The Money Mustache Community
General Discussion => Welcome and General Discussion => Topic started by: TRex on December 25, 2013, 04:47:38 AM

Various advice I have seen around the web:
A year’s salary saved in retirement by age 35
1x your annual salary saved in your retirement account by age 30
"by the time you are 31, you need to have at least one year’s worth of living expenses covered.”
What is your take on this?

"You should be worth $500k by the time you are 50."
Just another one for your list....

Okay, this isn't a cut and dried milestone, but I don't think I've ever shared my net worth formula, and this seems as good of a topic as any.
Here's the PAW/UAW formula for net worth from The Millionaire Next Door:
(Age)*(Salary)/10  if you're at that, you're an average accumulator of wealth (AAW). If you have 2x or more, you're a Prodigious Accumulator of Wealth (PAW). If you have half or less, you're an Under Accumulator of Wealth (UAW).
I think it's mostly crap, because it doesn't work for people in their 20s (just out of college, no time to save/get out of college debt.. example, someone graduated at 22, earning 50k, age 24 now, says they should have 120k  not possible even if they saved 100% of their salary the last 2 years and had no college debt  they've only earned 100k total!), nor does it work for someone in in their late 50s60s (let's say that same worker gets steady raises throughout his life and is earning 80k in real dollars by age 65, it says they should have 520k, much too low for someone age 65, in general  Mustachian or ERE spending aside).
And, of course, it doesn't work if you just had a big raise or whatever (but that's a minor issue, as you can use an average salary of what you've earned).
Here's the formula I like better (for an average person):
(Annual Salary)*((e^(.075*(your age  20)))  1)
If you want it in Excel, the formula is =(EXP(0.075*(Age20))1)*(Salary) . (I have age and salary reference cells in other spreadsheets, personally).
It takes into account age (and the fact that before ~20 you can't have done much in regards to net worth), it's exponential, so it shows your net worth should be growing over time (due to compound interest), and thus it works for the young and old.
Our theoretical 25 yearold earning 50k should have 22,750. Much more reasonable. Our 65 yearold earning 80k should have 2.2MM. Again, reasonable for most people, who shoot to have a nest egg in retirement of a couple of million, and if they've been saving for 45 years, should easily get there (in reality, they don't, but that's because they don't save). Most Mustachians don't need that much, so they'll FIRE far earlier than that, but I'd bet they'd all get there if they chose to keep working.
Okay, so that formula works pretty well for a normal person.
My Mustachian net worth formula is much higher expectations, and only works for someone who has always been a Mustachian naturally and/or discovers Mustachianism at a young age (in their 20s or sooner). It changes the 0.75 to 0.15
(Annual Salary)*((e^(0.15*(your age  20)))  1) or =(EXP(0.15*(Age20))1)*(Salary)
Our 25 yearold making 50k should have about 55k (high, but doable) and our 65 yearold should have about 68 million.
This is obviously a much more aggressive formula, but it's one to shoot for, IMO, and I think most Mustachians who have always been so and/or discover it at a young age can hit those numbers if they keep working and don't FIRE, and invest wisely (think of someone like this (https://forum.mrmoneymustache.com/mustachianismaroundtheweb/badassmustachianleaves$188mtrusttocharity/).)
Tinker with it, if you'd like, and set some goals around it.
Enjoy!
EDIT: Fixed some typos, biggest one being changing the .075 to .15 in the second formula. See posts below.

 zero debt, saving excess with index mutual funds
 portfolio size grows large enough to warrant switch to index ETFs (i.e cost of rebalancing commissions is more than compensated for by MER/TER savings)
 monthly savings contributions are dwarfed by the average growth rate of the investments
 savings growth vastly exceeds a safe withdrawal rate (SWR)
Those would be my milestones.
I think OP was asking for certain ages/timeframes you'd hit those at.
I.e. milestones to measure your progress against, not just lists of milestones you will hit at some point...

Here is one I found
http://www.financialsamurai.com/2012/05/14/theaveragenetworthfortheaboveaverageperson/
of course it's just one guy's opinion but it seems to be an aggressive but reasonable set of guide posts.
However, I think according to the MMM the question is misleading. Its all about your savings rate, now how much you have saved at any particular instance. If you could save 50% of your income, you should have 25x your salary in 12.5 years and could theoretically FIRE then (with maybe an extra year or 2 for buffer). The higher the savings rate, the earlier the FIRE.

Yes, I am looking for age vs. savings. Obviously rate of saving will be different for everyone, since we may have started at different ages and may need to play catch up for a period of time.

The specific goals I personally am shooting for are goals for the time I turn 30.
 $100k net worth in tax advantaged accounts (401k, HSA, Roth IRA)
 A completely paid off home
That will put my net worth about 3x my current salary, give or take a fair bit. I started working FT just before I turned 25 and after grad school, though at that time my net worth was positive.

Trying to set those sorts of milestones is overlooking the unpredictability of life. As for instance "A year’s salary saved in retirement by age 35." At one point in my mid30s, my entire net worth consisted of an old motorcycle, some clothes, and something less than $10.
Really, the only 'milestones' I ever set were of the "If everything goes down the tubes, how long can I keep eating? sort.

Trying to set those sorts of milestones is overlooking the unpredictability of life.
No, it's not. One can acknowledge there will be randomness but still set goals and track progress.
Or should we throw our hands up in the air and give up on planning for the future because unexpected life events happen?
Really, the only 'milestones' I ever set were of the "If everything goes down the tubes, how long can I keep eating? sort.
Okay. Can you see why others might want to set milestones to monitor progress and/or have something to shoot for?

If you want it in Excel, the formula is =(EXP(0.075*(Age20))1)*(Salary) . (I have age and salary reference cells in other spreadsheets, personally).
Thanks for this formula, it really puts things in perspective for me. I do believe I started way too late, (August this year) and I'm already 33. I would have to get a job that pays better so I can catch up. Gonna be working on that promotion next year then.

My Mustachian net worth formula is much higher expectations, and only works for someone who has always been a Mustachian naturally and/or discovers Mustachianism at a young age (in their 20s or sooner). It changes the 0.75 to 0.15
(Annual Salary)*((e^(.075*(your age  20)))  1) or =(EXP(0.15*((AVERAGE(F2,G2))20))1)*(F3)
I like this formula! I'm totally on track!

