Author Topic: Net Worth Tracking Problem  (Read 7826 times)

Vitai Slade

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Net Worth Tracking Problem
« on: July 24, 2013, 03:03:24 AM »
Tracking my net worth as it grows has been a fun sort of hobby of mine since last November. Aside from the random events which you will see in my graph (tax refund, buying a house, furnishing it) the line I'm creating is extremely straight. While it is (thankfully) pointed upwards and growing, it's not nearly at the rate of what I would expect of an 'early retiree'. (See attachment)

The progress I am showing averages out to be somewhere around $2500/mo. in increases. While this is commendable (I think) for a 23 year old like myself, I am not satisfied with the rate as far as retirement is concerned. By the end of this year, I'd be lucky to have a $35k net worth, next year 65k, and the year after if I worked like mad, maybe a 100k net worth. In order to get to my goal of $1,000,000 (Yeah, just cause it's that even, oh so pretty number) I'd have to work for another 30+ years saving at my 50%+ rate. I want to retire by 40 at the very latest. My retirement accounts are still getting started (at 3.3k and 8.3k currently) so I'm barely seeing any gains at all in those (big loss in one), I have no debt besides my 2.875% 15-year mortgage and a couple of store credit cards at 0% interest till paid off (which as you can see were factored in at their purchase dates) where are my numbers wrong? How are people saving ridiculous amounts every year to add to their net worth? Is it because I'm single and doing it on my own? Gah...

matchewed

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Re: Net Worth Tracking Problem
« Reply #1 on: July 24, 2013, 03:38:32 AM »
You are looking at it with the wrong perspective.

a) You're looking at a short time frame and trying to project out. This will ultimately be unsatisfactory. This also accounts for the straightness of the line. In fact for individuals who are looking to FIRE in a short time frame (<10 years) most of their lines will have this "straightness" to them as compound interest hasn't had a long time to work on it. Extrapolate out to 20/30 years and the calculations would look much more jagged.

b) Your goal is arbitrary. You can and should do better than picking a number out of a hat just because it's pretty. Use 25x expenses, or know how much you want to spend in FIRE and use the 4% SWR.

c) Yes a portion of it is because you're single and make 60k a year.

To be honest I'm not sure what you think you signed up for when choosing this path. It may be the quicker path but it is still a lifestyle change at heart. The focus is on the living and the saving is a consequence of that living. If this is frustrating you then you may need to evaluate your priorities and perspective.

jfer_rose

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Re: Net Worth Tracking Problem
« Reply #2 on: July 24, 2013, 04:56:28 AM »
You're just getting started in life and you have a positive net worth! That's fantastic! So many people your age have student loan debt giving them a negative net worth. I was one of them, so I speak from experience.

Your salary will increase over time. You are young. Resist the temptation to inflate your lifestyle each time you get a raise and your savings rate (and net worth) will grow over time.

I do have one question, are you maxing out (or as close as you are able) your tax advantaged retirement accounts? The tax benefit from those accounts will help accelerate the growth of your net worth. But the main thing will be compound interest as matchewed said-- and that takes time to work its magic. But magic it is, you will be amazed when it starts to happen.
« Last Edit: July 24, 2013, 05:28:33 AM by jfer_rose »

ender

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Re: Net Worth Tracking Problem
« Reply #3 on: July 24, 2013, 05:31:38 AM »
The point of saving 50% isn't so you can have a million dollars.

It's so you can have financial independence.

Keep this in mind.

Cecil

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Re: Net Worth Tracking Problem
« Reply #4 on: July 24, 2013, 08:09:21 AM »
At $2500/mo expenses, you only really need 750k in order to not have to work.

What are you spending $2500/mo on as a single person? That's crazy high.

mpbaker22

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Re: Net Worth Tracking Problem
« Reply #5 on: July 24, 2013, 08:23:08 AM »
At $2500/mo expenses, you only really need 750k in order to not have to work.

What are you spending $2500/mo on as a single person? That's crazy high.

I believe that's his average monthly increase, not his monthly expenses.

