Author Topic: Net Worth Increase per Year in Relation to Income Level and Savings Rate  (Read 25875 times)

Vitai Slade

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A little while back, I made a post detailing my disappointment in my progress towards FI based on the VERY slow increases of my net worth. According to my charts, I am only increasing my personal net worth by about $2,000/mo. on average... yet I am grossing around $65,000-$70,000/year.

I've come to find that even though I'm saving way over 50% of my NET income, I am only actually saving approximately 30% of that GROSS income number (based on my net worth increases). I feel like I've cut my spending to the bone (or at lease to the point of not going to extremes, like re-using paper towels and all that nonsense). My 'stache hasn't grown enough to really start working yet so I'm really stuck as to how to push it along faster. The obvious answers are easy: Get another income source or cut spending more but I don't really know what I can do beyond what I already do without bringing my life to a very uncomfortable level.

I suppose all that has really nothing to do with the question I am about to pose though. So my question is:

For those of you who actively track your net worth, what, in relation to your income are you actually contributing/saving? It's easy to say you save 70%, but if you net worth only increases by 30% is it really saving that much? This is kinda why I prefer using GROSS numbers now vs. NET like I used to.

2527

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Either way, saving compared to net or gross, is OK, as long as one isn't compared to the other.  I think you are in good shape, and the trick now is to enjoy life and be patient.  It's like a garden, first you plant, then you water and wait, and then you harvest. 

Inquizator

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I'm seeing two parts of your post/questions. The first is the math: Your percentages will definitely change based on using net or gross income; you can't directly compare the two... For instance, based on net income we've saved 51.4% so far this year (for a net worth increase of 65.4%), but based on gross so far we've saved about 40% (for a net worth increase of about 50%).

Looking at your quick numbers you're saving $20,250 a year (30% of $67.5K) and your net worth is increase at $24,000 a year (35.6% of that $67.5K). Also, if that $20,250 represents 50% of your net income, then your net income is $40,500 a year (only 60% of your gross!!). What's happening to the rest? Are you not counting 401k contributions? Are you having too much in taxes taken out each pay period and having a huge refund? Maybe post some more numbers and we can help you see if there's some misleading math somewhere.


The second part is the speed of growing your 'stache: There really isn't much past the 'obvious' answers of increase income or decrease spending (or both)...  You can try to get more returns from your investments, or optimize a bit, but generally that's a lot easier said than done.

Also, your net worth is growing by more than your savings, so why do you feel it's growing slowly? I agree with Jeff L, whichever way you want to do it is fine (as long as you understand the math and assumptions behind each and don't compare net and gross) and you sound like you're doing well. It just needs time to grow now.

arebelspy

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For those of you who actively track your net worth, what, in relation to your income are you actually contributing/saving? It's easy to say you save 70%, but if you net worth only increases by 30% is it really saving that much? This is kinda why I prefer using GROSS numbers now vs. NET like I used to.

This metric "net worth increase versus income" is useless to me, due to compounding of the stache.  My net worth goes up annually over 100% of my income.

I think you are the tail wagging the dog.  To what point and purpose are you tracking this? 

Figure out what you're trying to see/accomplish and then figure out the best metric to measure it.  Don't try to pick the measurement before deciding what you're tracking and why.
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Vitai Slade

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Looking at your quick numbers you're saving $20,250 a year (30% of $67.5K) and your net worth is increase at $24,000 a year (35.6% of that $67.5K). Also, if that $20,250 represents 50% of your net income, then your net income is $40,500 a year (only 60% of your gross!!). What's happening to the rest? Are you not counting 401k contributions? Are you having too much in taxes taken out each pay period and having a huge refund? Maybe post some more numbers and we can help you see if there's some misleading math somewhere.

I guess my wording can be a bit confusing (see below) but a LOT of my check goes to taxes (yeah, a bigger refund this way than I should do, but I kinda like the influx of a big chunk of money every year that I don't account for in my budget) and my 401k and my insurance. Out of a $1,400 grossed check, I see maybe $850. 15% to 401k, the rest to taxes and insurance. I think I calculated at some point that I was saving 60% or so of my net income. In my net worth, I include EVERYTHING. From my 401k, Roth, credit cards, checking, savings, all the way down to the cash in my wallet.

Figure out what you're trying to see/accomplish and then figure out the best metric to measure it.  Don't try to pick the measurement before deciding what you're tracking and why.

