Welcome to part two of creating your why, purpose, and milestones towards the financial future envisioned for you in the years to come!
In part one, we asked – “sacrificing instant gratification with the promise of a prosperous future – you begin to ask, why am I doing this?” From there, we answered the obvious question from a series on milestone map creation; why make a milestone map?
Where shall we go from here?
This post is part one of two in the Milestone Series:
Let’s begin with a few activities required to create a financial roadmap for you. We believe in you and know you can do what it takes to figure this out, as it requires a bit of work to begin!
State of the Kingdom
- List of all debt accounts with their interest rates
- List of all investment accounts
- List all other assets (cars, real estate, etc)
- Determine your net worth
Read more on this important step in Committing to Financial Stability – Are You Brave Enough?
- Arresting Expenses
- One of my first & favorite personal finance articles shows how effective saving is for your retirement
- Increasing Income
- Raises / Promotions
- Are you in a great field or doing things you love? Awesome. We don’t mean to offend only to show that there are options for higher salaries based on switching your career field: 2017 25 Highest Paying Jobs
- Some of the top jobs require years of service and career building, so if you are later in your career or just finishing a degree we don’t recommend going back to school (especially if taking on more debt) unless you truly think it makes sense for your situation
- Side Hustles
- J Money’s ways to make money archive – an archive of side hustle posts from success to failure posted on his blog!
- The important thing to remember!
- Whether it is through arresting expenses, increasing income, or maintaining your current state – the important number related to your financial independence is? Net worth!
- We have two levers to change our net worth each month
- Cash in
- Cash out
- We want to increase cash in, reduce cash out, resulting in a net IN cash flow that adds to our net worth. This can mean paying down debt, saving for your emergency fund, or investing in index funds. Net worth can be increased through various options – the important thing to remember is continuing to increase it!
Milestone map decision flowchart
To guide our fellow dukes on their positive personal monetary policy, we created a simple flowchart to use throughout the process outlined below. Where does it fit? It prioritizes the milestones to focus on as you continuously build your kingdom.
Theflowchartt guides you to what we believe the most efficient approach from a pure numbers perspective towards financial independence. We have no quarrel if deviation happens for a compelling reason – comment or contact us for questions!
Create your map!
We are here to help, but only one person can do the work required in this part of the process. That person is you! I’ll be doing my best to guide you on the steps with the hope you will do your part too. By creating this map now, you can easily update it as life changes and with your “why am I doing this” in place, you have the motivations you need to stick to it. Build that kingdom!
Milestone Map Step 1: Walking through the flow chart
- No emergency fund? -> Determine the requirements for reaching the recommended level
- Contributing to 401(k) match
- Your company has a match -> invest into your 401(k) to receive that match!
Pay off high-interest debt
- Snowball method
- Starting with the lowest of your high-interest rate debt balances, begin paying off the one with the lowest balance. Once that account is paid off, then use the payment from it and begin paying off the next largest, then repeat until the snowball has wiped out all high-interest debt!
- Highest interest
- By paying off accounts with the highest interest, you will save money by paying less interest on the lower balance. Rank your debt accounts highest interest to lowest, begin by paying off the highest!
- Loan Pool
- We’ve discussed this option here: Average Student Loan Debt in the US = 30K! Find your third alternative solution & pay it off intelligently!
Based on your chosen approach, create a milestone in the order of the approach for each high-interest account. We’ve chosen six percent as the cut-off based on the stock market earning 7% average returns in the past, meaning you can earn more on investing money than paying off the debt if the interest rate isn’t higher than the returns.
Maxing out your retirement accounts
Create a milestone for each retirement account with the clarification of (ANNUAL). These accounts can be different based on your employment type (self-employed, salaried, part-time, etc.). Yes, this means you will need to max them out each year! It is worth it.
Tax-advantaged accounts are quite helpful for pulling the “cash in” lever mentioned above. Whether it is dividend investments in your Roth or index funds in your 401(k). Appreciation or income both increase your net worth while saving you tax from the big man!
We are huge fans of removing consumer debt from your life before focusing on brokerage accounts if you have a debt free goal. Why? As you know from The Great War of Debt – it has a lot to with peace of mind.