To OP - I'm in a similar situation, though a slightly higher net worth.  The thing is that investment gains at this point, even with a massive market run up, are negligible to my work-expenses savings.  But in 5 years, I expect the investment gains (ignoring market fluctuations, so just taken on average) to be much higher as a percentage of savings.
« Last Edit: July 24, 2013, 08:24:51 AM by mpbaker22 »

Spork

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Re: Net Worth Tracking Problem
« Reply #6 on: July 24, 2013, 08:52:07 AM »

Financial graphs have long been a bit of an obsession for me too.  You may find you have more and more of them as you start thinking "what if I tracked X?"...

Yes, it appears linear... but there is a compounding effect over time.  As you earn more (and don't spend significantly more) you save more.  As your stash grows: your dividends/interest grows.   It becomes somewhat exponential.  Maybe not the quick transition to vertical that you think of in exponential graphs, but... it does go up over time.

The trick is to maintain the spending at a reasonable level.  That doesn't necessarily mean you won't spend more as you earn more... but that your additional earnings don't get "lost" in the spending.

MissStache

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Re: Net Worth Tracking Problem
« Reply #7 on: July 24, 2013, 09:26:45 AM »
I found an old forgotten retiremtent account from my first job the other day.  I only ever contributed about $2500 and left the company before I was vested in my match.  It sat idle and forgotten for about 6 years, and when I looked at the again the other day it was at $10,000!

Compound interest is your friend! 

Kipp

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Re: Net Worth Tracking Problem
« Reply #8 on: July 24, 2013, 02:35:57 PM »
I didn't do a graph, but I did an excel spreadsheet of my contributions going into retirement accounts until at 60 at 9% and as everyone says, the difference is exponential.  The later years as your wealth has accumulated you will start to see large increases year-to-year.  But, I made that spreadsheet before finding this site and now I am more interested in retiring much earlier than 60... so I have some numbers to run.

SnackDog

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Re: Net Worth Tracking Problem
« Reply #9 on: July 24, 2013, 03:47:50 PM »
It is very straightforward to make projections using Excel. Just label up a bunch of columns from this year until you die. Then start adding rows for everything: income, expenditures, interest, social security, 401k etc.  Define a few variables like retirement year, savings rate, investment growth rate, etc. Set up simple formulas. Then graph it all up and start playing with the variables. It is a blast!

dragoncar

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Re: Net Worth Tracking Problem
« Reply #10 on: July 24, 2013, 03:56:56 PM »
It is very straightforward to make projections using Excel. Just label up a bunch of columns from this year until you die. Then start adding rows for everything: income, expenditures, interest, social security, 401k etc.  Define a few variables like retirement year, savings rate, investment growth rate, etc. Set up simple formulas. Then graph it all up and start playing with the variables. It is a blast!

Wanna come over tomorrow night and do spreadsheets???!

Lans Holman

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Re: Net Worth Tracking Problem
« Reply #11 on: July 24, 2013, 04:12:33 PM »
I think this is slightly mislabeled, because it's not really a tracking problem.  You're tracking it just fine, it's just not going up quickly enough for you.  I suggest just writing up your monthly spending, posting it here, and letting people tear into it.  If you're not tracking your monthly spending, that's what you should be spending your time on, not trying to predict your future net worth.

snshijuptr

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Re: Net Worth Tracking Problem
« Reply #12 on: July 24, 2013, 04:15:20 PM »
First, compound interest will start to really work for you soon, although usually you notice it mostly when you realize that your net worth didn't change despite your contributions thanks to a fall in the market (remember to think of this as everything is on sale).

Second, I have found it much more satisfying to track what I call my "multiplier". It is = (liquid assets - liabilities)/(expenses in budget). Basically aim for 25, then retire.

jexy103

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Re: Net Worth Tracking Problem
« Reply #13 on: July 24, 2013, 04:56:41 PM »
Second, I have found it much more satisfying to track what I call my "multiplier". It is = (liquid assets - liabilities)/(expenses in budget). Basically aim for 25, then retire.

I'm at one year's expenses saved, and I just started truly investing about six months ago (have about $11,000 accrued from the previous four years combined). The "multiplier" is truly the important part.