I track my net worth and sorta calculate my savings to be the actual increase in my net worth. I guess the wording is kinda confusing when I put it like that though as it's not all savings as much as it is lack of spending or increases in my portfolio value in addition to savings. I save as much as I possibly can and reduce my spending to bare minimums. I have a set amount that I want to save each month ($1,000) out of my net pay along with ($500) I like to set aside for vacation/misc. expenses. I also save 15% of my income automatically (401k) which amounts to about $200/check. Everything else I like to include too to get a real feel for the efficiency of my spending. For example, I spend $977.79 on my mortgage, but $500 of that is principle so that's technically 'saving' $500 even though it's not liquid (or spending $477.79 depending on how you look at it). On the same token, every time I buy something on my credit card it decreases my net worth... but paying off my credit card does nothing to my net worth as I am simply moving money from my liquid checking account to the liability that is decreasing my net worth. (Of course, I never allow my card to accrue interest because that would just be another negative to net worth)

I dunno if all that makes sense to you... but it works for me.
« Last Edit: August 24, 2013, 08:37:56 AM by Vitai Slade »

matchewed

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But does it work for you? You seem to have some frustrations towards your metrics.

I like to keep metrics simple. What is my goal? FIRE at a 4% SWR with 20k worth of expenses annually. So I work backwards from there. All my metrics need to tell me is am I on track to meet this goal, when should I expect to meet the goal given different variables, and what level are some of those variables so I can have a clearer picture on the timing to meet the goal.

ender

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If you have $10k in the market and it goes up 10% in a year, your net worth only increases $1,000 from this.

If it's $100k, it's now an increase of $10,000.

If $1,000k, it's an increase of $100,000 (!).

I'm just starting off and am well aware of this factor. My contributions are considerably more than any increases due to market fluctuations (even this year, sadly). As the stache grows my contributions will reflect an ever decreasing percentage of my net worth increase. This is simply mathematically how it is.

But with regard to your actual question, I've always been tracking this as a percentage of gross income. This just always seemed to make sense to me. I like thinking of it this way because a lot of my budgeting is based on % gross - tithing, 401k, etc.

Tyler

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It's easy to say you save 70%, but if you net worth only increases by 30% is it really saving that much?

Yes, increasing your net worth by 30% in a single year is a lot -- it's way more than you can expect from investments on average.  It's a sign you're doing a great job at saving and putting away new money.  Nice work!

Mathematically, unless your salary compounds at the same rate of your investments, over time your work income will have less and less of an impact to your total net worth and the rate of growth will shrink.  That's a good thing!  It means the compound interest is kicking in and your portfolio is taking over for your job income.

That process just takes time to play out.  Don't obsess over percentages right now -- you're doing just fine.


Cecil

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This is our monthly net worth history since I started working, graphed against our 12-month % increase. For the last 4 years it's been quite stable at 30%, but 30% has a magical compounding effect.


arebelspy

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It's easy to say you save 70%, but if you net worth only increases by 30% is it really saving that much?

As your net worth goes higher, the percent growth of it is lower, even saving a high percent of your income.

Example: make 100k, save 70k. 70% savings rate.

We'll assume you don't earn any interest on that 70k/year you're saving, or on your stache at all.

Net worth start of year 1: 0
Year 2: 70k
Year 3: 140k
Year 4: 210k
Year 5: 350k

Net worth growth per year as a percentage:
Year 1: infinite.
Year 2: 100%
Year 3: 50%
Year 4: 33%

Yikes. By year four your net worth only grew 33%, despite you saving 70% of your income!

See how the part I quoted:
It's easy to say you save 70%, but if you net worth only increases by 30% is it really saving that much?

Is pretty nonsensical?  Of course your net worth only increases a small amount when it's sufficiently large.  That's fine, it's still increasing significantly in comparison to your spending (each year it is going up more than double your spending).
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lhamo

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #10 on: August 24, 2013, 06:25:06 PM »
I agree that you are making yourself miserable by a poor choice of what you are looking at.

If you have a networth of $1 and you increase it to $5 in one month, that is an increase of networth of 500%.  Maybe you can increase that $5 to $25 the next month, and $25 to $125 the next month, and so one, but at some point that rate of growth is unsustainable.

Everyone starting out on the mustachian path probably has pretty impressive results -- similar to the example above -- when they first start out.  Especially if they haven't been actively controlling spending/building savings and investments prior to discovering this site.  But that early momentum isn't replicable over the long term.  No need to get frustrated by it, though.  Your stash is continuing to grow.  And at some point not too far down the road, as arebelspy notes, the magic of compounding will kick in and you'll find your networth is growing by significant amounts in excess of your income.  We're at that point now.  Our net worth is up 15% this year, an amount that is about 2.5x our actual gross income.  A lot of that is savings, but amazingly we actually DECREASED what we were putting into retirement and college funds this year because we decided to put the kids in an expensive private school.  The market has been very good to us this year. 

Be patient.  saving and investing works.  You just need to give it time.

