You may have noticed my new goals for 2008 are listed in my sidebar. Having them there will help "keep me honest" and the desire to achieve some progress each month will help keep me on track, especially with the study and weight loss goals. Those two goals were easy to set - achieve my desired (healthy) weight and pass all the subjects I'm enrolled in for 2008.
The financial goal of increasing my net worth by $150,000 (approx. 12.8%) is less within my control than the other targets, but is still set at what I think are reasonable assumptions. As my overall portfolio has a mix of direct real estate, Australian and International shares, and some bonds and fixed interest (via the asset selection within my superannuation fund) the overall portfolio has a better chance of meeting my growth and income projections than the individual components.
So, what are the assumptions built in to my 2008 financial goal?
1. Continue with my current retirement savings plan rate. I'm currently contributing $1650 per fortnight pre-tax into my SMSF via salary sacrifice. However, $650 of this is effectively "re contributing" the $34,000 I withdrew from my superannuation account last year for tax reasons. So, my real retirement savings rate is $26,000 pa (which is around 30% of my pre-tax salary. In addition my employer contributes the compulsory 9% SGL amount, which adds another $7,560. As all these amounts are "untaxed", there will be a 15% contribution tax deducted. The overall amount being added to my SMSF after tax is therefore around $28,500.
2. A total return (dividends reinvested plus capital gains) on my SMSF balance of 10%. Based on my current SMSF balance this would add around $33,000 to my net worth over 2008.
3. Real estate capital appreciation. While DW is working part-time we are only paying interest on around half of our total mortgage balances, and are using a redraw of advance payments to help meet the P+I payments on the remainder. Overall our total mortgage balances are staying fairly static, so the only contribution to increasing my net worth will come from increased house prices. Luckily after a couple of poor years it is expected that Sydney prices in our area will increase by around 6% next year. This would add roughly $27,000 to my net worth.
4. Stock investments. With interest rates increasing and Australian stock returns likely to be lower than the past 3-4 years, I'll just plan an an overall ROI of 10% on my equity in my geared stock portfolio. This would provide an increase in net worth of $40,000.
Adding this all up comes to only $128,500 - so I'll have to add another $21,500 during the year via non-retirement savings. When I had a lower net worth my savings rate had a much greater impact on increasing my net worth. These days asset allocation and the ROI on my investments is much more important. I'm hoping that by the time I complete my BTeach qualification and a suitable teaching position becomes available, I'll be able to take the pay-cut required to change careers without it affecting the growth of my net worth significantly.
Copyright Enough Wealth 2007