Reflection time. As we move into the new year, 2021, and leave behind the hot mess that was 2020, let us take a look at what was. Let us review our financial status and determine if we are better off now than we were at the start of 2020. Hopefully, by doing a deep reflection we can determine exactly what areas we need to improve on in 2021. Let’s get started by looking into the business of running a household. Then we will look towards our retirement passive income plan. Let us begin.
Expenses: Expenses are our day to day necessities and also some of our “wants”. Also if we have liabilities, like auto loans, they create expenses in the form of car payments. Did we do everything possible to cut unnecessary spending in 2020? Did we reduce our phone bills, cable bills, internet bills, etc.? What is our plan for 2021 to reduce expenses? Reducing expenses helps us prevent lifestyle inflation, which is the killer of wealth.
Liabilities: This is our debt. Liabilities take money from our pockets. These include student loans, credit cards, personal loans, car loans, and home mortgages. Did we pay off some or all of our liabilities? What is the next one to be paid off? What is our final payoff date for all of our loans? We should know the exact month that we will be debt-free. If we do not, then we need to figure it out early in 2021.
Income: Income is all of the money we generate from our jobs and assets. The goal of life is to increase our income by obtaining more assets. How did our income do in 2020? Was it higher than in 2019? If not, then we need to figure out why not. I know that the pandemic affected a lot of us, but it also created new opportunities as well. What were some of those opportunities? How do we get involved in making money through the internet?
Assets: Our financial lives should be based on acquiring (either by buying or creating) assets. Assets can be stocks, bonds, real estate, royalties, commodities, etc. An asset is anything that puts money in our pockets. Did we obtain or create any assets in 2020? Did we buy any dividend-paying stocks? Did we receive any rental income? Did we start a business? Building our base of assets allows us to diversify our income away from earned income jobs. Then one day, we will not need to work because the income generated from our assets can pay for our expenses. This is called financial independence? Do we have a good way to track our assets?
Next, let’s review our cash-flow retirement plan. By doing this, we can create a plan for success in 2021.
Retirement income: This is the residual income that we will receive from our W-4 earned income jobs. This includes our TSP, 401k, pensions, disability, Roth IRAs, and social security. Did we contribute to our retirement plans like 401K and TSP? Did we look up our forecasted amount of Social Security on the ssa.gov website? When will we retire from the military and what is our predicted amount of retirement income? It is very important to know these numbers because they are the starting point of our cash flow retirement system.
Investment Income: I usually refer to this as our “money system”. This is a mixture of index funds and dividend-paying stocks. We are shooting to be able to live off of our dividends. We can do this by figuring our estimated cost of living per year and multiplying by 25. For example, my estimated expenses will be $40,000 a year, so I will need $1,000,000 in my money system. Did we buy any dividend-paying stocks in 2020? Were our dividend payouts in 2020 higher than in 2019? Did we have to sell any of our stocks in 2020? Why? What is our plan for 2021?
Rental Income: This is money from real estate ventures. This can be single-family residences, apartment buildings, billboards, or even room rentals. We all need to find a way to rent something to someone. I believe it is the single greatest builder of wealth that is available to everyone. Did we receive any rental income in 2020? Did we save any money towards a down payment on a property? Did we consider renting a room? What is our next real estate venture? What financing options do we have available, FHA, VA, etc.?
Business Income: This is the income that is not from W-4 employment. This can come from a variety of sources. There is almost an unlimited amount of ways to earn this sort of income. Cooking cakes, woodworking, projects, selling antiques, yard sells, etc. Income from a side business should be used to pay down debt (liabilities) or fund our money system. Not for lifestyle inflation (nicer car). Did we create any business income in 2020? Did we create content in 2020, such as a blog, YouTube channel, TicTok, etc.? What is our business plan for 2021?
How did we do? I know that it is hard to think about all these things. Yes, it is easier to just work our day jobs and come home and become a vegetable. However, in the long run, we will have a better life if we do the work upfront. That way, when we hit 45 or 50 years old, we have passive income coming in without us working for it. We can enjoy our kids and grandkids. I, for one, don’t want to tell my kids that I can’t see my grandkids because I have to work a W-4 job. The motto is “frontload your life”. Get it all done now and reap the benefits later. “Delayed gratification” is also a similar term. Whatever you call it, 2021 is the year to start or continue on our journey to financial independence. Let me know what you are planning for 2021.
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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