(Annual Salary)*((e^(.15*(your age  20)))  1) or =(EXP(0.15*((AVERAGE(F2,G2))20))1)*(F3)
Thanks for that formula, I like it!
It puts me at almost exactly on track right now. I'll have to stay the course!

A million dollars in net worth, as quickly as possible. That's been my goal for a long time,
On a side note, the MND formula also doesn't really work for those who can get to a high income at an early age.

For the record, I like arebelspy's formula.

Cool, glad so many of you found it useful. I've been meaning forever to create a post around it, but finally decided to at least post it here once the question arose. Thanks for the inspiration OP.

Cool, glad so many of you found it useful. I've been meaning forever to create a post around it, but finally decided to at least post it here once the question arose. Thanks for the inspiration OP.
I am liking your formula as well:)
I'm way behind even by the conservative formula, but if the debt I've repaid were savings I'd be right on track. Which gives me hope that I can catch up to a reasonable level at some point soon.

I would have been on track just fine if it wasn't for an expensive divorce and paying for an expensive college education for a DD. Now I have some catching up to do in the next 4 years....

Trying to set those sorts of milestones is overlooking the unpredictability of life. As for instance "A year’s salary saved in retirement by age 35." At one point in my mid30s, my entire net worth consisted of an old motorcycle, some clothes, and something less than $10.
Really, the only 'milestones' I ever set were of the "If everything goes down the tubes, how long can I keep eating? sort.
An attitude of "screw setting goals" seems fairly incompatible with the idea of trying to be FI before the "normal" 65 year age.

It changes the 0.75 to 0.15
(Annual Salary)*((e^(.075*(your age  20)))  1) or =(EXP(0.15*((AVERAGE(F2,G2))20))1)*(F3)
Like your formula. I'm not too far off, despite paying back over $200k in graduate and undergraduate student loans. Husband is well above his marker. Good tracker.
Just a quick note, but I think you mean 0.075 above though.

Okay, so that formula works pretty well for a normal person.
My Mustachian net worth formula is much higher expectations, and only works for someone who has always been a Mustachian naturally and/or discovers Mustachianism at a young age (in their 20s or sooner). It changes the 0.75 to 0.15
(Annual Salary)*((e^(.075*(your age  20)))  1) or =(EXP(0.15*((AVERAGE(F2,G2))20))1)*(F3)
Our 25 yearold making 50k should have about 55k (high, but doable) and our 65 yearold should have about 68 million.
Enjoy!
Thanks Arebelspy (every time I type your name it takes me a second to realize it's not pronounced 'Arrbellspee'... oy.)
I needed ~74k Net Worth by your mustachian version of the formula, and according to Mint I'm at ~80k. *whew*
Now that I have more than a year's salary invested, and debt free, I'm starting to see the beginnings of 'your money can work harder than you can' on the horizon.

@Arebelspy Why the "AVERAGE(F2,G2)" term in your excel formula for age? I like the formula...just not understanding that part of the translation to Excel. Was expecting that term to just reference a cell giving current age. I'm way behind per the formula regardless...well, not so much the "regular" one, but the Mustachian one. Do you think it is possible to make it catch up to the Mustachian formula or is that more of an upper limit scenario?

Wow, I'll be spending some quality time with this formula later this week.
Doing some off the cuff rough estimates, I can cautiously say the following:
one year ago, I hadn't found the blog and had ZERO savings and DID NOT SAVE. I was living check to check in my early thirties. Looks like I'll catch up the the average saver (i.e. arebelspy's formula using 0.075) around age 3637 if I continue at my current savings rate until then.
That's some powerful perspective that I didn't have before.
Thank you, thank you.

My Mustachian net worth formula is much higher expectations, and only works for someone who has always been a Mustachian naturally and/or discovers Mustachianism at a young age (in their 20s or sooner). It changes the 0.75 to 0.15
(Annual Salary)*((e^(.075*(your age  20)))  1) or =(EXP(0.15*((AVERAGE(F2,G2))20))1)*(F3)
I think in editing your comment you accidentally put .075 where you meant it to be 0.15 in the Mustachian formula. Interesting formula and thanks for sharing! I would also add that it works best for people who started working right after college. I consider myself naturally Mustachian, but I went through undergrad, med school (where I took out a bunch of loans), 3 years of residency, and it's only my first year earning six figures at the ripe ol' age of 31. It may be worth considering changing 20 to "age when entered workforce," unless you feel like it makes more obvious the opportunity cost of getting more schooling vs. working and makes us 23rd graders realize how much it puts us behind, at least to start :).

@Arebelspy Why the "AVERAGE(F2,G2)" term in your excel formula for age? I like the formula...just not understanding that part of the translation to Excel. Was expecting that term to just reference a cell giving current age. I'm way behind per the formula regardless...well, not so much the "regular" one, but the Mustachian one. Do you think it is possible to make it catch up to the Mustachian formula or is that more of an upper limit scenario?
Here's a trick you can use to adjust the Mustachian formula to your situation if you started saving late. Do the following calculation in Excel with a recent year's data (don't use 2013): =Age  LN(Net Worth/Salary+1)/0.15 substituting in your age, net worth, and annual salary at that time where appropriate in the formula. Then use the result in place of the 20 in Arebelspy's formula. You can round if you'd like.
For example: If I were 35 years old in 2010 with a net worth of $70,000 and an annual salary of $50,000, then I would find that 35LN(70000/50000+1)/.15 = 29.16354. I would then use the formula =(EXP(0.15*((Age)29.2))1)*(Salary) to track where I should be over the next few years. Because of the way my formula is derived you will always be "on track" for the year whose numbers you used to determine the factor. That is why you should use a year other than 2013. You can then verify whether you continued on track during the following years. For example using the above numbers, I would be 38 in 2013. Let's assume my salary has risen to $55,000. Therefore I should have (EXP(0.15*((38)29.2))1)*(55000) = $150,900 net worth.
Using my formula for the age factor works best when you have been saving for at least two years. You cannot use a negative net worth in the formula unless you're debt is at about a 15.1% APR.
The Mustachian formula gets a bit funky after about year 15 (age 35 for the original formula). For example, from year 20 (age 40) to year 21 (age 41) the benchmark net worth goes from 19.09 times salary to 22.34 time salary. About 1.53 times salary of that growth is the exponential growth of the 19.09 times salary already invested at 8% annual growth, but that leaves 1.72 times salary of growth that must be accomplished by contribution. That doesn't make any sense as you would need to contribute more than you made to keep up. So use this formula with caution past year 15, and don't be discouraged when the benchmark grows faster than your portfolio at that point in time!
Furthermore, the Mustachian formula assumes either above average annual growth for your portfolio or 50%  75% savings rate over the next 15 years. If you anticipate a 30%  50% savings rate instead, try using arebelspy's "normal" formula with .075, then multiplying the result by 2.5.

