How to effectively track your financial goals

December 4, 2011


Personal finance is a lot like working out. In order to see results, you need to be consistent. Also, just like physical fitness, it is important to have an idea of where you are and where you want to go. Having a long-term financial goal on a simple spreadsheet can help motivate you and provide a snapshot, year-to-year, of whether or not you are on track.

In order to show how this works in real life, I’ve shown an example of the tracker that I am currently using to map my goal of being a millionaire before the age of 40. If you have a hard time seeing it, simply click on the image to get a larger view. It only takes a few minutes to set up in Excel and is an extremely valuable personal financial tool. As you can see, my tracker is broken down into goals (highlighted in green) and my actual investment values (highlighted in yellow). On the right side, my savings breakdown shows the three accounts that I regularly put money in (Thrift Savings Plan (401K), Roth IRA, and my taxable account).  Once you’ve decided what you can realistically save in these accounts, the value(s) can be linked to the contribution values shown in Column B. In this example, I plan on increasing my contribution by approximately 3% each year, although if I get a promotion I can increase the amount by more (assuming that my standard of living remains the same). We also have to make an assumption on what the stock market will return in the coming years. Warren Buffet has stated that he expects the market to return approximately 7% in the long run. So each year’s goal value is based on (previous year’s balance * 1.07) + current year contribution.

The reason I have my net worth broken down into total net worth and taxable account is because the money in my TSP and Roth IRA won’t be touched until I’m much older. Since I plan on retiring in my 40s, this only leaves me with access to my taxable account until I’m 59.5. Although there are ways of getting money out of these accounts without incurring a penalty, it is best to leave your money in there as long as possible to let it grow. It is always a good idea to deplete the taxable account before touching your tax deferred accounts.

Once you have all the values plugged in, you can play with the amounts and see how additional contributions will affect your overall net worth. If you also have an understanding of your expenses, you can pinpoint the exact point in which you will have achieved financial independence if you assume a 3-4% safe withdrawal rate. The good thing about this tracker is that it will remind you of what you are saving for month-to-month, year-to-year. Once you have determined what you need to achieve financial independence, you only need to input actual contribution amounts and values at the end of each year and compare it to your goals. If you come out behind due to a weak stock market year or haven’t hit your savings goals for one reason or another, you can adjust the calculations to reflect how much more you need to save in order to get back on schedule. For a copy of the spreadsheet and calculations, you can download the Excel file in the link below.

Financial Goals


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