settled into a comfortable lifestyle that works for you. You can use the $ amount to maintain the lifestyle as the baseline going forward.

    1. Smart thing to do. College tuition is especially an important one to regularly recalculate due to the rapid rise of tuition.

      When there are big life changing events, like having kids, it’s more important than ever to recalibrate your financial targets.

  11. Financial Freedom Countdown

    One factor most folks who keep working based on a moving target is that life itself is uncertain. I’ve met so many people who were busy working that they never got time to spend with their loved ones and realized one day that they were no longer with them.

    1. So true.

      Life changes. We change. Priorities shift.

      We are currently living off about 35K, a family of three, in New York City. Rent and utilities are 95% of husband’s income (the only stable income so far, minimum wage). I presume we actually qualify for food stamps :D

      Anyway, I work from home and my small business is slowly picking up speed again. It’s not a huge deal, but we can live off this total income and we are still not feeling underprivileged.

      As a web designer (and SEO expert) with almost 20 years of experience, I’d get a high paying job pretty easily, but it would mean to be out of the home for many hours in a day. And so far, being at home to care for my family is more important than just having more money to spend on useless stuff.

      So, we’ll see what 2020 brings us :D

  12. Sam, under the living off $200,000 budget breakdown, I didn’t see a line item for 401K. However, I guess the $4,360 could be set aside, it wouldn’t get someone to the Financial finish line without maxing out their 401K’s I’d think. With, that I’d think you’d need to add $39,000 to the annual column which would put the $200K family in the hole by about $30K’ish taking into consideration tax savings…thoughts?


    My question is how do you lock in financial security for Healthcare? That is the part the I’m most worried about.

    1. Good question. Unfortunately, I haven’t been able to fix my healthcare costs in the slightest bit. My healthcare costs are regulated by the government and the industry. It just keeps going up, up, up. Then add on children to the mix, and my healthcare monthly premium is now $1,940/month for a family of three. And will jump by $440 to $2,380/month if we have a second.

      I’m at a loss. The only thing I can do is factor into my expense model a constant 7% annual increase in healthcare premiums. I suggest you and others do the same.

  14. Hi Sam, I tried to calculate the $7,430 number but something doesn’t seem right (that does turn out to be 26% of the $343,000 yearly but I don’t know how 7,430 comes from the median house and interest rate numbers). The calculations in Excel for $5,927 and $5,397 using the PMT function and numbers in the post came out as expected.

    1. Had the same question. The monthly payment on a $1,280,000 mortgage at 3.75% (30-year mortgage, monthly interest) seems to be $5,928/mo, which is the same as the initial newsletter graphic. That’s drastically different than the corrected $7,430/mo.

      Changing the input to the 3.00% rate mentioned in the later example, it comes to $5,397/mo. That matches the monthly payment listed.

      Why the discrepancy on the monthly payment @ 3.75%?

      1. I think the realtor/data person is working backwards, and starting with the annual salary, dividing by 12, then multiplying by 26-28% (not using 28% twice for some reason). The monthly number is the end result.

        Then, they just try and make the mortgage rate fit. Since there are so many types of mortgages and rates, this variable can change easier.

        Regardless, different assumptions can have a drastically different outcomes. Therefore, everybody needs to do their own math.

  15. In the past, I’ve looked mainly at household income data within my county to gauge how I’m doing. From that standpoint, I am doing fine. On a different note, I feel like affordability calculators out there tell you that you can afford more than you actually can, especially if you want to save a higher percentage than average Americans.

  16. Daniel Cohen

    Hi Sam,

    Thank you for sharing your thoughts.

    You wrote: have you found yourself trying to catch up to a financial moving target?
    Response: Funny enough, I do not because I have exceeded your above average net worth for an above average couple (43 yrs old) article for my age by 5 years.

    You wrote: How do you ensure the data being presented to you is correct?
    Response: I’m always skeptical about any information I read/hear. I make my assessment based on multiple different sources and try to hit harder targets like the 3% rule.

    You wrote: What are some ways in which you decide how much money is enough for you without being delusional?
    Response: When I live my life and am saving more than I spend (incl 401k, 529, etc..), then that is enough at my stage. Right now, I’m focused on paying off my mortgages so I can improve cashflow.