My Mustachian net worth formula is much higher expectations, and only works for someone who has always been a Mustachian naturally and/or discovers Mustachianism at a young age (in their 20s or sooner). It changes the 0.75 to 0.15
(Annual Salary)*((e^(.075*(your age  20)))  1) or =(EXP(0.15*((AVERAGE(F2,G2))20))1)*(F3)
I think in editing your comment you accidentally put .075 where you meant it to be 0.15 in the Mustachian formula. Interesting formula and thanks for sharing! I would also add that it works best for people who started working right after college. I consider myself naturally Mustachian, but I went through undergrad, med school (where I took out a bunch of loans), 3 years of residency, and it's only my first year earning six figures at the ripe ol' age of 31. It may be worth considering changing 20 to "age when entered workforce," unless you feel like it makes more obvious the opportunity cost of getting more schooling vs. working and makes us 23rd graders realize how much it puts us behind, at least to start :).
Well, you do get paid in residency/fellowship. (And not completely miserably either, if you ignore the rate per hour factor. My friend in her first year of fellowship made only $9K less than I did at my new job when I started, after 3 years of legal experience, same as her 3 years of residency experience.) I bet if you weren't in your first year of a high salary (throwing it off a little) it'd make more sense. Pretend it's last year and see how you stack up. I did 3 years of grad school and I'm only behind by a bit. DH did 7.5 years of grad school, and is ahead by quite a bit. It's doable.
ETA: Nevermind. I was running numbers off the "normal" saving not mustachian saving. We're both woefully behind mustachian saving rates, although DH less than me. Paying back $200k in student loan debt probably had something to do with that.

Actually, I'm doing ok, but I think it has more to do with my husband helping me out with loans and earning a decent salary.

It changes the 0.75 to 0.15
(Annual Salary)*((e^(.075*(your age  20)))  1) or =(EXP(0.15*((AVERAGE(F2,G2))20))1)*(F3)
Like your formula. I'm not too far off, despite paying back over $200k in graduate and undergraduate student loans. Husband is well above his marker. Good tracker.
Just a quick note, but I think you mean 0.075 above though.
Indeed, that should have said .075 instead of .75, for the average one. Thanks for catching that. You also made me notice that in my Mustachian version of the formula I said it should be .15, and I changed it in the excel version, but I didn't change it in the actual version (you quoted, right before the excel version).
So the Mustachian Version should say .15, not .075.
Hope that didn't mess anyone up. :)
Thanks Arebelspy (every time I type your name it takes me a second to realize it's not pronounced 'Arrbellspee'... oy.)
I needed ~74k Net Worth by your mustachian version of the formula, and according to Mint I'm at ~80k. *whew*
Haha, you aren't the first to think that. :) Hopefully my typo in the Mustachian version (above) didn't throw you off!
@Arebelspy Why the "AVERAGE(F2,G2)" term in your excel formula for age? I like the formula...just not understanding that part of the translation to Excel. Was expecting that term to just reference a cell giving current age. I'm way behind per the formula regardless...well, not so much the "regular" one, but the Mustachian one. Do you think it is possible to make it catch up to the Mustachian formula or is that more of an upper limit scenario?
Oh geez, another typo. Thanks for catching it. :)
It should reference a cell for age, it's just that my age is calculated in F2 (based on the current date and my date of birth) and my wife's age is in cell G2, so that averages them. If you are single, no need for that.
I think in editing your comment you accidentally put .075 where you meant it to be 0.15 in the Mustachian formula.
Interesting formula and thanks for sharing! I would also add that it works best for people who started working right after college. I consider myself naturally Mustachian, but I went through undergrad, med school (where I took out a bunch of loans), 3 years of residency, and it's only my first year earning six figures at the ripe ol' age of 31. It may be worth considering changing 20 to "age when entered workforce," unless you feel like it makes more obvious the opportunity cost of getting more schooling vs. working and makes us 23rd graders realize how much it puts us behind, at least to start :).
Interesting. I'll have to think about that. 20 is used, despite the fact that many of us don't start for a few years after that (and some start with student loans, etc.) and, as you say, the opportunity cost may be taken into account due to that. Hopefully you'll have a higher salary to catch up quickly (and you will indeed be behind, but it will pay off, in theory).
Furthermore, the Mustachian formula assumes either above average annual growth for your portfolio or 50%  75% savings rate over the next 15 years.
I'm glad you chimed in; I've enjoyed your math on several other posts. Indeed, the Mustachian savings works best for a 5075% savings rate (normal for most Mustachians) and works best for the initial 15 years.
If you anticipate a 30%  50% savings rate instead, try using arebelspy's "normal" formula with .075, then multiplying the result by 2.5.
Interesting thought, I'll have to play around with that. Sort of inbetween Mustachian and normal.
Thanks for all the proof reading everyone, I edited the post, think it's correct now.

Using my formula for the age factor works best when you have been saving for at least two years. You cannot use a negative net worth in the formula unless you're debt is at about a 15.1% APR.
Interesting. Thank you. My numbers are so much higher than what I have saved. However, I am thinking it's due to the fact that my salary has gone up a lot over the past 2 or so yearsand the spouse got a big raise. That might be throwing things off.

Great formulas, Arebelspy  thanks! Just a clarification, in your view is the number you end up with supposed to be just the cash/investments you have or does it include everything in your net worth? Home value, specifically. Like if I'm supposed to have 1.3M and I only have 1M, but my home equity is 300K, does that mean I'm on track or should I have 300K more besides? I've always been confused about that.

I like Arebelspy's formula as well. I decided to use the Mustachian formula with the start date of when our net worth crossed the zero line. We had an average age of 37.6 then, so that sort of starts us where we really are, and leaves out the young ages when we didn't save and had large debts.
At least that way makes it look like we are doing well, where using age 20 as a starting point it says we should have something like $2 million. Yeah...we don't!

