Goal Tender

All is quiet on New Year's Day,
A world in white gets underway
--U2

While 2008 was a rough year from a financial perspective, I was fortunate to accomplish two personal goals. All remaining non-mortgage debt, including credit cards and car loan, was extinguished. There are few better feelings than paying off loans. Debt reduces freedom.

I was also able to build a significant cash reserve--enough to cover more than a year's living expenses. While it doesn't yield much, cash is king in a deflationary environment. It doesn't go down like risky assets do. Those with high cash positions get relatively richer during deflationary events, plus they are better able to take advantage of fire sale asset prices.

It's my view that many people don't have enough cash on hand to fund current needs and opportunities. Instead, folks pour excess cash into deferred retirement accounts, or into illiquid assets like housing. Then, if something comes up, people have no money. So they resort to, yep, borrowing and debt. Cash facilitates freedom and flexibility.

When setting financial goals for a new year, I avoid setting numerical net worth or ROI goals. I'm not a fund manager who needs to report quarterly results to shareholders. Thus, there is no need to live and die by results that in the short term are subject to market vagaries.

The financial goals I can control are those related to saving and asset allocation. Here are three primary goals for 2009.

Mortgage. One outstanding loan stands between me and total debt freedom: my mortgage. I want to pay off my house by the end of 2011. For 2009, the goal is to reduce my mortgage by 25%. I commenced juiced up mortgage payments last November.

Cash. As late as a couple weeks ago I intended to continue building cash at a rigorous pace in '09. Listening to Jim Rogers over and over now has me hesitant to build dollar reserves too aggressively. Government printing presses are in overdrive trying to stem the deflationary tide. If (big if, perhaps) they are successful, then we may witness inflation unlike anything we've seen in our lifetimes. The dollar would be eviscerated in this scenario. Soooo, I'm setting a modest goal of 15% increase in cash in 2009. Excess cash will be applied towards the mortgage paydown project, or towards more hard assets like gold--particularly at sub $1000 bullion.

Commodities. Again, Jim Rogers' relentless message has colored my thinking. Potential for a weakening dollar and commodity supply shortages has me wanting to increase my exposure in 2009. My primary vehicle along these lines has been gold, but giving the recent collapse in industrial commodities, I want more exposure here--particularly to oil and energy. I started adding commodity ETFs late last year. Currently, my non-metal commodity exposure stands at about 5% of liquid assets. In 2009, I'd like to get this to 10%.

Happy New Year to all and best of luck in '09.

positions in gold, oil