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November 27, 2006


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I think a better (and more achievable) goal is to try to get to a point where your net worth increases by more than your EXPENSES for the year. This involves trying to both 1) increase your gains and 2) lower your expenses.

If one can sustain this level of net worth growth, retirement is within reach. This is the basic idea in the book "Your Money or Your Life".

Nigel makes a great point about comparing to expenses, but I would also suggest being mindful of which items are counted as part of the net worth statement. A home is an asset, in as much as you can convert it into money, but if 20% of your net worth increase comes from the home then the numbers are deceiving. Your residence won't generate passive income.

To refine the definition a bit more, I would use expenses as the denominator and dividends as the numerator. In retirement will you be content to live with the volatility of +/- 15% market swings? Maybe your portfolio will be weighted with boring bonds and treasuries.

A lot of advisors suggest targeting a 4% return. Put another way, you should have investments worth 25 times the amount you expect to draw in a given year. (I could go on, but I'll stop there)

Very interlligent and interesting point by the owner of this site and the follow up comments are also witha great sense..
I am also in the similar shoes, tracking my income/expences on Quicken and measuring my networth.
Before this Quicken tracking, I used to leave all my money in lame checking accounts and never planned my future, late last year I started putting together into Quicken, and started with investing into CDs what ever the excess money off my budgeting.. now I am earing 1/4th of my Salary as my investment planning.
Now I am moving ahead and taking 20% of my investments and considering 50% of risk to put in the Mutual Funds in Flashing Asian Markets.
My way to move ahead is to
1) Exceed my investment incomes to my routine expences
2) To pay my annual expences (like Life Insurance, Auto Insurance, and health Insurance etc) with my Investment Income.
Once if I reach to this point, I feel that I am at the Break Even point.
From there, I will move forward with new targets..
Once again thansk for good article.. and good comments from others too..

What if your salary keeps rising at a quick pace (I know- good problem to have)? Then your net worth increases will be relatively smaller compared to the salary jumps.

This seems more appropriate when you salary levels off later in the career.

There is an issue that has been bothering me lately FMF and maybe you can answer this:

The issue is the potential declining purchasing power of the US dollar. We may start to build up a solid net worth of assets and cash but there is a major risk of the dollar devaluing- as would be the case in every fiat currency. However there is more pressure on the dollar given the massive and growing debt, both public and at private levels.

Have you given this some thought? Besides buying gold or other commodities and burying it your backyard (where they won't be generating any income, just potentially protecting value) do you have any strategies or ideas on how to deal with this?

Wouldn't it be a pity if we take the discipline and time to save properly only to have our net worth get slashed because of a currency crisis?

Wow, that's a big question for so early in the morning. ;-)

Here's my thinking on currency issues, a stock market collapse, international disaster that would rock the world, etc.:

If you follow good financial principles and build up your finances, even if these things happen (which no one can predict or prepare for adequately), you'll be in much better shape than 99% of people. Maybe that's just "polly-anna" thinking, but there really is no way to plan for every potential disaster that could happen to the world and throw it into chaos.

Besides tracking your net worth in quicken, you can also track it on the website for free (I'm not affiliated with them). It's an interesting way to compare where you stand with others in your same age, or salary, or education level brackets. There are a bunch of PF bloggers (including me) who are tracking their progress over time.


I live in Asia so it was actually afternoon my time :-)

How do you feel about keeping investments in different currency bases (for example, outside US)? I agree you can't plan for every disaster but you can look at global trends such as the rise of China and India and find a way to invest accordingly.

You will be always better off spending less then you earn but I was thinking about taking steps to preserve and maximize your net worth.

You are waaaaaaaaaaay over my head in this discussion. I'm just a simple index fund investor. ;-)

I do invest 15-20% of my money in either foreign (non-US) companies or multi-national companies who (theoretically) keep a watch on currency changes/impacts.


Fair enough- you have a bit of a hedge here. And your approach is less complicated considering you are living in the US and not travelling much.

However a concern for you and all of us is pressure on the US dollar (hopefully this temporary) that lowers the value of accumulated cash / CD savings and potentially erodes earning power. No panic but something to think about to perhaps incorporate an element in your future strategies. I don't have the magic bullet here but am trying to learn more.

Interestingly, if you look at the gains posted in the DJIA this year from another currency such as the Euro or Pound then it has been a negative return for 2006. And companies that report in dollars with some overseas income will see a similar Foreign Exchange related gain in profits.

It should be interesting to see how this plays out but I would suggest you at least give it some thought. Maybe create a post on this topic and see what kind of feedback you get?

I think you are doing a great job on this site and look forward to getting some Moosetracks when I come home around Christmas time!

Thanks. Have a bowl of Moose Tracks for me too! ;-)

"Savings growing at a rate in excess of salary" is my personal predefined signal for retirement, because at that point I'm pretty much working purely for recreation. (I'll work mighty hard for fun, but watching numbers on a ledger get bigger than I actually need them to be isn't fun enough to offset the annoyance of most jobs.)

Think about it. If your savings growth rate exceeds your salary, then that means that you could continue contributing to savings EVEN WITH A SALARY OF $0, AND WITHOUT CHANGING YOUR LIFESTYLE AT ALL. If you don't retire at that point, then it's simply because you don't intend to retire at all.

As for me, if current trends continue and no major catastrophes occur, I'll likely hit that mark in 2-3 years, when I'm 34 or 35. And it will be very, very sweet to say goodbye forever to W2 work and devote myself full-time to my family and my businesses.

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