Vitai Slade

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #11 on: August 25, 2013, 03:03:56 AM »
Okay, so I looked over my post again and I realize the confusion I have caused. I don't mean increasing your overall net worth by 30% - I mean that I am only saving 30% of my income according to the small increases in my net worth. ($2,000/mo.) To date, I've nearly doubled my net worth since last year. That's NOT what I'm tracking though. Sorry for the confusion.

grantmeaname

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #12 on: August 25, 2013, 06:47:04 AM »
It sounds to me like your problem isn't about metrics, it's that you wish your stache were growing faster. There are only two things to be done about that, and you already know what they are - earn more or spend less.

arebelspy

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #13 on: August 25, 2013, 08:13:35 AM »
Okay, so I looked over my post again and I realize the confusion I have caused. I don't mean increasing your overall net worth by 30% - I mean that I am only saving 30% of my income according to the small increases in my net worth. ($2,000/mo.) To date, I've nearly doubled my net worth since last year. That's NOT what I'm tracking though. Sorry for the confusion.

The amount you save should be the amount your net worth goes up each month, unless you have rapidly depreciating assets, stocks declining in value each month, etc.

Even if you're paying a ton in interest each month, that should be counted in spending.

If you are saving 50% of net, whatever that number is is how much your NW should go up, plus by any amount that your stache kicks off (I.e. interest earned, capital gains, house appreciation, etc.)

If it's not, you have a leak somewhere and aren't saving what you think you are.  They should align perfectly.

If you are comparing saving 50% of net and saying your NW goes up 30% of gross, why the hell are you comparing net and gross, aka apples and oranges?

I'm just still confused as to what exactly the problem is...
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ender

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #14 on: August 25, 2013, 10:54:04 AM »
If you are saving 50% of net, whatever that number is is how much your NW should go up, plus by any amount that your stache kicks off (I.e. interest earned, capital gains, house appreciation, etc.)

Keep in mind for those of us with money in the stock market, this does not necessarily exactly hold true.

arebelspy

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #15 on: August 25, 2013, 12:05:08 PM »
If you are saving 50% of net, whatever that number is is how much your NW should go up, plus by any amount that your stache kicks off (I.e. interest earned, capital gains, house appreciation, etc.)

Keep in mind for those of us with money in the stock market, this does not necessarily exactly hold true.

Yes, I mentioned stocks declining in value.

In general, however, if we ignore the amount that your stache gains/loses on its own, your NW should go up by the amount you saved.

If it didn't, something is likely wrong in your calculations.
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Vitai Slade

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #16 on: August 26, 2013, 07:35:38 PM »
I'm just still confused as to what exactly the problem is...

There really isn't a 'problem'. I was asking if that is how most people calculate their savings... by what rate their net worth increases. Other than that:

It sounds to me like your problem isn't about metrics, it's that you wish your stache were growing faster. There are only two things to be done about that, and you already know what they are - earn more or spend less.

This is definitely true. I feel like I'm crawling at such a slow rate... If anything, this would be the problem. I have a $70k/year job and yet my Net worth is only increasing by around $25-30k/yr. I'm hardcore saving and yet I can't get it to grow any faster than this. It's just really frustrating.

Hugh H

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #17 on: August 26, 2013, 07:37:53 PM »
I'm just still confused as to what exactly the problem is...

There really isn't a 'problem'. I was asking if that is how most people calculate their savings... by what rate their net worth increases. Other than that:

It sounds to me like your problem isn't about metrics, it's that you wish your stache were growing faster. There are only two things to be done about that, and you already know what they are - earn more or spend less.

This is definitely true. I feel like I'm crawling at such a slow rate... If anything, this would be the problem. I have a $70k/year job and yet my Net worth is only increasing by around $25-30k/yr. I'm hardcore saving and yet I can't get it to grow any faster than this. It's just really frustrating.

Only solution is through better investments either in the market or in Real Estate.

grantmeaname

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #18 on: August 26, 2013, 07:40:33 PM »
better investments
Patience, grasshopper.

Mustachianism is very exciting at first, but it'll fade to a sort of quiet satisfaction that you're living a terrific life after a while and then you just have to live your life and enjoy it while your net worth creeps up. It's in the journey, as James's signature reminds me every time I see him post.

Mike

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #19 on: August 27, 2013, 03:07:30 AM »
Patience, patience, patience.

In order for your net worth to grow by an amount equal to your income in a year, you need several hundred thousand dollars invested (unless you are saving at a really high level).

For example, if you earn $70,000 and save $30,000 (an insane number if stated to the rest of society but is probably quite common around here), your existing investments/assets must increase in value by $40,000 to make up the difference.  Unless the market / your area of housing are having a spectacular year, you simply aren't going to see that type of gain in value until you have somewhere north of $200,000 (and even with $200,000 invested, you'd still need a 20% gain to hit that target).

arebelspy

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #20 on: August 27, 2013, 07:37:19 AM »
Only solution is through better investments either in the market or in Real Estate.