Great formulas, Arebelspy  thanks! Just a clarification, in your view is the number you end up with supposed to be just the cash/investments you have or does it include everything in your net worth? Home value, specifically. Like if I'm supposed to have 1.3M and I only have 1M, but my home equity is 300K, does that mean I'm on track or should I have 300K more besides? I've always been confused about that.
Total. Equity is part of your net worth.

I love these formulas and think they are fun to use.
With all sincerity, what is the main point of using these? Curiosity? I am wondering if I am missing anything.
I ask because I know how much I need to retire, and I know about how long it'll take to get there. If I know those data points, then why would I need/want these formulas even though I have enjoyed using them?

I love these formulas and think they are fun to use.
With all sincerity, what is the main point of using these? Curiosity? I am wondering if I am missing anything.
I ask because I know how much I need to retire, and I know about how long it'll take to get there. If I know those data points, then why would I need/want these formulas even though I have enjoyed using them?
Numbers like these are useful to know if you're on track, a savings version of keeping up with the Joneses. If you're already comfortable with your current metrics and how you track your progress I guess it might not be more than the curiosity you've mentioned.

I like Arebelspy's formula as well. I decided to use the Mustachian formula with the start date of when our net worth crossed the zero line. We had an average age of 37.6 then, so that sort of starts us where we really are, and leaves out the young ages when we didn't save and had large debts.
At least that way makes it look like we are doing well, where using age 20 as a starting point it says we should have something like $2 million. Yeah...we don't!
That's a fairly clean way of doing it; I like it.

I love these formulas and think they are fun to use.
With all sincerity, what is the main point of using these? Curiosity? I am wondering if I am missing anything.
I ask because I know how much I need to retire, and I know about how long it'll take to get there. If I know those data points, then why would I need/want these formulas even though I have enjoyed using them?
Numbers like these are useful to know if you're on track, a savings version of keeping up with the Joneses. If you're already comfortable with your current metrics and how you track your progress I guess it might not be more than the curiosity you've mentioned.
Okay. Thank you. =D
It's been fun to play with them while I'm not at work.

I like Arebelspy's formula as well. I decided to use the Mustachian formula with the start date of when our net worth crossed the zero line. We had an average age of 37.6 then, so that sort of starts us where we really are, and leaves out the young ages when we didn't save and had large debts.
At least that way makes it look like we are doing well, where using age 20 as a starting point it says we should have something like $2 million. Yeah...we don't!
That's a fairly clean way of doing it; I like it.
Interesting to me is if I plug the years we graduated from grad school into the mustachian equation instead of 20. By those standards, I'm right on target and DH is well ahead. (And that makes sense, since I paid off undergrad and grad debt he didn't have  in addition to a time period of unemployment.)

Regarding the formulas, if I enter my present salary, the formula assumes that this has been my salary since age 20, right? (Hamy first salary was about 13,000.)
So that's why Arebelspy's more aggressive formula says I should have a ridiculous NW of over $9million. Hmmph.
Even the formula for a "normal" person says my NW should be $781K, when in reality it is $341K. But then I have known for a while now that I am not normal. ;)

Interesting. I'll have to think about that. 20 is used, despite the fact that many of us don't start for a few years after that (and some start with student loans, etc.) and, as you say, the opportunity cost may be taken into account due to that. Hopefully you'll have a higher salary to catch up quickly (and you will indeed be behind, but it will pay off, in theory).
My application of this formula has the same problem. By virtue of getting a PhD I didn't get a real job until I was 31, so I look waaay behind despite maintaining a high savings rate.
Your second sentence above, about the hopefully higher salary catching up, is hard to implement/check without knowing what my salary would have been had I decided against going to graduate school. Lower, certainly, but lower by 9 years of professional raises? Kind of depends on how upwardly mobile I would have been without a graduate degree.
Despite that, the formula with the .15 coefficient accurately predicts our net worth to within 2% if I use as a starting age our average age of starting work and our current combined income. Coincidence? Largely attributed to a good market year?

I love these formulas and think they are fun to use.
With all sincerity, what is the main point of using these? Curiosity? I am wondering if I am missing anything.
I ask because I know how much I need to retire, and I know about how long it'll take to get there. If I know those data points, then why would I need/want these formulas even though I have enjoyed using them?
I requested it as a way to find money milestones as I get older, and especially to find where I am supposed to be right now. It sets a yearly benchmark, so you don't wake up one day and realize you'd have to suddenly save 5x your annual salary to catch up to your goal at the target date, and also shows you where you will be each year if you meet your savings goals.

Is it correct to assume if you started work after the age of 20 you would adjust up the (Age  20) to be (Age 23)?
Since I started working at 23, (Age23) in my case.

It gets tricky.
I use age20, although I didn't start my job until 22. I also wouldn't penalize someone who started at 16 to use age  16.
Any theoretically if you start later it's because you were doing something that will earn you more, so then adjusting it to start later doesn't offset that benefit. 20 was chosen as a good balance number for that purpose. As noted, one may start with student loans, and that could be tweaked as well, and you could start it at the point that you hit net worth zero, as some did.
So idk, I probably wouldn't, as it just bends it to your favor, but it doesn't matter.. tweak it to whatever gives you warm fuzzies. :)

Any theoretically if you start later it's because you were doing something that will earn you more, so then adjusting it to start later doesn't offset that benefit.
Right, but in that case you'd have to use the formula with age 20 and the income you would have had at age 20, not the much increased income that results from spending 10 extra years in school.
If you're going to use your current income, I think it only makes sense to use the age at which you actually started working. Otherwise, the more rapid increase in wages blows the savings curve out of the water. And I assure you that wage discrepancy between graduate student and PhD is a dramatic one. I currently pay more in taxes than I had in income when I was a grad student.

So idk, I probably wouldn't, as it just bends it to your favor, but it doesn't matter.. tweak it to whatever gives you warm fuzzies. :)
lol, so true, it's meaningless in a sense particularly as you tweak it to fit yourself
Any theoretically if you start later it's because you were doing something that will earn you more, so then adjusting it to start later doesn't offset that benefit. 20 was chosen as a good balance number for that purpose. As noted, one may start with student loans, and that could be tweaked as well, and you could start it at the point that you hit net worth zero, as some did.
Although the equation already takes into consideration the higher income. In fact as it stands, if you get a sudden boost in pay you're penalized in the equation, as noted earlier. I'd be curious to see what equation would look like if it were tweaked to use an average instead. (And of course, not everyone starts later because they were doing something that earns them more. A friend is fond of saying his wife managed to pick one of the few medical specialties that cost her money to specialize, rather than just being a GP, for just one example.)

