Snowball effect

[thegradwife]

One thing that I struggle with is understanding how many people on here jump so quickly from having nothing to being almost FIRE and having a high savings rate. I know at some point your investments start snowballing. When did you actually start seeing the snowball rolling? Was there something that really pushed it or was it just time?

[maizefolk]

I think part of it is people attracted to posting here show a bimodal distribution of life circumstance. Some folks are deeply in debt and are drawn to MMM to figure out ways to cut spending and dig their way out. Others I run into the the forums have naturally over-saved a bit and the website helped them crystalize the reason they were saving into a more specific goal of early retirement.

For my own personal story (only about 50% of the way to my minimum FIRE goal, 60-70% saving rate on my day job salary), the biggest change so far hasn't been the snowballing of investments return but the payoff from not increasing my lifestyle as I moved from a grad student's stipend -- an experiance you may have had as well based on your username? --  to an actual-job with an actual-salary.

I promise it'll change faster than you expect though. For me, three years ago being FIRE seemed like a hypothetical goal that might be nice someday. Good luck!

[big_owl]

My FIRE money is pretty big at this point and unfortunately this year didn't see any snowball effect....basically because all my funds are close to flat for the year.  Only significant gains were really just my cash additions to the funds and dividend payouts....which aren't exactly life-changing amounts.  The snowball's been easy for the past few years with all the market gains, we'll see how that plays out over the next year or two though. 

[matchewed]

Well I also think it's somewhat psychological. We're relatively immediate animals. So we look at our accounts and we're saving >%50 so we expect some crazy graph. And then we see something like the first picture below.

When in reality that snowball effect you're expecting is a longer term effect. Something that takes years until you see your graph, which seemed linear at the time, is an exponential function. The second picture. Exponential functions when viewed in a small scale can seem extremely linear.

The when just depends on the rate of increase. That's the long term side of it.

Where you come in and be badass is just your huge savings rate. So don't sweat the non-snowballish view in the now and the immediate. Move on to the things you can impact which is your actions and savings rate.

[meadow lark]

I have been around here for 4 years now, and it doesn't happen quite that fast!  It still takes most people 10 or more years to go from 0 to FIRE.  The turn around from sinking ship to motor boat slicing through the waves can be fast, though.  I've seen many "hopeless" people look completely different in a year.  For us, it took a year for us to get rid of our lifestyle entanglements, before we could start doing better.  It really was a slog of a year or 2.  But now we are consistently moving forward at a steady clip, and am 3-5 years from FIRE.

[arebelspy]

I know at some point your investments start snowballing. When did you actually start seeing the snowball rolling?

Previous threads discussing this:
At What Dollar Level Does the $$ Start Compounding Fast?
High net worth mustachians: when did your money really start to grow?
When did you notice the compound interest snowball?

That should give you lots of comments/discussion on this topic, and if you want more, do a search, I'm sure there's more.  :)

I'll second matchewed--my graph always looked linear.  Due to the fact that your net worth as a Mustachian, when you have a high savings rate, is dominated by your contributions, not returns, your graph WILL look linear.  That's okay, that's a good thing.  That means you're saving a lot.

You won't snowball much, just have a linear on the way to hitting FI (you may finally, towards the end, have your stache contributing as much as you are), but it's those returns that will let your FIRE stache last the rest of your life.  You can run the math, or do a search to see where people have posted it, on what % of your stache is made up of contributions versus returns, based on your savings rate, but the vast majority, when you have a high savings rate, is contributions. IIRC (off the top of my head) it's something like 85% contributions, 15% returns with a 70% SR. That may be off, but it's a pretty big discrepancy like that.

[deborah]

+1 ARS

Snowballing really happens when you get rid of an expense - whether it is clearing credit card debt or getting rid of a mortgage - and suddenly having a lot more discretionary money.

[Exflyboy]

I think also in recent years the NW graph has been distorted by the recovery from the great recession.. i.e the contributuions on the way down would look like a steady is decline (assuming you were buying on the way down of course).

But the recovery was huge.. so its a bit hard to see the underlying rise in growth.

From our perspective I really didn't know how much we had until I added everything up during 2013 and Bang I was already there!