Goal setting and tracking for Financial Independence

I find that goal setting is a very personal thing, everyone has their own way of doing it. Some people want one single goal so they can put on the blinkers, get their head down and work tirelessly towards that singular point.

Others (and I’m in this camp), like having more than one goal to work towards at any one time. For me, I have various long and short term goals that overlap, and will work towards them simultaneously. I also break each one down into levels, so that as I progress I can physically tick off each level and get that warm sense of achievement. It’s a good way to keep up motivation, and in pursuing financial independence, you need to be able to keep going for the long term and it can be easy to lose motivation and get derailed!
I’m going to talk about what goals I have and how I measure my progress for each. Once again, these these are just my goals. They don’t have to line up with what you want, this is just a guide to hopefully get you started.

What gets measured, gets managed

I keep a tab in my financial spreadsheet with a list of financial goals. It includes the following sections:
  • House fund – I recently bought my first house and actually wrote this goal on paper and stuck it on my desk. The satisfaction of ticking off each level towards the required deposit helped me gather up the money within a few months, much faster than planned! This goal is now complete but I keep it there as a reminder.
  • Emergency fund – I currently have cash that would cover more than a few months’ expenses, but just under three months of it is currently in my emergency fund. I want to get that to three to six months soon, and then build it up to a year’s worth of expenses more slowly to give me some breathing room.
  • Monthly save/invest rate – effectively, this is the amount I don’t spend each month (averaged out over 6 months). It has taken a hit recently with a couple of  big expenses relating to the house so I’m running at about a 35% average save/invest rate for the last six months. I have only started tracking this recently, so now I’ve got my eye on it plan on pushing it up until I’m over the 50% mark.
  • Portfolio value – obviously this is one of the most important numbers, the sum of all my investment accounts, and quite self explanatory.
  • 3% Withdrawal rule – this isn’t a rule as such, more a rule of thumb. There is intense debate about this concept, basically the amount of your investments which you could theoretically withdraw each year and never run out of money. Some say 3%, others 4%, but I’m happy being a bit more conservative for the sake of security. This amount is directly proportionate to the portfolio value, and shows how much of my monthly expenses I could currently cover with my portfolio. This number puts things into perspective, because once it surpasses my monthly expenditure, I can confidently say I’m financially independent!

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Actual monetary values hidden for privacy
I highlight each new level surpassed to give a visual representation of my progress towards each goal. This works for me because I open this spreadsheet every month on the last day of the month to check in on my finances (ahem, I mean, I definitely don’t check it more often than that!), but again, everyone has their own way of doing it.
My brother had his mortgage deposit progress recorded on the back of an envelope stuck to his fridge. That meant he and his partner would see it every day and get motivated to make more progress. Others write it in their diaries, on their phones, on a scrap of paper in their wallet. It doesn’t matter, so long as you know where you are on the road to achieving your goals.

What’s your goal?

What are your financial goals? Are you looking at a nice round number for your savings and investments, or to generate a specific monthly income? Let me know what you track and how you do it, especially if you have any problems keeping track.
For more about my current progress, see my post on the Current state of the FIRE engine.
TFE