I set some pretty aggressive financial goals for myself this past year, and am pumped to see how things shake out over the course of the year. After posting about my 2015 goals last month, Mike from The Dividend Guy blog wanted to know what exactly I planned on doing to reach these goals. Great point Mike, and even better suggestion for a post.
For me, everything is a process, and in the course of setting my goals for the year, I lay everything out exactly how I hope it might happen. For me, the end goal is important, but the journey in figuring out what I’ll have to do to hit these goals is even more so. Call me crazy, but I just think it is fun.
Planned Pursuit: Nailing My 2015 Goals
Before sharing what I’ll do to try and hit my goals, let’s quickly recap what my financial goals for 2015 look like.
As you can see, there are five different financial goals. Of the five, only four will really require some concerted effort and planning. Let me explain as we walk through each goal:
Traditional Interest Income: This is the regular interest my wife and I earn on our savings accounts. We have a substantial stash of cash socked away, and it just sits there and earns interest each and every month. We shouldn’t have too much trouble hitting this goal. There are some potential uses for our liquid savings on the horizon, so I shot a bit low not knowing if we’d maintain our level of cash throughout the entire year. This is the one income type that did not require much planning.
Peer to Peer Lending (Marketplace Lending): As I’ve done in the past couple of years, I’ve set goals that encapsulate both Lending Club and Prosper. As an asset class they get grouped together, but for income purposes I track them separately.
- Prosper: I only have one account with Prosper, which prior to a deposit right at the end of the year, sat around $2,650 in value. During all of 2014, this account earned $322.19 of net interest. With declining interest rates and a harder time finding loans at times, I will have to put some serious capital to work to hit my goal of $525 in 2015. Assuming a full year of fresh capital, with a net return of 10%, I’d need to add approximately $2,000 to hit this goal. Since I’ll be contributing throughout the year, and have a 4-6 week lead time before receiving payments, I will likely need to more than double that number to hit the $525 mark for the year. Of course, the earlier I add capital, the smaller the number needs to be. That being said, I am targeting the addition of $4,000 in fresh capital to this account.
- Lending Club: I have two accounts with Lending Club, a Roth IRA and taxable account, with a goal of $1,800 of net interest in 2015. The IRA is at this point on autopilot. During 2014 it earned $1,302.56 of net interest. Based on the natural reinvestment offset by the declining interest rates being offered at Lending Club, I expect to net around $1,350 this year from this account.For my taxable account, I will be making up the remaining difference between my goal of $1,800 and the $1,350 generated in my Roth IRA. Given the balance at the end of the year of approximately $2,300, I have a ways to go to generate the $450 of net interest in this account. Using the same concept for my Prosper account, assuming a 10% return I would have to add nearly $2,700 to this account prior to the start of the year to bring my $184 of net interest in 2014 up to $450 in 2015. Knowing that the capital hasn’t been contributed at this point, I am targeting adding $4,500 to this account by the end of the year.
Dividends Received/Forward 12-Month Dividends: I have two dividend goals, the first being the quantity of dividends received during the year of $2,750, and the second is closing 2015 with a forward 12-month dividend mark of $3,000. The dividends received goal is to plan for given the lead time on investing new capital and receiving payments for that investment. Depending on the ex-dividend date, it can be 4-5 months before seeing any payments from a purchase. With all that in mind, I ended 2014 with a forward 12-month dividend amount of $2,062.57, leaving almost $690 to go for my dividends received and $940 for my forward 12-month dividends.
Given the overall gap in between my goals and where my forward 12-month dividends stand, I’ve got a ways to go. Simple back of the envelope math will tell me that at an average yield of 3%, I will need to add nearly $23,000 to my dividend growth accounts to gain the additional $690 to hit my dividends received goal, and $31,300 to hit my forward 12-month dividends. However, neither of these take into consideration a couple of things.
- Actual Dividends Received: Given that I currently DRIP most of my investments, this is at minimum over $2,000 that I won’t need to add to lift my overall dividends. Since my average portfolio yield is over 4%, this should provide a nice boost to both goals.
- Dividend Growth: Based on my rough calculations, the positions I owned for all of 2014 enjoyed an average dividend increase of over 7%. If all of my positions raise their dividend payments a similar amount, I should pick up some additional momentum towards reaching my two dividend goals.
What none of this really considers is the overall timing of these contributions. For dividends received, the earlier the better. For forward 12-month dividends, I have the full 12-months of the year. Based on my expected dividend raises and the reinvestment of my dividends received, I anticipate needing to contribute approximately $26,000 to my dividend growth portfolio. No small potatoes here.
The best tool I have for planning around my need for capital in my dividend growth portfolio is to leverage my 2015 Dividend Calendar to see exactly where I stand as the year goes on. As of today, this calendar reflects that I will receive $2,183 of dividends. While I’m not there yet, this is some solid progress being less than two months into the year. The faster I get this number up, the better off I’ll be.
Overall Goal Accomplishment Strategy
If we quickly review what I’ve said above, you’ll see that I need to add approximately $34,500 to my investment accounts to hit my goals this year. This will mean averaging just under $3,000 per month. While this isn’t going to be easy, I have confidence that I’ll be able to accomplish this and meet my goals. The worse thing that happens? I come close and still stand much further down the path towards financial independence than I did one year before. I can’t think of a worse consolation prize than that.
What planning do you do when setting your goals? Do you map out exactly what you’ll need to achieve your financial targets?
Flickr: Adam Collins