That solution might make my top 5 for solutions to this problem.  It certainly isn't the only one.

The top one is spend less. Next is make more.

How long have you been at this saving regimen, Vitali?
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jrhampt

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #21 on: August 27, 2013, 08:16:37 AM »
I am also impatiently watching our net worth increase, but it is finally starting to gather momentum now that has gotten into the mid six figures.  Apart from increasing income, cutting costs, or increasing savings/investment contributions, the only thing you can do is wait for some time to pass while you consistently apply your plan.  Paycheck comes in, money goes into investments.  Repeat.  Go for a bike ride, read some library books, maybe grow some side income while you wait.  Repeat.

Mike

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #22 on: August 27, 2013, 11:27:46 AM »
One really easy way to boost net worth: marry a high-earner / low-spender. 

jrhampt

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #23 on: August 27, 2013, 12:41:18 PM »
One really easy way to boost net worth: marry a high-earner / low-spender.

ha!  I did think of suggesting this, because it can easily double your savings rate, but you do have to make sure not to get divorced.

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #24 on: August 27, 2013, 02:02:38 PM »
You're 23 and concerned about net worth? You are way ahead of the curve. As one poster above mentioned. Patience.

Vitai Slade

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #25 on: August 27, 2013, 11:20:50 PM »
Patience, patience, patience.

In order for your net worth to grow by an amount equal to your income in a year, you need several hundred thousand dollars invested (unless you are saving at a really high level).

For example, if you earn $70,000 and save $30,000 (an insane number if stated to the rest of society but is probably quite common around here), your existing investments/assets must increase in value by $40,000 to make up the difference.  Unless the market / your area of housing are having a spectacular year, you simply aren't going to see that type of gain in value until you have somewhere north of $200,000 (and even with $200,000 invested, you'd still need a 20% gain to hit that target).

Thank you for this. I guess it's all perspective. Coming here and reading the blog every day and seeing what amazing numbers you guys put up really makes me feel like I've only got chump change to spare. My 30k/yr. INCLUDES the appreciation in my stocks/assets/etc. I AM doing it all by myself vs. with a partner which I'm sure makes a huge difference (comparing apples to oranges maybe?) but I'm comparing my savings and increases with everyone here... not the outside non-mustachian world.I'd still like to save more, I'm just stumped as to where else I could cut down! I try to limit myself to $300/month in food, pay the mortgage (15 year, 10% down, $977.79/mo, 2.875%), utilities (thermostat set at 81 in summer), internet (at right now, only $30/month), and phone (at $45/mo.) and entertainment? Ha! I don't spend hardly anything on that. Netflix streaming & DVD ($17.19). It's kinda got me bored and staring at my graphs all day, wondering why they don't move faster. Heh.. Kinda has me going a bit insane... and yet I only have $30k/year to show for it. THAT'S why it's frustrating...

How long have you been at this saving regimen, Vitali?

I've always saved as much as possible due to being really poor starting out. I'm still living on the wage I was living on when I waited tables (or so it feels like). Whenever I got my new good job in March of 2012, that's when I officially started THIS saving regimen, which just consisted of living on what I always have and saving the rest. I only just started actually tracking my progress in November of 2012.

Paycheck comes in, money goes into investments.  Repeat.  Go for a bike ride, read some library books, maybe grow some side income while you wait.  Repeat.

That's pretty much what I've been doing with a few changes. Paycheck comes in, money goes into investments.  Repeat. Sit on the computer, play some Skyrim or Battlefield 3, look up different ways to make additional side income and find nothing that interests me. Repeat.

One really easy way to boost net worth: marry a high-earner / low-spender.

I actually thought about that. Lol. I'd never do it, partly because that's a rather shallow reason to hook up with someone, but also because even if I did get with someone like that, I'd still keep our finances separate. I'm looking for good roommates instead.

You're 23 and concerned about net worth? You are way ahead of the curve. As one poster above mentioned. Patience.

Bought my first house at 23, already a year and a half in my career of choice... gunning for early retirement... no debt besides a mortgage and leveraged 0% interest accounts... yeah... I've never been the kind to follow what everyone else says to do or how to live. I like to think for myself and actually THINK about what I'm doing vs. all the drone sheeple out there... When you compare yourself to "everyone else", it's kinda easy to be ahead of the curve. "everyone" doesn't pay attention to life until it's over and they realize they've missed it all. That's why I like to compare myself to higher-thinking, like-minded individuals like the people in this community. On THAT, I'm still way under the curve. I definitely need more patience. XD

Mike

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #26 on: August 28, 2013, 02:15:21 AM »
Get out and find things you really enjoy doing to occupy your time - that'll sap some of the temptation to repeatedly stare at graphs and rates of change all day long. 