I judge my milestones in terms of passive income I generate. Right now, pulling in about $2500 monthly in dividends (mostly Canadian dividends, thus taking advantage of favourable tax treatment). Once I hit $3000+ later this year, I am pulling the ER ripcord.

I think the best mustachian milestones are based on what percentage of your expenses are covered by your current savings, so that income disparity between people doesn't skew the milestone. A system like that rewards both earning more and spending less. Say, 25%, 50%, 75%, and 100% of your expenses covered by a 4% SWR at 6.25 years, 12.5 years, 18.75 years, and 25 years of your projected spending in invested assets, respectively.
I think zero net worth is an important goal for a lot of people here.
I think big round numbers are fun to celebrate, though they are different for everyone. For some people, half a million means they are set for life, while for others it's just getting started. It all depends on what you spend.

New to MMM so cannot comment on the title.
arebelspy you just made my day. For our household income we are at not quite twice what the formula said!

Sol, I like your suggestion.
Here's how it looks for me:
Current stash (in retirement funds and Roth IRA): $276,632.94
Assuming $1400 monthly expenses in retirement, times 12 is $16,800 per year.
Drum roll....multiply stash by .04 and see if it covers expenses.....
$276,632.94 * .04 is $11,065.32, which is 66% of expenses.
So I'm not there yet, but will get there soon!
Thanks, sol!

My Mustachian net worth formula is much higher expectations, and only works for someone who has always been a Mustachian naturally and/or discovers Mustachianism at a young age (in their 20s or sooner). It changes the 0.75 to 0.15
(Annual Salary)*((e^(0.15*(your age  20)))  1) or =(EXP(0.15*(Age20))1)*(Salary)
Our 25 yearold making 50k should have about 55k (high, but doable) and our 65 yearold should have about 68 million.
EDIT: Fixed some typos, biggest one being changing the .075 to .15 in the second formula. See posts below.
Do most people graduate when they are 20 in America?
I've edited to 22 for myself (As I took a gap year after uni to go travelling). Gave a figure of ~28k which im pleased to have reached :)

Do most people graduate when they are 20 in America?
No. 2223 is typical.

Here is an interesting calculator.
http://networthify.com/calculator/earlyretirement?income=50000&initialBalance=0&expenses=20000&annualPct=5&withdrawalRate=4

Here is an interesting calculator.
http://networthify.com/calculator/earlyretirement?income=50000&initialBalance=0&expenses=20000&annualPct=5&withdrawalRate=4
Yeah, Networthify is good for calculating time to FI. (Not sure of its relevance to this topic, re: milestones, it doesn't know if you're "ahead" or "behind" or what your age is or anything.)

Here is an interesting calculator.
http://networthify.com/calculator/earlyretirement?income=50000&initialBalance=0&expenses=20000&annualPct=5&withdrawalRate=4
Yeah, Networthify is good for calculating time to FI. (Not sure of its relevance to this topic, re: milestones, it doesn't know if you're "ahead" or "behind" or what your age is or anything.)
I just used it to attempt to project future milestones/hypothetical situations, as a sort of abstract supplement to the methods discussed upthread. By the way, I am learning tons here & I started a journal, if you want to look, hint hint.

arebelspy, I am loving your calculator! Thank you for posting it.
Question for you 
The 0.075 used in the regular formula is lower than my net worth whereas the 0.15 used in the uberbadass formula is twice as much as my current net worth.
Is it okay to change the decimal amount? For instance, if I input 0.10, I am right on target. My goal would then be to save enough to match the amount using 0.11 and then 0.12 and then so on until I reach 0.15.
Does this make sense? I don't want to "cheat" the calculator! And I confess math is not my strong suit.

Bekkah, I think this is why my stats professor made us choose the significance level before the experiment, not afterwards bc you skew the results. It's just for you, so you can play around with the tool however you like. That said, selecting a goal you've already met is probably not as useful.

Mine are not as sophisticated as some of the formulas posted above:
I have 4 Basic Milestones, that I run two kinds of calculations with (one including house value and one without)
At some point (aka the tipping point) house value will become relevant, as I will want to downsize, freeing up some capital,
until that moment, I neglect house value, as I do live in a paid off house, which is reflected in the expenses
It's real simple
I have two budgets: a bare bones budget (BB) and a projected FIRE budget, which is higher than the BB, as I am planning to travel more when Fire and want other buffers as well.
Milestone 1 25x BB considering all assets except the house
Milestone 2 25x FIRE considering all assets except the house
Milestone 3 33x BB considering all assets except the house
Milestone 4 33x FIRE considering all assets except the house
Milestone #4 is my ideal, but if something happens and my job gets too sucky, requires relocation or whatever, I know I can factor in that part of the house value, that could be freed up by
downsizing, in order to speed things up.
So, I do track the same set of Milestones factoring in that value including the house.
I call Milestone 1 the FU milestone ;), which should be reached sometime next year (13 months from now, if I manage to stick to projections, but my world right now is turning upside down, so who knows). My stretch goal is to hit it before the end of the year, which is a challenge, but possible if no major disaster happens.

Milestone 1 25x BB considering all assets except the house
Milestone 2 25x FIRE considering all assets except the house
Milestone 3 33x BB considering all assets except the house
Milestone 4 33x FIRE considering all assets except the house
Have you run the actual numbers and 25x fire comes before 33x bb? For me your milestone 2 and 3 should be switched.

arebelspy, I am loving your calculator! Thank you for posting it.
Question for you 
The 0.075 used in the regular formula is lower than my net worth whereas the 0.15 used in the uberbadass formula is twice as much as my current net worth.
Is it okay to change the decimal amount? For instance, if I input 0.10, I am right on target. My goal would then be to save enough to match the amount using 0.11 and then 0.12 and then so on until I reach 0.15.
Does this make sense? I don't want to "cheat" the calculator! And I confess math is not my strong suit.
I pretty much agree with what CommonCents said.
What you should take those results as saying is: You are on track, but could push it even better.
If I were you I'd leave it at the .15 level, then add a year to the age, two years, etc. and see what the formula says you should be at in 12 years, 5 years, etc. and see what you need to do to get there (what savings rate, etc.). :)

