JW at the Green Swan recently wrote about a great way to track progress towards FIRE (Financial Independence/Retire Early) that applies to any income level. He calls it the Swan FIRE Prowess Gauge. As long as you track your net worth, which we do, it’s easy to calculate. We’re not a “normal” FIRE blog (as though reaching FIRE is normal), but I like statistics so I decided to calculate our number.
The simple formula is:
FIRE Prowess = Change in Net Worth / Total Gross Income
This can be used for any time span from a one month period, to calculating your lifetime number by:
Lifetime FIRE Prowess = Current Net Worth / Lifetime Earnings
You see, this is a beautifully simple and scalable number. It’s easy to compare numbers between other people (without giving away too much) or even better, compare your current self and your past self. Check out the original post on The Green Swan for a detailed discussion on the Prowess Gauge. Plus, The Green Swan has impressive numbers (0.93 lifetime FIRE Prowess) so you can get some great information on how to boost your own number.
The simple elegance of this metric has led to a personal finance chain gang started by Fritz at Retirement Manifesto. See the bottom of this post for all the other great blogs and to compare numbers.
Married and Harried FIRE Prowess Number
I’ve tracked our net worth since 2012 so we have a solid 5 years of data plus 2017 year-to-date. I have my gross income since 1999 when I started working, but no net worth data. If only I had tracked exactly how much student loan debt I was accruing at the time…
It would at least be interesting to see when my number flipped from negative to positive.
Here’s our chart:
Geeze, we better get our act together for the remainder of 2017! These numbers are of course a combined stat for Em and myself since we’re, you know, married. Our 2017 YTD is 31% and our 5 year is 23%.
Our lifetime score is… 14.3%. Ouch.
That doesn’t include Em’s earnings from 1999 – 2004 before we were married, but that would just make it slightly worse since that was mostly high school and college jobs. On the other hand, it is very close to a true lifetime number since it’s all the data since I started working. I think it’s one of the few true lifetime scores I’ve seen.
JW’s handy scorecard for to the gauge (from the website)
If over the last 5 years your FIRE Prowess is:
- Negative or 0.0x – Not even on the path toward retirement, let alone FIRE. If you aren’t saving and investing any money and your net worth isn’t growing then it is time to make some changes and develop positive financial habits. It may be a change to a frugal lifestyle or getting an advance degree to take the next step in your career.
- 0.0x to 0.25x – You’re conscious of your retirement and know you should plan for it, but early retirement may not be on your radar at this point.
- .25x to 0.50x – You’ve got the ball rolling and you’re certainly trying! Keep investing wisely, perhaps add a side-hustle or few lifestyle tweaks to lower expenses and FIRE can be within your grasp.
- .50x to 0.75x – You’re working hard toward your retirement goals! Early retirement is definitely possible. Keep working hard and that investment snowball will be rolling (compounding) in no time!
- .75x to 1.0x – FIRE is on your mind and you are performing in overdrive right now!
- 1.0x and over – You are killing it! Don’t make any stupid mistakes and FIRE will be within your grasp in no time. In this scenario, your net worth is more than your lifetime earnings which Joe at Retire By 40 recently wrote about. This is certainly a tough milestone to reach, but maybe one day I can make this claim!
One note that might be worth noting at this point is that the Swan FIRE Prowess Gauge is a tool for those still on the road to FIRE and earning a wage. The calc gets skewed once you are retired and no longer pulling in a working wage; plus your numerator will be screwy depending on how much you withdraw, etc.
For our 5 year score, were just under the line for low-end FIRE planning. The last 3 years we’ve crept into that category. Some interesting takeaways from our progress:
- What the heck happened in 2013? Poor investment scheme? Lost job? No. We sold our first house and bought another. Transaction costs and moving is a money suck. A large percentage of our net worth is still tied to our home equity instead of equities. I don’t believe the nearly quarter-million number as a necessity that is advertised for raising kids these days, but housing is a large part of it. If we didn’t have kids we would have been happy to stay in our <1,000 sqft cape cod. We didn’t buy a huge house either, but we had to do some repairs on our old house in addition to all the transaction costs.