    1. Congrats! You have a large enough buffer where you don’t feel the need to recalibrate your income, investments, and expenses.

      I’ve got to increase my buffer by at least $50,000 a year to feel the same way now I’m finding.

  17. TheEngineer

    “Don’t let people like me tell you how much you need to be happy. Look at the data with an open mind. Then decide for yourself what’s best”

    FS – this is why you are a great man!

    Every single one of us (100%) will be the VICTIM of our SUCCESS or FAILURE. Simply put, success has no limit.

    You are financially successful from the statistical metric of the 95% of the US population – 99% from the world population.

    Haven’t you noticed that overwhelmingly many people you met to your day to day living are so much happier than you? Yet – they have so much (so much) less than you!

    Hence – the above statement is very sincere and kind advice for your followers.

    There is a clear and computable Financial Independence Target (FIT) for anyone in any society and anywhere around the world. It does not mean everyone must cross it to find happiness.

    There is a fuzzy and non-computable Financial Freedom Target (FFT) for people who have crossed the Financial Independence barrier.

    You are in your 40’s now and you want to cross the 99% percentile net worth barrier (approximately 12 million as the minimal required statistic).

    If you sell this site and/or go back to work, it is retrogression!

    Clearly, you have the skill to cross the barrier. I just updated my “About” page. Take the “TheFinancialist” spot on the team – help me change the world a better place and you can have the FFT.

    1. Thanks for the feedback!

      “Haven’t you noticed that overwhelmingly many people you met to your day to day living are so much happier than you? Yet – they have so much (so much) less than you!”

      Actually, no. In my tennis peer group, I’ve found I’m consistently less stressed and happier, but much less wealthy.

      For my softball peer group, they are much younger and poorer. They seem happy, but also have the normal stresses of trying to find out what they want to do with their lives, save for their futures, etc.

      I’ve been feeling extremely blessed recently. I hope this feeling can last for as long as possible!

      1. TheEngineer

        First and foremost, you are first class. To the external world including your family, you strived not to take thing personal, but you internalized the conflict internally and it is not good for you.

        Compounded with your natural competitive nature – your body produced so much of Adrenaline, Norepinephrine and Cortisol (stress hormones) that more than 3 billions of people on Earth are happier than you by the law of nature.

        Let’s talk about your competitiveness. The world is very superficial; therefore, I have to use money as a meant to measure the utility you have brought to the world and project it to see how far you can go with it.

        Your education, the short stint of work experience and countless hours of entrepreneurship have brought you right below the 1% barrier. The latest statistic requires 12 millions as the minimum to stand on the 1% mile marker.

        You are going to disappoint me if you tell me that it is progress not money you are going after. Breaking the 1% limit is the only way you can validate the Warren Buffet nerdiness in you – you are built for it.

        We don’t have to debate back and forth. You can crunch the number for yourself. Do everything you are meticulously detailed on this website and project it to see how long it will take for you cross the 1%?

        A paradigm shift is required to match with your nerdiness. Go back to work is not a paradigm shift – take on a new identity TheFinancialist and change the world for the better place for your boy and my girl is an out of this world paradigm shift.
        With the paradigm shift –
        1. You will cross the 1% barrier
        2. Your boy will worship you as Thor
        3. You will live long enough enjoy the fruit of your creation

        P.S – your response actually validated my insight. You are happier than the wealthier guys in your exclusive tennis club because you have less than them.
        The youths are happier than you because they have less than you.

  18. It is data like this that makes me feel a bit uneasy when trying to plan for an extended early retirement.

    The numbers could have just as easily gone the other way but benefit from lower interest rates (who knows what interest rates will do 5 years from now let alone 30).

    Hopefully whatever cash flowing assets you have will compensate for any changes and thus have a net zero effect.

    1. True, which is why it’s better to assume more conservative models rather than more aggressive models. Any returns greater are just gravy as we’ve calibrated our expenses, timing for job change etc, to the lower figures.

      Low interest rates have hurt me and other retirees who depend on fixed income. But at least our capital values have gone up.

  19. Aloha Sam You are always on point. Although I save 30% of my gross income my housing expense is 30% so you’re right that I’m running in place. Your post has inspired me to find ways to lower my housing costs and boost my income. Mahalo for sharing your invaluable insights to us

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