OP, have you read MMM's article http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/? If not, this will probably completely change how you view saving for retirement. I think $2,500 a month in savings is a great amount, and if that means a 50+% savings rate as you stated, you'll be retired before 40, assuming no pay raises. If you bank your raises and avoid lifestyle inflation, it will be even sooner. Mustachianism is a marathon, not a sprint. I totally get where you're coming from, but you're doing just fine.

astadt

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Re: Net Worth Tracking Problem
« Reply #14 on: July 24, 2013, 09:23:40 PM »
I found an old forgotten retiremtent account from my first job the other day.  I only ever contributed about $2500 and left the company before I was vested in my match.  It sat idle and forgotten for about 6 years, and when I looked at the again the other day it was at $10,000!

Compound interest is your friend!

How did you average 24% over the past 6 years? Very impressive- share your secret please!

MissStache

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Re: Net Worth Tracking Problem
« Reply #15 on: July 25, 2013, 08:54:46 AM »
I found an old forgotten retiremtent account from my first job the other day.  I only ever contributed about $2500 and left the company before I was vested in my match.  It sat idle and forgotten for about 6 years, and when I looked at the again the other day it was at $10,000!

Compound interest is your friend!

How did you average 24% over the past 6 years? Very impressive- share your secret please!

I seriously have no idea!  I know that when I met with the guy to set it up (they came to my work) I put it in agressive growth, but I quite literally never looked at it again until last week.   And I couldn't access anything past 18th months on the website to see the growth, but I averaged 17.3% for those 18 months.  It's with the Pincipal and their online interface needs a lot of improvement.  I requested a paper statement- maybe that will give me more info!

Angelfishtitan

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Re: Net Worth Tracking Problem
« Reply #16 on: July 25, 2013, 09:38:16 AM »
Also note that since you will most likely have a paid off house, your expenses are actually going to be a lot lower than the ~$30K/year you are currently talking about (especially with a 15 year mortgage). Not sure if you are tracking your home equity in your net worth.

Plus, trust what people are saying here. You will be surprised how your net worth increases more and more each year with compound interest. It is not overblown how insane this is. According to my graph I am increasing my net worth ~$60K/year at the beginning of my investing while it will be increasing by ~$125K/year near the end with no change to the amount I am saving.

Vitai Slade

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Re: Net Worth Tracking Problem
« Reply #17 on: August 02, 2013, 02:12:21 AM »
You're just getting started in life and you have a positive net worth! That's fantastic! So many people your age have student loan debt giving them a negative net worth. I was one of them, so I speak from experience.

Yes, I was lucky to get a nice easy start without too many pitfalls in my way. But that's just my point. People dig themselves out of these enormous holes and have a huge positive on the other side of it, and yet I'm just barely moving up! I don't get how they are able to move their graphs so much greater than mine.

Your salary will increase over time. You are young. Resist the temptation to inflate your lifestyle each time you get a raise and your savings rate (and net worth) will grow over time.

Unfortunately, no, it won't. I don't work in the corporate world where you get raises. I worked on a tipped wage and those tips are pretty consistent. The only time I'll ever see a raise is when minimum (tipped) wage goes up. I have to account for this lack of growth in my future plan.

I do have one question, are you maxing out (or as close as you are able) your tax advantaged retirement accounts? The tax benefit from those accounts will help accelerate the growth of your net worth. But the main thing will be compound interest as matchewed said-- and that takes time to work its magic. But magic it is, you will be amazed when it starts to happen.

Yes. I maxed out my ROTH last year and this one too already. I plan to continue maxing it out until retirement. It accounts for the money I'll need in the 'early period' of retirement. I also am maxing out my 401k at work with as much as they will allow me to contribute: 15%. Unfortunately, I'll never hit the Government Max, but I'm putting in as much as I can.

The point of saving 50% isn't so you can have a million dollars.

It's so you can have financial independence.

Keep this in mind.

I know this. That's the end goal. I like $1,000,000 because at a 4% SWR, it gives me $40k/year which is what I would like to have in retirement.