Look, we know this can be debated and we understand why. I’m in the camp of peace of mind because accelerating my outside brokerage accounts once those required payments disappear looks appetizing, further it will be a much stress-free life when you know that losing your job doesn’t mean late payments on those debts.
Is mortgage included here? An Answer to the Timeless Question, Should you pay off your mortgage?
If in agreeance – your next milestones will be the highest interest consumer debt accounts in order -> with the overarching goal of debt free if you are including your mortgage.
Brokerage Accounts and/or Real Estate
The milestones for you depend on what you believe in and what you want to do from here. It can be $$ invested in specific accounts or a specific dividend income each month. We will rely on you to decide, with the end goal of increasing your net worth through asset building!
Create these milestones and you’re almost there!
- Net worth target
- Determining your required net worth (assuming it is generating income, for example, stock returns via growth or dividends), then you can do simple math at the early stages of your journey, increasing the evaluation and developing your strategy as you learn more. The simple math is based on a general rule of being able to withdraw 4% of your assets without losing them based on a > return from historical averages. This means a 40K income would require 1 million in investments. The simple math: income * 25 = required net worth or investments.
- Passive Income target
- Instead of a net worth to determine your retirement status, using passive income to generate the required inflow of cash into your bank accounts to live off of can be an alternative milestone for you
Milestone Map Step 2: Write down smaller milestones to celebrate
If you have 3 high-interest accounts, then please celebrate the pay off of each one! Reward yourself! If you have the 1 million-dollar investment goal from the example above, then celebrate reaching 100K, 250K, 500K, and 750K. By the time you get to 1 mill, it will just be another small goal on the list!
Develop these mini goals for each of the milestones created in step two. They are your check-ins, your time to adapt, or time to see how much you’ve accomplished and where you are going. It assists in prioritizing your life and spending habits, and upgrades. These are not just goals on a piece of paper, they are your life – the future you want. Make them count!
Milestone Map Step 3: Determine your timeline
For each of the milestones you created in steps one and two, give yourself deadlines to achieve them by – it is up to you to keep yourself on track and honest. Based on your current situation, will these goals take a long time? It’s OK. Why? You have changed your focus and your path. You can side hustle to beat deadlines, but “doing something” beats doing nothing every time!
We can’t walk you through creating the timeline based on your circumstances, only recommend you take a look at yourself, your position, and realistically determine the time you need to step into the life you want. The best part about having the map determined – being able to adapt and change it.
Personally, I don’t know when I’ll reach the net worth required for me to retire yet. I do know based on my current kingdom state that theres a great change in two-three years my consumer debt will vanish. Maxing out retirement accounts and vanquishing debt takes work and sacrifice – this is my current obsessed focus and when it is completed; my current state will change. The next step for me will then be brokerage account investing, and then I will develop the next part of the plan.
Like Warren Buffet and Bill Gates said from the documentary we recommended – the one word for their success throughout the years? Focus. By writing a map and dictating your next goal (in accordance to the long-term dream), you have the opportunity to focus and complete; then, move on to the next one. Begin by knocking out milestone #1, then #2, and watch your net worth grow before your eyes!
Milestone Map Step 4: Define your next steps!
Based on the milestones created in step one, you now have the order in which your next steps will be executed. We recommend Mint and Personal Capital for tracking your accounts, with the addition of Excel or another spreadsheet option to track your goals.
Print out your milestones and put them somewhere you see often – seeing is believing, and believing results in action! Focus on the next milestone and dog on it – get that thing completed :).
Stay on the path!
The last note we wanted to reiterate – the importance of celebration + reinforcement. We commented on My Sons Fath’s Post to give our humble opinion on why we truly believe it is the process, not the results that make financial independence and investing so much fun (not to mention challenging)!! The screenshot is below for your convenience (click to enlarge).
This is one reason we love being part of the personal finance community. Having others feeling, writing, and sharing with each other gives us all the opportunity to learn and support!
Start traveling today!!
Congrats on completing step VII of our Build Your Kingdom road! In the future, we will have posts on creating an investment plan, analyzing amortization schedules, and sharing spreadsheets to help. These can be utilized to track and adapt your milestones with more accurate timelines, giving you the full picture of when and where you need to be! You have the map for your future financial travels. Start traveling today!!
As always, thank you for reading and we look forward to hearing from you in the comments below!