Most folks start tracking net worth when they become interested in personal finance, and especially the financial independence aspect of it. Others do it just because they love numbers and track their financials in depth anyway. I was somewhere in between, wherein I would review how my investment portfolio did but not much more. It wasn’t until a couple of years ago that I actually created a single spreadsheet to track our net worth, and have been updating it regularly since then.
Comparing net worths is like apples and oranges when incomes vary widely. Obviously, it’s much easier for an executive with 15+ yrs of experience and a $200,000 salary vs. an elementary school teacher making $55,490 a year to have a higher net worth.
So JW over at The Green Swan went ahead and created the Swan FIRE Prowess Gauge. The beauty of it is that it is agnostic to income level, how costly or frugal your lifestyle is, and your current net worth. What’s even better is that it’s really simple to calculate, which I believe is key to get people to use it going forward.
Calculating Your FIRE Prowess Gauge
As JW describes it,
FIRE Prowess = Change in Net Worth / Total Gross Income
So if you made $100,000 in 2016, and your net worth increased by $50,000 your FIRE Prowess Gauge would be:
FIRE Prowess = 50,000 / 100,000 = 0.5 or 50%
The 100,000 would be your Adjusted Gross Income from your tax return or from the Social Security (before taxes). If you’re self-employed like me, or have side-hustles your Social Security statement won’t have the true picture. Hence, I recommend the 1040, and yes you should make the effort to dig them out.
Reading The FIRE Prowess Gauge
Using JW’s words:
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!
As he also points out, this formula only makes sense if you still have earned income and are in the accumulation phase.
My FIRE Process Score
I started tracking my Net Worth in 2014 but was able to go back and figure out numbers for 2013 as well. Unfortunately, that’s all I have so it isn’t as good of a long-term indicator as I’d like but I’m okay with that. I realized I wanted to achieve financial freedom within the last year or so and tracking it from 2017 onwards will work out just fine.
|Year||1 Yr FIRE Prowess|
2016 Score: 0.97
Lifetime Score: 0.75*
*Last 5 years
What This Means
My Lifetime score puts me in “overdrive” right now. While this is true, there’s a few nuances that may not be evident:
- My income fluctuates from year to year. There’s a downpour one year and semi-drought the next. So my FIRE prowess score will fluctuate accordingly. I have some fixed costs that don’t really reduce, with my mortgage the single biggest monthly budget item.
- The value of my home has appreciated ~15% in the last 2 years, using only 90% of the ZEstimate value. Given that I am in a HCOL area, the increase is not chump change (at least for me). The equity is a part of my net worth and is arguably providing a false boost to my FIRE Prowess Gauge. That said, I’m not too concerned about it as long term plans will likely involve moving to a cheaper school district. I might even reach our financial freedom number where the home equity will have a smaller impact on the score.
So while it might seem like I’m doing great, I’m probably going to notch myself down to a B-. I have to figure out ways to fix my income fluctuation by having recurring, semi-passive income streams over the long run.
The Official FIRE Prowess Score Chain Gang
JW over at The Green Swan is the one who started it all, and then Fritz from the Retirement Manifesto picked it up. Now thanks to them, there’s a whole chain gang that you should check out right now:
- Anchor: The Green Swan – The Swan’s FIRE Prowess Gauge 2016: 132% Lifetime: 93%
- Link 1: The Retirement Manifesto – Is Your Wealth Building On Track? 2016: 57% Lifetime: 44%
- Link 2: OthalaFehu – My Swan FIRE Prowess Numbers 2016: 72% Lifetime: 61%
- Link 3: Budget On A Stick – My FIRE Prowess Score 2016: 52% Lifetime: 55%
- Link 4: Shnugi – Calculating My Savings Rate 2016: 71% Lifetime 54%
- Link 5: Dads Dollars Debt – DDD’s FIRE Prowess 2016: 26% Lifetime 32%
- Link 6: Debts To Riches – My FIRE Prowess Report Card 2016: 29% Lifetime 43%
- Link 7: Adventure Rich – The Adventure Rich FIRE Prowess Score 2016: 45% Lifetime 47%
- Link 8: Freedom Is Groovy – The Groovies FIRE Prowess Score 2016: 163% Lifetime 90%
- Link 9: Working Optional – Calculate Your Progress To Financial Freedom 2016: 97% Lifetime 75%
- Link 10: Budgets Are Sexy – My Total Lifetime Wealth Ratio: 2016: 135% Lifetime 60%
- Link 11: Life Zemplified – FIRE Prowess Score for Life Zemplified 2016: 78% Lifetime 76%
- Link 12: Physician’s Wealth Services – Physician Wealth’s FIRE Prowess 2016: 43% Lifetime 46%
- Link 13: Married And Harried – Married And Harried FIRE Prowess Score 2016: 32% Lifetime 14%
- Link 14: Ms. Liz Money Matters – Introducing the FIRE Prowess Score 2016 279% Lifetime 72%
- Link 15: Actuary On Fire: The Swan’s FIRE Prowess Gauge 2016 61% Lifetime 59%
- Link 16: Trail To FI: FIRE Prowess Score, Trail to FI Edition 2016 34% Lifetime 53%
- Link 17: Maximum Cents: Maximum Cents’ FIRE Prowess Score 2016: 94% Lifetime: 70%
- Link 18: Retiring On My Terms: ROMT’s FIRE Prowess 2016: 119% Lifetime: 57%
- Link 19: Minafi: The Minafi FIRE Prowess Score 2016: 74% Lifetime: 94%
- Link 20: Military Dollar: FIRE Prowess Scores and How to Correct for Military Paychecks 2016 81% Lifetime 83%
- Link 21: Finance Yo Self: FIRE Prowess Score for Finance Yo Self 2016: 44% Lifetime: 44%
- Link 22: The 7 Circles: FIRE Prowess Gauge 2016: 246% Lifetime: 219%
- Link 23: Money Metagame: The Good, Bad & Ugly of the New FIRE Prowess Gauge 2016: 108% Lifetime 68%
- Link 24: Summit of Coin: Savings Rate or FIRE Prowess Gauge?
Check out the Retirement Manifesto’s FIRE Prowess post for instructions on how to join and post or feel free to comment below!