Milestone 1 25x BB considering all assets except the house
Milestone 2 25x FIRE considering all assets except the house
Milestone 3 33x BB considering all assets except the house
Milestone 4 33x FIRE considering all assets except the house
Have you run the actual numbers and 25x fire comes before 33x bb? For me your milestone 2 and 3 should be switched.
It's funny you say that, when I first set up the tables, I did have them in the order you suggest, as per gut feeling
Then I plugged in my numbers and I realized I needed to switch MS2 and MS3 to where they are now
The reason being that my FIRE amount is 25% higher than the BB amount
If it were 33% higher than the order would be reversed
Makes mathematically sense when you think about it, but I was surprised anyways ;)
..and btw, they are indeed reversed when factoring in the house ;)

Pretty cool calculator! I projected we could retire in 57yrs, it estimated 4.1yrs :) Yeah... we're a bit risk adverse :)

Milestone 1 25x BB considering all assets except the house
Milestone 2 25x FIRE considering all assets except the house
Milestone 3 33x BB considering all assets except the house
Milestone 4 33x FIRE considering all assets except the house
Have you run the actual numbers and 25x fire comes before 33x bb? For me your milestone 2 and 3 should be switched.
It's funny you say that, when I first set up the tables, I did have them in the order you suggest, as per gut feeling
Then I plugged in my numbers and I realized I needed to switch MS2 and MS3 to where they are now
The reason being that my FIRE amount is 25% higher than the BB amount
If it were 33% higher than the order would be reversed
Makes mathematically sense when you think about it, but I was surprised anyways ;)
..and btw, they are indeed reversed when factoring in the house ;)
Yeah, I was just wondering if you had run the numbers or not. Your barebones (BB) and bigger FIRE budget are pretty close then.
My FIRE amount is double my BB amount. (Well actually I don't have a BB amount, my current spending is what I use for BB, my BB amount would be cut down way from my current spending level).

Milestone 1 25x BB considering all assets except the house
Milestone 2 25x FIRE considering all assets except the house
Milestone 3 33x BB considering all assets except the house
Milestone 4 33x FIRE considering all assets except the house
Have you run the actual numbers and 25x fire comes before 33x bb? For me your milestone 2 and 3 should be switched.
It's funny you say that, when I first set up the tables, I did have them in the order you suggest, as per gut feeling
Then I plugged in my numbers and I realized I needed to switch MS2 and MS3 to where they are now
The reason being that my FIRE amount is 25% higher than the BB amount
If it were 33% higher than the order would be reversed
Makes mathematically sense when you think about it, but I was surprised anyways ;)
..and btw, they are indeed reversed when factoring in the house ;)
Yeah, I was just wondering if you had run the numbers or not. Your barebones (BB) and bigger FIRE budget are pretty close then.
My FIRE amount is double my BB amount. (Well actually I don't have a BB amount, my current spending is what I use for BB, my BB amount would be cut down way from my current spending level).
Wow, yes, when I set Fire = 2x BB that makes a HUGE impact.
My BB is current spending too, which could be cut more if needed, but not by a whole lot without moving (the biggest junk of current expenses are mostly linked to the house)
I could probably shave off another 1015% to get to real bare bones in "as is" state, but then frugal fatigue would be setting in real quick.

Rebel Spy
I'm curious about your FIRE budget. And I'm even more curious about your present spending. Elsewhere, I think you have said that you and your wife spend when you want to spend, yet your numbers are really low. I'm wondering how you manage that. I know you don't have a budget that guides your spending, but can you give rough numbers of what you do spend and in what categories? (If you are comfortable doing so.)
Sorry about the thread hijack.

Rebel Spy
I'm curious about your FIRE budget. And I'm even more curious about your present spending. Elsewhere, I think you have said that you and your wife spend when you want to spend, yet your numbers are really low. I'm wondering how you manage that. I know you don't have a budget that guides your spending, but can you give rough numbers of what you do spend and in what categories? (If you are comfortable doing so.)
Sorry about the thread hijack.
From what I gather, he just doesn't want much. See https://forum.mrmoneymustache.com/askamustachian/whathappensifyoustrikeitrich/

Rebel Spy
I'm curious about your FIRE budget. And I'm even more curious about your present spending. Elsewhere, I think you have said that you and your wife spend when you want to spend, yet your numbers are really low. I'm wondering how you manage that. I know you don't have a budget that guides your spending, but can you give rough numbers of what you do spend and in what categories? (If you are comfortable doing so.)
Sorry about the thread hijack.
Present spending is mentioned in this thread (https://forum.mrmoneymustache.com/askamustachian/whoisreallylivingon$25to30kfor2peoplewithnomortgagerent/msg224267/#msg224267).
About 2022k typically, not counting taxes.
As dragoncar pointed out, our spending is low because our wants are low, as discussed in this thread: https://forum.mrmoneymustache.com/askamustachian/whathappensifyoustrikeitrich/
Regarding my FIRE budget, I actually have no idea what everything will cost, as our plan involves having a kid, and traveling full time in FIRE. Kids and travel can both be expensive (though they can be done cheaply as well), but there's obviously a lot of unknown variables in expenses for both of those things.
So I'm shooting for final real estate income before FIRE of between 6070k (net, after healthy amounts are set aside for reserves, conservative assumptions on all other costs, vacancies, repairs, etc.), with a (wildly pulled out of my ass guesstimate) budget of 4550k spending.
More in this thread: https://forum.mrmoneymustache.com/shareyourbadassity/hitfiyesterday/
Feel free to ask any (more specific) questions, I'm pretty open.

RebelI was hoping to see your spending within categories (food, internet, cable, clothing, utilities, etc). Sorry that probably wasn't clear earlier. Just out of curiosity.
I know you said in another thread that you and your wife spent about $18,000 in 2013, total. I (all by myself!) spent about $16,000 (not including housing, homeowner's insurance, and property tax)! I thought I was doing well, but when I saw your spending, I was gobsmacked (and I am not sure I have ever before used that word).
I know you don't want much, and neither do I. But I still wonder how you spend so little.
I'm sure whatever you can share will help me to examine my spending more closely and find places to cut.
Hope that is clearer.
Thanks.