- Since a large part of our net worth is in home equity, it doesn’t grow that fast. [Quick note to everyone that may not know – your house is not an investment, even if interest rates are at ALL-TIME HISTORIC LOWS!!!!!]
- We had our first child at 24 and Em stopped working outside the home at 26 so we haven’t had a chunk of years to put a lot of money into the market. In hindsight, we could have cut our spending even more during those years, which would have been great years to max out retirement accounts.
- We had nearly $50,000 in student loans to start out with, so that causes the lifetime number to be skewed lower as discussed below.
I expect our number to kick further upward in the near future as we pay closer attention to our finances and build a larger portion of net worth that is income producing assets.
I really like this metric and I think the scoring is broken into reasonable buckets. We know we aren’t currently on a tear to early retirement, but we feel comfortable with our assumptions for retiring at about 60.
I haven’t decided how to account for debt elimination when you have a negative net worth. Our lifetime number is just our current net worth / our lifetime earnings. The fact that we eliminated nearly $50,000 in student loan debt doesn’t show up. If we were still at a negative net worth though, this metric would show our net worth velocity.
For example, if we had $100,000 in student loan debt, and eliminated $50,000 of it in one year with a $100,000 income, our number would be 50%. After a second year of the same hard work, it would still be 50%. But the third year, if we put $50,000 into savings on a $100,000 income, our yearly score would be 50%, but I would calculate the lifetime as $50,000 / $300,000 or 16.7%. I think this is the only way to calculate a lifetime score:
what you have now / what you have brought in
I would be interested to hear what you think about the change between positive net worth velocity, while still having a negative net worth, and lifetime total FIRE Prowess. It adds a little twist to the discussion. (based on JW’s comment below, the FIRE Prowess score should account for all net worth growth. Since he created the Score, I’ll use that definition and it boosts our approximate lifetime score to just over 20%)
Check out the posts in the chain and calculate your own score to see how you stack up!
Here’s the current chain of bloggers that have shared their FIRE Prowess Score:
- Anchor: The Green Swan – The Swan’s FIRE Prowess Gauge
- Link 1: The Retirement Manifesto – Is Your Wealth Building On Track?
- Link 2: OthalaFehu – My Swan FIRE Prowess Numbers
- Link 3: Budget On A Stick – My FIRE Prowess Score
- Link 4: Shnugi – Calculating My Savings Rate
- Link 5: Dads Dollars Debt – DDD’s FIRE Prowess
- Link 6: Debts To Riches – My FIRE Prowess Report Card
- Link 7: Adventure Rich – The Adventure Rich FIRE Prowess Score
- Link 8: Freedom Is Groovy – The Groovies FIRE Prowess Score
- Link 9: Working Optional – Calculate Your Progress To Financial Freedom
- Link 10: Budgets Are Sexy – My Total Lifetime Wealth Ratio:
- Link 11: Life Zemplified – FIRE Prowess Score for Life Zemplified
- Link 12: Physician’s Wealth Services – Physician Wealth’s FIRE Prowess
- Link 13: Married And Harried – Married And Harried FIRE Prowess Score
- Link 14: Ms. Liz Money Matters – Introducing the FIRE Prowess Score
- Link 15: Actuary On Fire: The Swan’s FIRE Prowess Gauge – My Results
- Link 16: Trail to FI: FIRE Prowess Score, Trail to FI Edition
- Link 17: Maximum Cents: Maximum Cents’ FIRE Prowess Score
- Link 18: Retiring On My Terms: ROMT’s FIRE Prowess Score
- Link 19: Minafi: The Minafi FIRE Prowess Score
- Link 20: Military Dollar: FIRE Prowess Scores and How to Correct for Military Paychecks
- Link 21: Finance Yo Self: FIRE Prowess Score for Finance Yo Self