While people love comparing themselves to others, you really need to remember that we are all in situations that are unique:
- our savings rates are different
- our relationship statuses are different
- some of us have kids; some of us don't
- some went to college; some didn't
- some took on college debt; some didn't
- some rent; some own
- some have lived frugally all along, while others started later
... and so on and so forth.

At the end of the day, it's all about living as efficiently as you can while still being happy with what you have.  If you don't like your job, work diligently toward FI so you can bail as quickly as possible and do something else with your life.  If you do like your job, still work diligently toward FI so that if your feelings change down the line, you have the freedom to bail or cut back on hours.  Nobody else can define what makes you happy - that's totally up to you.  All we can do is offer encouragement and offer snarky remarks when your math or assumptions are wrong.  :P

matchewed

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #27 on: August 28, 2013, 04:12:40 AM »
Also don't compare yourself to others. It is okay to look at others as a source of inspiration but your performance against your goals should be your only benchmark. Comparing yourself to others is just another form of keeping up with the Joneses.

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #28 on: August 28, 2013, 04:24:19 AM »

and yet I only have $30k/year to show for it. THAT'S why it's frustrating...

You are 23 years old and you keep saying you are "only" saving $30,000 a year. Whoa! From my perspective, a 23 year old saving $30,000 a year is over the top fantastic!!!! Seriously over the top fantastic. Remember that MMM talks about how important optimism is for being Mustachian. Channel your optimism. Because you are doing so well for a 23 year old and instead of being happy about it, here you are complaining about it.

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #29 on: August 28, 2013, 08:03:01 AM »
How long have you been at this saving regimen, Vitali?

I've always saved as much as possible due to being really poor starting out. I'm still living on the wage I was living on when I waited tables (or so it feels like). Whenever I got my new good job in March of 2012, that's when I officially started THIS saving regimen, which just consisted of living on what I always have and saving the rest. I only just started actually tracking my progress in November of 2012.

So under a year.

You've got maybe 12-16 to go.

That means you have two viable options, in my mind:
1) Finish automating and then put the personal finance stuff to the back of your mind. Go enjoy life for a decade and change, after which you'll look up and be surprised to find yourself FI and able to ER anytime you want. (At some point in there you can decide to semi-ER, if desired.)

Or

2) Go hardcore make money fast.  Quit your job, start a business (no "side gig" bullshit), become FI in 5-10 years.  A lot more work, a lot more risk, but a much faster path.

Decide between the two and just do it.  But sitting pining about FI while taking the slow path (saving) for 10-15 years seems like a colossal waste of life, to me.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

jpo

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #30 on: August 28, 2013, 09:44:24 AM »
OP, are you maxing out all tax shelters available to you? If the tax man takes less of your gross, that's one lower expense you can put into savings...

gotaholen1

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #31 on: August 28, 2013, 09:56:28 AM »
I think there might be a better way to construct your metrics.  Based on your posts, I feel like you are really trying to find out the % of your monthly budget that is going towards growing your net worth.  I think this is a fair thing to be concerned about.  Therefore this calculation would include things such as a mortgage payment (the amount that goes towards the loan balance only).  It could also include things like 401k contributions or hsa contributions that you may not be quantifying at "savings" if they are deducted from your paychecks. 

Hamster

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #32 on: August 28, 2013, 10:04:50 AM »

and yet I only have $30k/year to show for it. THAT'S why it's frustrating...

You are 23 years old and you keep saying you are "only" saving $30,000 a year. Whoa! From my perspective, a 23 year old saving $30,000 a year is over the top fantastic!!!! Seriously over the top fantastic. Remember that MMM talks about how important optimism is for being Mustachian. Channel your optimism. Because you are doing so well for a 23 year old and instead of being happy about it, here you are complaining about it.
Amen!
Cut this out and put it on your bathroom mirror.

You are saving so you can enjoy life and freedom later. Keep doing what you're doing, but stop staring at the computer screen and go out there and find some inexpensive ways to *enjoy life now* and taste the freedom of being in your 20's, living below your means, and content with the knowledge that you are accumulating that wealth in the background which will open up amazing opportunities in the future.

jrhampt

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #33 on: August 28, 2013, 12:30:01 PM »

and yet I only have $30k/year to show for it. THAT'S why it's frustrating...

You are 23 years old and you keep saying you are "only" saving $30,000 a year. Whoa! From my perspective, a 23 year old saving $30,000 a year is over the top fantastic!!!! Seriously over the top fantastic. Remember that MMM talks about how important optimism is for being Mustachian. Channel your optimism. Because you are doing so well for a 23 year old and instead of being happy about it, here you are complaining about it.
Amen!
Cut this out and put it on your bathroom mirror.