No problem. Here is the 2013 spending averaged out per month.
Housing (Mortgage + HOA + Home Insurance + Property Taxes): $499
Utilities (Electricity, Water/Sewage, Garbage): $55
Cell Phones: $63
Food: $277 (203 Groceries, 33 Fast Food, 41 Restaurants)
Student Loans: $109
Travel: $55
Auto: $226
Shopping ("Stuff"): $74
Other/Misc (Financial, Insurance, Health and Fitness, Pets, etc): $200
Total/mo: ~$1558
Yearly Total: ~$18700

Thanks for sharing! Quite impressive!! And inspirational!

That .15 version of the formula is awfully aggressive and gets more "out of whack" the older you get.
Unless I'm doing it wrong (very possible) a 45 year old with a 90k salary should have $3.7 million saved.
To put that in perspective, if you saved $4166/mo (50k/yr) for 23 years at 8% interest you'd wind up with $3 million flat.
Don't really see how that's possible unless you are a for realz investor, incredibly lucky, or received a windfall.

That .15 version of the formula is awfully aggressive and gets more "out of whack" the older you get.
Unless I'm doing it wrong (very possible) a 45 year old with a 90k salary should have $3.7 million saved.
To put that in perspective, if you saved $4166/mo (50k/yr) for 23 years at 8% interest you'd wind up with $3 million flat.
Don't really see how that's possible unless you are a for realz investor, incredibly lucky, or received a windfall.
Hmm. I'm not seeing the issue with that example; I'd anticipate having well above that if I kept working to 45.
Yes, at the higher ages it does get large. That's the issue with using exponents. ;)
Theoretically, a Mustachian wouldn't be working 23 years, but have hit their FIRE number. At that point net worth milestones become useless.
Or, if they were still working, they'd have started their own business and be worth much more than the formula indicates.
Unless, of course, they weren't chasing money, but cutting back hours, etc. etc. Then why would they be worried about reaching milestones?
This formula is for people striving for FI  i.e. still working for money. If you are still working for money after 23 years, and are Mustachian, yes, I'd expect you to have multiple millions. And there are many examples of that on these forums as well as the ER.org forums.
As discussed earlier (when talking about how one could tweak for this or that, age started working, etc. etc.), without doing fancy if/then statements it's hard (impossible?) to get one robust formula that works for every situation.
Hope that helps explain. :)

Somehow we got ahead of ARS's formula for now, but when I project it forward it overtakes my projections bigtime at like age 45. At that point the exponential is really taking off more than mine.
It's fairly close overall though, for the relevant bit (accumulation phase). Good target to shoot for. Thanks ARS for this!
I was curious so I took a hypothetical example of somebody who started saving at 20, earned 60k a year to start, had 3% salary increases, 7% investment returns, 2% spending inflation, spends 35k to start, and is taxed at 25%. I attached the spreadsheet. Looks like ARS's method is pretty conservative, using those assumptions. Anyway the main thing I wanted to see was what the exponential coefficient was going to be, and it's close to .15. However the trendline doesn't fit that well, just because there are many more low net worth data points than high ones naturally, so they take priority and it looks like a poor fit for the higher ones. Like I said, fits the accumulation stage pretty well. Once you're past a million or so maybe it makes sense to refit another model if you care enough at that point.

Hmm. I'm not seeing the issue with that example; I'd anticipate having well above that if I kept working to 45.
Seems about right to me, too. I think if you're surprised that 50k/year at 8% for 23 years will hit 3 million dollars then you haven't yet spent much time understanding compound interest.
That's kind of the whole point of this site. Money you invest instead of spend can work for you, making more money to invest. Or spend.
Our current plan involves saving more than 50k/year and having less than 3 million, but working far less than 23 years.
And the beauty is that each person gets to pick where on that spectrum they want to fall. Want vast wealth? Then work longer and save more. Want to retire sooner? Spend less and save more. This isn't rocket science, people.

Sol,
I'm not surprised by any if the numbers I gave. I simply stated that according to the calculator if you, at age 45, made 90k a year it spits out you should have $3.7 million saved.
I then said if you saved 50k a year with an 8% return you'd only have $3 million.
That's a disconnect. If you're 45 making 90k you most likely weren't 22 making 90k. For sake of argument say you got 3% raises every year from 22 to 45. You would have started at 45k (most likely you started lower and got larger raises). So it would be impossible to save 50k every year putting you short of even that goal.

Sol,
I'm not surprised by any if the numbers I gave. I simply stated that according to the calculator if you, at age 45, made 90k a year it spits out you should have $3.7 million saved.
I then said if you saved 50k a year with an 8% return you'd only have $3 million.
That's a disconnect. If you're 45 making 90k you most likely weren't 22 making 90k. For sake of argument say you got 3% raises every year from 22 to 45. You would have started at 45k (most likely you started lower and got larger raises). So it would be impossible to save 50k every year putting you short of even that goal.
Did you look at FI40's spreadsheet three posts up? He points out that the .15 may in fact be too conservative. You say it may be too aggressive.
/shrug
Choose whatever number gives you warm fuzzies.
I maintain that the .15 target is a solid Mustachian target.

Did you look at FI40's spreadsheet three posts up? He points out that the .15 may in fact be too conservative. You say it may be too aggressive.
/shrug
Choose whatever number gives you warm fuzzies.
I maintain that the .15 target is a solid Mustachian target.
Yes I checked out the spread sheet. It's not correct. It assumes that your salary remains at a constant 60k on the ARS side of the table.
I assume 45 starting work at 22...so I'll use his 43 year old numbers has he has the hypothetical person starting to work at 20.
60k at 3% increases for 23 years puts you at a final salary of $118415. Using your .15 calculator, the person should have a savings of $4.916 millionnot $695,300 on the ARS side.
On the column E calculation, he is off by $3.6 million.
HUGE discrepancies.
However I will say, his column E seems to be pretty accurate in terms of what can be accomplished by saving a significant amount of your income.

I'll face punch myself on this one...looks like I had an extra parenthesis which caused the numbers to more than double. FI40s table is still wrong on the ARS side (doesn't take account the salary increases)...but the numbers are much closer.
A 45 year old with a 90k income would have $1.4 million saved at age 45 with your .15 calculation...not $3.9 mil.
Totally within the realm of possibilities.
Apologies for the commotionthe numbers just didn't make sense which is why I was so confused with all of this.