OP, have you read MMM's article http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/? If not, this will probably completely change how you view saving for retirement. I think $2,500 a month in savings is a great amount, and if that means a 50+% savings rate as you stated, you'll be retired before 40, assuming no pay raises. If you bank your raises and avoid lifestyle inflation, it will be even sooner. Mustachianism is a marathon, not a sprint. I totally get where you're coming from, but you're doing just fine.

Only read it about twenty times or so. ;) Sadly, no bonuses or raises for me though. As stated, I'm a tipped employee, not a corporate one.

Also note that since you will most likely have a paid off house, your expenses are actually going to be a lot lower than the ~$30K/year you are currently talking about (especially with a 15 year mortgage). Not sure if you are tracking your home equity in your net worth.

Plus, trust what people are saying here. You will be surprised how your net worth increases more and more each year with compound interest. It is not overblown how insane this is. According to my graph I am increasing my net worth ~$60K/year at the beginning of my investing while it will be increasing by ~$125K/year near the end with no change to the amount I am saving.

Yes, my home equity is included in that graph and about $500 of that $2500 in increases number. I'd like for that compounding to happen sooner, but I guess I just have to wait it out for now.

SwordGuy

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Re: Net Worth Tracking Problem
« Reply #18 on: August 02, 2013, 05:11:39 AM »

Sadly, no bonuses or raises for me though. As stated, I'm a tipped employee, not a corporate one.


When I was a kid, the standard "non-cheap" tip was 10%.  Now it's more.  Sounds like a raise to me.   You might be getting another one.  You never know!

lhamo

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Re: Net Worth Tracking Problem
« Reply #19 on: August 02, 2013, 08:48:29 AM »
Your salary will increase over time. You are young. Resist the temptation to inflate your lifestyle each time you get a raise and your savings rate (and net worth) will grow over time.

Unfortunately, no, it won't. I don't work in the corporate world where you get raises. I worked on a tipped wage and those tips are pretty consistent. The only time I'll ever see a raise is when minimum (tipped) wage goes up. I have to account for this lack of growth in my future plan.


If you want to be successful financially or careerwise, you might think about an attitude adjustment here.  I'm not saying you necessarily need to find another career path.  But, to use one example, I had a friend in grad school who was a "waitress".  She pretty much worked for tips, too.  Only worked on the weekends.  BUT, and this is the key, she was very good and she worked at Ruth's Chris Steak House, where her average nightly tip haul was $400-500.  And that was back in the early '90s.  She earned a very solid living wage (probably more than some of our junior professors at the time!) with a fairly low level of hours.  She just knew how to maximize her income and it wasn't by working at her favorite coffee shop.

Maybe you'll balk and say "but I am a barista/hairdresser/dog walker/bartender etc. and those high tipping positions don't exist in my field."  All depends on your clientele.  You can probably find a high income group of people willing to pay a premium for excellent service in just about any field in any major city.  Rural and economically depressed areas may be different -- if you are stuck in such a place you might want to be thinking about how to get out and move someplace where the income/opportunities are better.

But a $2500/month increase in net worth at your stage in life/career is nothing to sneeze at.  Once the stash increases more compounding will DEFINITELY start to work in your favor.  I just think you can help push it along by being a bit more strategic in your work life.  Even taking on weekend catering jobs (weddings, perhaps?) would be a good way to add a few hundred extra a month.

AlexK

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Re: Net Worth Tracking Problem
« Reply #20 on: August 02, 2013, 09:17:23 AM »
You are doing great for your age but don't be so concerned about the $1,000,000 mark.  Is it worth a decade of your youth for someone to have a large inheritance when you die?

As the stache grows your monthly increases will be much more tied to the stock and real estate markets than your savings rate. Mine grew $20k in July, $100k for the year so far and my income isn't that different from yours.

DoubleDown

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Re: Net Worth Tracking Problem
« Reply #21 on: August 02, 2013, 10:51:30 AM »
What is your asset allocation for  your investments? What kind of return do you hope/expect to get in the long run (say, 10 - 30 years)?