Set Clearer Financial Goals, Live Your “Dream Life”
Tyler Shamblin, CFP?
Wealth Advisor | I help sales pros & entrepreneurs retire ASAP, and STAY retired.
Most budget gurus will tell you some variation of:
That’s a pretty clear framework, and leaving room for saving certainly is a great foundation.
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Now let’s flip the idea.
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What if you customized your ideal life, then you built the income goals necessary to reach them?
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In other words, you determine what your perfect world costs, then you can figure out what income would achieve it?
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The Vision
(Full disclosure, this is going to seem like the exact opposite storyline of my last newsletter update. Remember, there’s nothing wrong with massive goals—so long as you (1) have a plan and (2) can find peace with your current state.)
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Wes (34) and Lily (32) are married with 3 kids. Wes owns a business. Lily is a realtor. They’re thinking about some changes to their life. They hire Tyler Shamblin, CFP? to help them with both their business and personal financial goals.
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Their dream home costs $1,370,000.
They want to take trips totaling $15,000 per year every year.
They want the kids to go to private school, costing $40,000 per year in total.
The cost of competitive sports for the kids comes out to about $6,000 per year.
Of course, they also have the food, insurance, entertainment, personal care, and other expenses throughout the year.
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Their ideal life – annual cost:
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Now it’s a little more complex than “make $233,000.”? They also need to keep room to save and invest for the kids’ college and their desired retirement at age 60 and 58.
Planning for the Future
Based on the rising costs with college, Wes, Lily, and Tyler conclude that college may cost around $750,000 in total for all 3 kids, excluding scholarships, grants, etc.
Even thought Wes and Lily said that they want to “retire” at age 60/58, they really would like to reach “work optional” as a lifestyle. However, they want their mortgage to be paid off when considering this idea.
Essentially, they need to replace about $125,000 of spending with income to maintain their lifestyle. Wes, as a business owner, wants to sell his business when it’s time to retire, then invest the money in income-producing assets to help offset these costs.
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With kids at age 5, 3, and 1, their college savings each year needs to be about $30,000 per year. This assumes they start at $0 of savings, a 4% inflation rate for college, and 8% investment growth.
For retirement, they’ll need a starting balance of about $4,000,000 of assets. To get there, they’ll need to save $50,000 per year. Of course, if Wes sells his business for $2,000,000, they’ll need to save about $25,000 per year.
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?This implies that they live 35 more years after age 60/58, have 8% average investment growth, 2.5% inflation.
Tying It All Together
$233,000 – Wes’s and Lily’s dream lifestyle
$80,000 – Savings for Wes’s and Lily’s college funding & work optional goals
$50,000 – Extra spending & investing cash for some cushion
$363,000 – After-tax Income Goal
Conclusion: Wes and Lily need to generate somewhere between $450,000-$500,000 of income (when considering taxes) to support their dream lifestyle.
Not only do they know their income goals, but they also know where the valuation of Wes’s business needs to be when it’s time to sell, in case they can’t contribute $50,000 every year.
(Tyler recommends that Lily open a Solo 401(k) and that Wes selects an appropriate retirement plan for their business. This will allow them to contribute up to $50,000, when you factor in both deferrals and matches/profit sharing contributions from the business.)
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What If I’m Different Than Wes and Lily?
These are the goals of a fictional couple (based off of experiences with clients, but still…fictional).
You may not have their exact goals.
However, the same exercise can be applied to your situation.
Think about a lifestyle that would be darn close to perfect.
Now start estimating what that might cost.
By yourself—or with the help of a financial planner like me—you can work your way toward the income needed to feel comfortable today and confident in the future.
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Your Next Steps
My role just might be helping turn your daydreams into goals.
When you have clear goals, you can start approaching your job “on a mission.”
It all starts with a plan.
If your financial goals are inside your head, they’re just good ideas.
It may be time to get more organized. Some things you can do to get started: