2021 Annual Goals and Budget

For the first time in probably a decade (or more?!), I decided to sit down and write out my annual goals and budget. While I track my general spending on a monthly basis, the annual overview was eye-opening. It also made me digest the reality of where I am today, and what I need to accomplish this year in order to truly move fast on the path to financial independence. Let's dig in!

This pie chart summarizes broad categories of planning savings, investment and spending for the year. I off-set the pie slices like home renovations or food expenses that are negotiable or could be budgeted down.

Here are the specific dollar amounts I've scoped out, with further breakdowns within a categories. Categories have a ✅ symbol if they add to net worth, and a 🔴 otherwise.

✅ Emergency Fund: $19.5K

• +$19K: Emergency Fund

✅ Retirement Contributions: $53.5K

• +$19.5K: Pre-tax 401k Contribution

• +$6K: Roth IRA Contribution (via Traditional IRA Backdoor Rollover)

• +$28K: Roth 401k Contribution (via After-Tax Mega Backdoor Conversion)

✅ Debt Payoff: $63K

• +$63K: Save and invest or lump-sum pay off getaway property personal loan

✅ Taxable Investments: $0

• +$0: Taxable Brokerage Account

• +$0: Taxable RSUs (Restricted Stock Units)

🔴 Fixed Expenses: $42K

• -$42K: Primary Mortgage, Getaway Property Personal Loan, Utilities, Insurance

🔴 Renovations and Repairs: $16K

• -$5K: Primary House Renovations

• -$8K: Tiny House Renovations

• -$2K: Car Repairs

🔴 Discretionary Spending: $20K

• - $10K: Food, Alcohol, and Groceries

• - $10K: Spending (or less!)

Total: $213.5K

Federal marginal tax rate: 35%

What is my rationale for these goals and spending targets?

My broad strategy is to max out all retirement opportunities, hit two major milestones that are holding me back from aggressive investment (adequate EF + debt payoff), and take advantage of the pandemic by reducing spend in some areas like dining out or international travel.

Emergency Fund: I have come to terms with the fact that I cannot aggressively save and investment and live my day-to-day in a stress-free manner if I don't have an emergency fund ("EF"). Last year, I had drained my emergency fund down to $1K to help accelerate debt payments on my car, and after the car was paid off I diverted extra funds aggressively towards retirement contributions instead of replenishing the EF. This took an emotional toll on me because anytime an unexpected expense came up (believe me, with two properties, the unexpectedness is guaranteed, and can be in the thousands), I would freak out and spend half the month figuring out how I would find the cash flow to cover it. It was unnecessary stress, and I want to have the EF in place to prevent stress.

Retirement: This will be the first year that I max out all retirement channels available to me. I am embarrassed that I did not do this in previous years when I had the opportunity, and simultaneously feel giddy about the prospect of hitting this milestone by year-end. Every single one of my retirement contributions is set on auto-pilot right out of my paycheck. The only action I will need to take is clicking a button once every two weeks to rollover my Traditional IRA contribution into my Roth IRA account. My plan is to dollar-cost-average my workplace retirement contributions out of each paycheck, and if I have anything left over I can accelerate lump-sum contributions into the IRA.

Debt Payoff: I took out a loan to finance a getaway property where we are building a tiny house. The loan itself is at a 4.5% interest rate, and the interest is non-deductible. It makes me queasy to hang on to a loan with this high an interest rate, yet the opportunity cost of debt payoff is higher returns in the stock market. My goal is to save up enough to be able to pay it off in one lump sum at the end of the year.

Taxable Investments: Believe me, I would like to have planned contributions here, but I think the best strategy going forward is to prioritize the EF and Debt Payoff this year. Once these are taken care of in 2021, there is nothing stopping me from dumping the same amount next year into my brokerage account!

Fixed Expenses: This category is pretty self-explanatory. It covers the mortgage, utilities, insurance, property tax, etc.

Renovations and Repairs: Walking into this year, I knew there would be about $8K of renovations and repairs. We are still working on major builds on the getaway tiny house, which brings us pure joy. The tiny house has been a major source of reprieve and rejuvenation for us during the pandemic, and a fun project for the two of us. The types of investments we are making this year on the tiny house are essential (like: installing a toilet!), and will only help us enjoy the getaway even more. We do not plan to travel this year, so I've also subconsciously diverted a would-be vacation fund into tiny house renovations. The primary home renovations include a building-wide special assessment fee and buffer room for odds and ends.

Discretionary Spending: Finally, discretionary spending. A total of $20K/year ($1666/month) for discretionary spending split halfway between food and 'things' is, well, tight for me. I am challenging myself to commit to this scaled down budget because I think this year is a good year to take advantage of the fact that I can't really socialize in the pandemic! I'm not "missing out" on drinks with colleagues, or a special event in the city, or that hip new restaurant. At the same time, however, it's really easy to accidentally online shop out of boredom. Whenever possible, I want to reserve some of my discretionary spending towards pandemic-appropriate date night events and experiences. I anticipate my budget for this category will increase in future years. For context, last year in 2020 and sheltering in place since mid-March, I spent about $15K on food.

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