You are saving so you can enjoy life and freedom later. Keep doing what you're doing, but stop staring at the computer screen and go out there and find some inexpensive ways to *enjoy life now* and taste the freedom of being in your 20's, living below your means, and content with the knowledge that you are accumulating that wealth in the background which will open up amazing opportunities in the future.

Yeah, some of us had negative net worth until our thirties. 

twbird18

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #34 on: August 29, 2013, 11:55:12 AM »
I think you should look for a new hobby to help you pass the time so you're not so focused on how "slow" your net worth is increasing, that is a lot of savings/year especially for someone in their early 20's - maybe get out and socialize a little more, volunteer with an organization your interested in - or you mentioned that you play Skyrim & Battlefield 3, maybe looking for a local game & hobby store and join some kind of game group, you can do a lot of socializing/gaming without increasing your spending.

Spork

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #35 on: August 29, 2013, 12:34:26 PM »

I track my net worth and sorta calculate my savings to be the actual increase in my net worth.

I don't think that's the right way to go about it. 

Think of it this way... net worth will swing with stock prices (for example... or whatever you're invested in.)  If stock goes swinging up, that isn't savings.  That's just an increase in net worth.  If the market tanks, it doesn't mean you're not saving... it just means the market moved.

People have varying ideas of what 'savings' means.  For me it is "income - expenses".  That works with gross or net.  Taxes are just expenses. 

ioseftavi

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #36 on: August 29, 2013, 01:12:38 PM »
I track my net worth and sorta calculate my savings to be the actual increase in my net worth.

I have a set amount that I want to save each month ($1,000) out of my net pay along with ($500) I like to set aside for vacation/misc. expenses. I also save 15% of my income automatically (401k) which amounts to about $200/check. Everything else I like to include too to get a real feel for the efficiency of my spending...

What I would suggest you do is get a spreadsheet going that shows how close you are to FI.  A simple way to do that is to have a spreadsheet with two tabs - one showing "assets, liabilities, and net worth".  The second tab shows "Monthly recurring expenses, current and projected."  Both of these tabs shows these figures in the current month, and projects them out for the next 12 months.

At the bottom of my "monthly expenses" tab, I total all my expenses up.  I then compare this to what I'd probably be able to withdraw from my current 'stash (networth), assuming a 4% withdrawal rate, taken out monthly.  So I take my networth (which luckily, is all in investable assets - no home or anything weird and illiquid), and multiply it by 4%.  I then divide that by 12 to get a monthly "safe withdrawal number" if I started living off the stash RIGHT NOW.  It's not at all perfect (taxes and retirement account types could really change this), but it's close enough that I can see how my additions to assets (or reductions in liabilities) change my monthly income from the 'stash. 

I then compare my monthly expenses to my "monthly passive income" from my 'stash.  How close are they?  Personally, in August of 2013, mine shows that my fiancee and I would have passive monthly income that covers 7.44% of our "total recurring expenses".  THAT is the metric I want to move the needle on - how close are we to FI, and what kind of progress are we making?

The nicest thing about my spreadsheet: The numbers change as I tweak expenses, assets, or liabilities.  So, for example, as our student loan balance decreases monthly, the "student loan interest" expense in the spreadsheet falls.  As that falls, our "monthly recurring expenses" also fall.  Meanwhile, our "monthly passive income" from our ever-increasing 'stash keeps going up as the 'stash grows.  This lets me see the progress towards FI is very, very real as my "percentage of expenses covered by stash" goes up.

You mentioned that you're saving $2,000 per month - that's awesome, especially for your age.  You could model it in a spreadsheet and I bet you would show significant improvement every month.  If you're putting away $2,000, that can safely probably generate $80 per year of passive income, right now.  Through compounding of your current stash, monthly additions, and any reductions you can find in your recurring expenses, you can watch how close you are to the FI finish line go up every month.  This will be a slow advance, but that is the best indicator of just how close you are to the goal.

EDIT:  If people want, I can put up a screenshot of how my spreadsheet looks, if anyone else would like to try this.  I am a huge excel nerd, so it's PRETTY SWEET.

« Last Edit: August 29, 2013, 01:16:05 PM by ioseftavi »

Vitai Slade

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #37 on: August 30, 2013, 02:47:30 AM »
If people want, I can put up a screenshot of how my spreadsheet looks, if anyone else would like to try this.  I am a huge excel nerd, so it's PRETTY SWEET.

