It is October, and arbitrarily this is the month I update my net worth tracking excels. I suppose it is odd to use an excel tool, when I already use Personal Capital which tracks net worth on a day to day basis, but I find that the annual exercise is a better perspective with much less noise. Since I am an engineer, it appeals to me to have regular health tracking metric for my finances. In my annual check up I like to benchmark our household using various methods to see how we are stacking up in terms of the amount and growth rate. Some of the metrics I use are:
- A projection of net worth based on salary and age from the book The Millionaire Next Door. I use a slightly modified version inspired by the blog the Simple Dollar , {Net Worth =(Age-22)*Household Income/5} . Twice this number is the true target to be considered a PAW or Prodigious Accumulator of Wealth. If you haven't read The Millionaire Next Door, I recommend you check it out. I picked up a used copy from a second hand book store cheap. Better yet, use your public library.
- Liquid Net Worth vs the 25-30 times annual basic spending. This is supposed to represent the amount required to be financially independent, so I could use the 4% withdrawal rule (I think I will more likely shoot for 2-3%) to live off my nest egg and retire. These numbers are especially important if you are looking to retire early ( I am not really looking to do that, but it is nice to have a choice). Paying off my house doesn't help me as much with this one since I only use liquid net worth, but once it is paid off my annual basic spending decreases by ~25% so my targets shift down.
-FTI score, this is one of the newest and one of my favorites. It stands for F#$% This Index, I stumbled upon it on Quora one day. The idea is similar to the 25-30 times annual basic spending. Essentially a score over 1000 translates into being able to live off your net worth without running out of money before you die. Would I ever pull the trigger with a score of 1000, HECK NO! Although, it does give me a marker to track and pass. FTI = Age x Net Worth / Yearly Expenses.
-Financial Samurai The Average Net Worth For The Above Average Married Couple. This one is pretty arbitrary, but I like it because not only does it breakdown targets for various ages, it breaks them down into various categories, Pretax, Taxable, and Home Equity. Additionally it allows me to look at growth rate targets by net worth amount, because it is a lot easier to double your net worth when it is $30K versus $3MM. There is also one for single people as well at Financial Samurai.
-All the other ones are pretty basic: annualized growth $/year, % growth rate per year, asset breakdown (Cash, investments, home equity, pension, vehicles).
So after crunching all the numbers we are looking to be on a pretty good track, with a growth rate of 13% and are still maintaining our PAW status. I am interested to see how the house pay off effects our growth rate, since all our extra dollars are currently boosting our net worth growth by paying down our mortgage liability. Once the house is paid off I plan to increase retirement savings among other savings, but I do not plan on spending every extra dollar on savings. The nice thing about the annual check up is that it is infrequent enough to get good perspective of our trajectory, but not so infrequent that we cannot still timely course correct if necessary.
So do you guys track your net worth? If so how frequently? What metrics do you benchmark yourself against?
- A projection of net worth based on salary and age from the book The Millionaire Next Door. I use a slightly modified version inspired by the blog the Simple Dollar , {Net Worth =(Age-22)*Household Income/5} . Twice this number is the true target to be considered a PAW or Prodigious Accumulator of Wealth. If you haven't read The Millionaire Next Door, I recommend you check it out. I picked up a used copy from a second hand book store cheap. Better yet, use your public library.
- Liquid Net Worth vs the 25-30 times annual basic spending. This is supposed to represent the amount required to be financially independent, so I could use the 4% withdrawal rule (I think I will more likely shoot for 2-3%) to live off my nest egg and retire. These numbers are especially important if you are looking to retire early ( I am not really looking to do that, but it is nice to have a choice). Paying off my house doesn't help me as much with this one since I only use liquid net worth, but once it is paid off my annual basic spending decreases by ~25% so my targets shift down.
-FTI score, this is one of the newest and one of my favorites. It stands for F#$% This Index, I stumbled upon it on Quora one day. The idea is similar to the 25-30 times annual basic spending. Essentially a score over 1000 translates into being able to live off your net worth without running out of money before you die. Would I ever pull the trigger with a score of 1000, HECK NO! Although, it does give me a marker to track and pass. FTI = Age x Net Worth / Yearly Expenses.
-Financial Samurai The Average Net Worth For The Above Average Married Couple. This one is pretty arbitrary, but I like it because not only does it breakdown targets for various ages, it breaks them down into various categories, Pretax, Taxable, and Home Equity. Additionally it allows me to look at growth rate targets by net worth amount, because it is a lot easier to double your net worth when it is $30K versus $3MM. There is also one for single people as well at Financial Samurai.
-All the other ones are pretty basic: annualized growth $/year, % growth rate per year, asset breakdown (Cash, investments, home equity, pension, vehicles).
So after crunching all the numbers we are looking to be on a pretty good track, with a growth rate of 13% and are still maintaining our PAW status. I am interested to see how the house pay off effects our growth rate, since all our extra dollars are currently boosting our net worth growth by paying down our mortgage liability. Once the house is paid off I plan to increase retirement savings among other savings, but I do not plan on spending every extra dollar on savings. The nice thing about the annual check up is that it is infrequent enough to get good perspective of our trajectory, but not so infrequent that we cannot still timely course correct if necessary.
So do you guys track your net worth? If so how frequently? What metrics do you benchmark yourself against?
