Right now, I'm essentially at the start of my journey on the road to Financial Independence. That's not to say that I'm starting completely from zero - I have no debt other than the mortgage on my house, I have already been saving into a personal pension and I have some savings - but until now I have not been consciously working toward a specific FIRE target date (July 2025). My "FI Before 50 Roadmap" feels like quite a big challenge from where I'm sitting at the moment, I'm not sure how I'm going to achieve it, but as Martin Luther King Jr said,
“Take the first step in faith.
You don't have to see the whole staircase,
just take the first step.”
My Roadmap suggests that I need to save a total of £2,734 each month until June 2025. This splits out across my Personal Pension as £1,180 and my Freedom Kitty as £1,554.
Since I'm a Freelancer, I choose to operate through a Limited Company. I receive monthly contributions into my personal pension from the company's business account, these are currently set to £3,000 per month. I'm very fortunate that over the last 4 years, the contracts entered into by the company have created a nice pot of money accumulated in the business account, this means that a high contribution to my personal pension is possible.
I find savings for my Freedom Kitty are more difficult to achieve. Any savings need to be funded from my personal income and not from the company's business account.
My personal income is predominantly made up of a monthly salary and quarterly dividends from the company. After tax my annual income is approximately £38,795. From this, all of my expenses are paid (such as mortgage, utilities, council tax, groceries, entertaining, petrol), I make a monthly £150 contribution to a stocks and shares ISA and I save anything else left over in the current account (which has a 3% interest rate on my balance up to £20,000*).
These leftover savings get ear-marked for different things, effectively splitting the money into different pots such as "Big Bills" (car, home & pet insurance; car servicing, MOT & tax), "Birthdays", "Christmas", "New Car" and "Holidays". I keep track of what I've allocated to each pot by use of a monthly spreadsheet which I've formulated over several years.
Although I think that my regular monthly expenses are relatively streamlined, the quantity of additional things I'm saving for in the current account means that the amount of money I have left to save into the Freedom Kitty (which is going into my ISA) is not as high as I would like it to be. This year I think that I need to undertake a review of all money which I'm saving in my current account to see if any changes can be made. I'm also due to be moving house this year which means my finances are somewhat uncertain until I know what my mortgage and bill payments will be after moving.
2016 Financial Targets
For the above reasons I'm setting some adjusted monthly financial targets for the remainder of 2016. If you've checked out my Roadmap you will notice that this year's targets are not aligned with the targets specified in it - I'll have to make adjustments accordingly in future years as I get a better picture of where my finances are at and what I'm capable of!
PERSONAL INCOME TARGET
£3,232 average income per month from salary and dividends from my freelance company
£100 average income per month from sources other than my freelance company
Equals TOTAL Income Target: £3,332 per month
Track (and report on this blog) all expenses and calculate average expense per month to be used as a benchmark to compare against next year
Freedom Kitty - £1,000 per month
Personal Pension - £2,000 per month
Equals TOTAL Savings Target: £3,000 per month (£266 more per month than the Roadmap states is needed, but split differently across the 2 savings pots)
Even paying £1,000 per month into the Freedom Kitty is going to be a big challenge for me - this will mean I need to find an extra £850 per month (I'm currently paying just £150 per month into my ISA).
I think this post pretty much concludes my target and goal setting for 2016.
Sorting these Financial Targets means that I've completed another task toward Goal number 2 (Create a 2016 financial plan/budget) which is a nice feeling! I'm now looking forward to being able to start reporting on my progress against goals and targets from next month!
* My current account is the Santander 1|2|3 Account
It's nearly the end of February now, do you have any targets in place and how do you find you're tracking against them?