This idea of yours is actually really neat. It's a variation of my $1,000,000 net worth goal with the exception being that the final number can change due to changes in habits as well. This promotes cutting back even more every month. I would like to try this and maybe add it to my own spreadsheet (I'm an excel/openoffice junkie as well) as an extra number to track, though I think my $1,000,000 goal will stand. I like the idea of having $40,000/yr. in spending money every year (give or take a bit, due to market, obviously) without a reduction in my stache. I wish I could give a "projected" FI number of what my actual expenses will end up being, but the fact is... I really have no idea. I'll be spending probably more than I am now or at least as much. I want to do a lot of travelling and convention-going as I become closer and closer to FI and after FI.

I think I'm about 2.5% of the way to FI. Lol.

Mike

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #38 on: August 30, 2013, 03:33:59 AM »
Another thing to do minus spreadsheets is to simply put all your shit on Mint, create an FI goal, designate the appropriate accounts for it, and it will estimate when you'll complete it every single time your account balances update.  Of course, to come up with a goal, you have to first figure out how much you will need which requires a good deal of thinking about what type of lifestyle you want post-FI and what SWR you are comfortable having.

jpo

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #39 on: August 30, 2013, 06:41:16 AM »
Another thing to do minus spreadsheets is to simply put all your shit on Mint, create an FI goal, designate the appropriate accounts for it, and it will estimate when you'll complete it every single time your account balances update.  Of course, to come up with a goal, you have to first figure out how much you will need which requires a good deal of thinking about what type of lifestyle you want post-FI and what SWR you are comfortable having.
Only issue here is Mint doesn't assume any investment gains or losses for its estimate.

ioseftavi

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #40 on: August 30, 2013, 06:53:34 AM »
If people want, I can put up a screenshot of how my spreadsheet looks, if anyone else would like to try this.  I am a huge excel nerd, so it's PRETTY SWEET.

This idea of yours is actually really neat. It's a variation of my $1,000,000 net worth goal with the exception being that the final number can change due to changes in habits as well. This promotes cutting back even more every month. I would like to try this and maybe add it to my own spreadsheet (I'm an excel/openoffice junkie as well)...

GET SPREADSHEET'D, FELLOW NERDS.  Doing screenshots was too annoying, so I just made a public copy.  I took our personal info out.

I predict mine out a year.  More than a year is likely to be wildly inaccurate.  I generally update all the balances for net worth on the first of the month, tweak the expenses if they've changed, and then add another month to the end of it (so I'm now predicting out another year).

Hit control+` to see the formulae if you want to make your own version.  I think mine has a few broken formulae somewhere in there, but it should be enough to give you the idea.  Drop me a line with any questions.
« Last Edit: August 30, 2013, 07:25:25 AM by ioseftavi »

matchewed

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #41 on: August 30, 2013, 07:18:18 AM »
If people want, I can put up a screenshot of how my spreadsheet looks, if anyone else would like to try this.  I am a huge excel nerd, so it's PRETTY SWEET.

This idea of yours is actually really neat. It's a variation of my $1,000,000 net worth goal with the exception being that the final number can change due to changes in habits as well. This promotes cutting back even more every month. I would like to try this and maybe add it to my own spreadsheet (I'm an excel/openoffice junkie as well)...

GET SPREADSHEET'D, FELLOW NERDS.  Doing screenshots was too annoying, so I just made a public copy.  I took our personal info out.

I predict mine out a year.  More than a year is likely to be wildly inaccurate.  I generally update all the balances for net worth on the first of the month, tweak the expenses if they've changed, and then add another month to the end of it (so I'm now predicting out another year).

Hit control+` to see the formulae if you want to make your own version.  I think mine has a few broken formulae somewhere in there, but it should be enough to give you the idea.  Drop me a line with any questions.

Try taking the quotes and extra http out of the hyperlink address - Like This

ioseftavi

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #42 on: August 30, 2013, 07:26:08 AM »
Link fixed, hopefully?  Not sure if I typed those or something in forum code added them.

matchewed

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #43 on: August 30, 2013, 07:26:48 AM »
Yep works for me.

Vitai Slade

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #44 on: August 30, 2013, 07:44:09 AM »
Link fixed, hopefully?  Not sure if I typed those or something in forum code added them.

Your net worth growth rate is like.... double mine. u.u

ioseftavi

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #45 on: August 30, 2013, 07:47:10 AM »
Link fixed, hopefully?  Not sure if I typed those or something in forum code added them.

Your net worth growth rate is like.... double mine. u.u

Patience, padawan.  I've got a running 5 year headstart and 2 damn good incomes working on my side.  You'll get there.  Learn the right habits with small dollar amounts and you'll be on cruise control when you get to larger amounts.

Vitai Slade

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #46 on: August 30, 2013, 07:48:25 AM »
Link fixed, hopefully?  Not sure if I typed those or something in forum code added them.