I'll face punch myself on this one...looks like I had an extra parenthesis which caused the numbers to more than double. FI40s table is still wrong on the ARS side (doesn't take account the salary increases)...but the numbers are much closer.
A 45 year old with a 90k income would have $1.4 million saved at age 45 with your .15 calculation...not $3.9 mil.
Totally within the realm of possibilities.
Apologies for the commotionthe numbers just didn't make sense which is why I was so confused with all of this.
You are right that it assumes the same salary for the whole time.
Glad you figured out your numbers and it seems more realistic to you now. :)

FI40s table is still wrong on the ARS side (doesn't take account the salary increases)...but the numbers are much closer.
Oh. I thought the formula was used for projections, using your current gross salary today. Therefore it makes no explicit assumptions about salary increases.
Is that not your intention ARS?

ARS  thanks for the calculator. I like it a lot. Mostly because the UAW equation makes me look like a complete loser (I think because my salary has increased a lot).
I don't really have milestones, because I can't control the market. But I try to keep my savings rate and raw spending in line with others here.

FI40s table is still wrong on the ARS side (doesn't take account the salary increases)...but the numbers are much closer.
Oh. I thought the formula was used for projections, using your current gross salary today. Therefore it makes no explicit assumptions about salary increases.
Is that not your intention ARS?
I think the intention was "if you make X today, you should have Y saved". So if you are 40 years old and make 100k, you should have X saved. Not you're 25 years old and make X, you should have Y saved at age 40 which I believe is how you are looking at it.

I actually got a 8.0/9.0 in university math but that was 20 years ago...
Age 3620= 16
16x.075= 1.2
1= .2
80k X annual salary= 16,000$ if so Im ok...

FI40s table is still wrong on the ARS side (doesn't take account the salary increases)...but the numbers are much closer.
Oh. I thought the formula was used for projections, using your current gross salary today. Therefore it makes no explicit assumptions about salary increases.
Is that not your intention ARS?
I think the intention was "if you make X today, you should have Y saved". So if you are 40 years old and make 100k, you should have X saved. Not you're 25 years old and make X, you should have Y saved at age 40 which I believe is how you are looking at it.
Huh, ok. When I make that change the best fit line of my estimated amount is actually a lot closer to ARS's projection. Cool stuff.

I actually got a 8.0/9.0 in university math but that was 20 years ago...
Age 3620= 16
16x.075= 1.2
1= .2
80k X annual salary= 16,000$ if so Im ok...
You should have:
(80000) * (e^(.075(3620)1))= $97,712
Or
ARS's MMM equation
(80000) * (e^(.15(3620)1))= $324,416

Thanks I'm somewhere in the middle. But if real estate markets crash here in Canada, that number is going to change...
what does e^ mean? what value is e? exponential? 80,000 to the power of the other numbers?

I presume it's the mathematical constant e ≈ 2.71828

I presume it's the mathematical constant e ≈ 2.71828
Come on, people it was just e day a few weeks ago. I better not hear you asking about pi in late March.

I have just two milestones.
 Being debt fee including mortgage
 Being financially independant
All the rest are just numbers along a graph. Mortgage end and FI are where you see the line change course :)

I presume it's the mathematical constant e ≈ 2.71828
Come on, people it was just e day a few weeks ago. I better not hear you asking about pi in late mid March.
FTFY

I presume it's the mathematical constant e ≈ 2.71828
Come on, people it was just e day a few weeks ago. I better not hear you asking about pi in late mid March.
FTFY
He said it correctly.
The context is it was just e day. He'd better not hear you ask about pi day in late March (which would be just after Pi day, which itself is in midMarch).

Pi day does not exist. There is only Tau day.

Pi day does not exist. There is only Tau day.
Are we allowed to celebrate halfTau day?

Pi is 3.14 There I said it.
If you don't like it, come and find me and bring your pointy protractors to stab me with.
FWIW, I appreciate the little help. Thanks dudes.
I am somewhere between 97k and 314k. Hard to calculate my pension when they keep proposing changes every 2 months. As of now it's platinum plated.
I'm starting to save like it won't exist by then. If so, then awesome. 14 great years left.

Another thank you shout out to arebelspy! I was so discouraged when I used the millionaire next door equation until I realized (duh) that it didn't work since I only had three years of professional work experience behind me. Thanks!

I have just two milestones.
 Being debt free including mortgage
 Being financially independent
All the rest are just numbers along a graph. Mortgage end and FI are where you see the line change course :)
Yep.
I remember seeing a thread about 2013 in review. I was really envious of everyone else, but then I realized I had more than 2x my January 1, 2013 net worth. I started my first job. I started from not a ton of money and ended with double not a ton of money. If you start with $100 and end the year with $200, is that cause for celebration? My numbers are considerably higher (four years of expenses in January 2014  still not in the realm of "a ton of money"), but to me it feels the same.

Pi day does not exist. There is only Tau day.
Are we allowed to celebrate halfTau day?
... I'll submit a request to the proper authorities... but no promises, they can be grumpy in the morning.

Pi day does not exist. There is only Tau day.
Are we allowed to celebrate halfTau day?
... I'll submit a request to the proper authorities... but no promises, they can be grumpy in the morning.
At least pie is delicious. What do you eat on tau day? Two pies? Actually, I'm sold.

I presume it's the mathematical constant e ≈ 2.71828
Come on, people it was just e day a few weeks ago. I better not hear you asking about pi in late mid March.
FTFY
He said it correctly.
The context is it was just e day. He'd better not hear you ask about pi day in late March (which would be just after Pi day, which itself is in midMarch).
My bad!

Yeah, I mentioned that one in my initial post in this thread, but the problem is that it's terrible at the extremes  much too high for younger people, much too low for older people.

Yeah, I mentioned that one in my initial post in this thread, but the problem is that it's terrible at the extremes  much too high for younger people, much too low for older people.
I guess if you want to error on those extremes, those are the directions to error.

Yeah, I mentioned that one in my initial post in this thread, but the problem is that it's terrible at the extremes  much too high for younger people, much too low for older people.
I guess if you want to error on those extremes, those are the directions to error.
Really? Cause then old people will think they're okay with just a few hundred thousand. That's not ideal, IMO.
Skewing everyone high isn't the worst thing, but skewing a scenario low is dangerous.

Love the formula, thanks! According to that, I should be at about 55k (I'm 24), I'm at 174k! Wahoo! (Full disclosure, I did inherit 100). Good to know that even without that I'm ahead :)