Your net worth growth rate is like.... double mine. u.u

Patience, padawan.  I've got a running 5 year headstart and 2 damn good incomes working on my side.  You'll get there.  Learn the right habits with small dollar amounts and you'll be on cruise control when you get to larger amounts.

I just need to get on of those six-figure corporate jobs where you don't actually do anything... you just sit in an office and delegate. =D

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #47 on: August 30, 2013, 08:06:57 AM »
Coming here and reading the blog every day and seeing what amazing numbers you guys put up really makes me feel like I've only got chump change to spare. My 30k/yr. INCLUDES the appreciation in my stocks/assets/etc. I AM doing it all by myself vs. with a partner which I'm sure makes a huge difference (comparing apples to oranges maybe?) but I'm comparing my savings and increases with everyone here... not the outside non-mustachian world.

It is apples and oranges, and you'll have to just accept that for now. Living with somebody is an unfair advantage many of us on here have, and so is being older. Your salary usually will increase much faster than inflation if you're keen, but it does take time.

My advice - spend your time trying to find a significant other you'll be happy spending your life with, and take your time and be picky. You seem to have a (borderline neurotic (I mean this in the nicest possible way)) need to optimize, so your new problem should be to maximize your happiness about that part of your life. Everything else will come later and you'll be thanking your past self for being financially disciplined, but you'll still have to BE PATIENT for a while. Your goal is a long term one and it can't be achieved overnight.

Oh, and do not try to achieve anything through "better investments" right now... be a go-getter at work, direct all your energy to the people who are paying your salary so that they'll promote you, or start a side-hustle. Trying to beat market indices won't earn you much if you don't have a massive stache to begin with. So focus on actually earning cold cash through working.

Vitai Slade

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #48 on: August 30, 2013, 08:57:56 AM »
Your salary usually will increase much faster than inflation if you're keen, but it does take time.

Oh, and do not try to achieve anything through "better investments" right now... be a go-getter at work, direct all your energy to the people who are paying your salary so that they'll promote you, or start a side-hustle. Trying to beat market indices won't earn you much if you don't have a massive stache to begin with. So focus on actually earning cold cash through working.

I work in the casino industry as a poker dealer working the maximum allowable hours for my company. Sadly, a promotion would actually DECREASE my salary and my salary now is derived mostly from tips. Due to this factor, my income will never increase except when 'tipped minimum wage' increases. I hate when people say to "factor in raises" into my future earnings because there are no raises in my future earnings. I have started at the top pay grade I will ever achieve. While this is nice in some respects (I didn't have to work my way up) it sucks that I will not ever receive any more income than I make right now. At 23 or 38, it doesn't matter. I will make the same money. The only way for me to make any more would be to take a promotion... a huge hit to my income... work that job for SEVERAL years... maybe after someone finally leaves (being one or two specific people) I MAY have a SLIGHT CHANCE at moving up... and go right back to the income I had before with a different position... then after SEVERAL more years after maybe one or two specific people retire, I MAY have a SLIGHT chance at moving up and finally getting a spot with a little bit better pay. By the time I get there, I would be at my goal retirement age. This is best case scenario.

ioseftavi

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Re: Net Worth Increase per Year in Relation to Income Level and Savings Rate
« Reply #49 on: August 30, 2013, 09:08:26 AM »
I work in the casino industry as a poker dealer working the maximum allowable hours for my company. Sadly, a promotion would actually DECREASE my salary and my salary now is derived mostly from tips. Due to this factor, my income will never increase except when 'tipped minimum wage' increases. I hate when people say to "factor in raises" into my future earnings because there are no raises in my future earnings. I have started at the top pay grade I will ever achieve. While this is nice in some respects (I didn't have to work my way up) it sucks that I will not ever receive any more income than I make right now. At 23 or 38, it doesn't matter. I will make the same money... The only way for me to make any more would be to take a promotion... a huge hit to my income... work that job for SEVERAL years... maybe after someone finally leaves (being one or two specific people) I MAY have a SLIGHT CHANCE at moving up... and go right back to the income I had before with a different position... then after SEVERAL more years after maybe one or two specific people retire, I MAY have a SLIGHT chance at moving up and finally getting a spot with a little bit better pay. By the time I get there, I would be at my goal retirement age. This is best case scenario.

HERE I FIXED YOUR COMPLAINING POST:

"...would be to look for a new job with better future prospects, so of course that's what I'm doing.  I'm also investigating the various side hustles that I could do to earn a little more income.  I'd be a complete chump to just accept that my wages are fixed for the beginning of my career, so I'm investigating all my options - advanced degrees or certifications, other industries that I could switch to, and any and all side hustles that interest me.  It'll be a tough road, but with the help of ioseftavi's incredible insight and guidance planning and hardwork, I know I'll eventually increase my earning power."