Measuring Wealth can be complicated. Money, happiness, health, love, security, purpose, and freedom are just some of the ingredients for a rich life.
What ingredients you need, and how much, is up to you. Some of them you just know. And others, particularly money, you should probably measure.
There’s plenty of numbers you can measure – savings rate, net worth, etc. Which ones you use might change over time. At any rate, how you measure can say a lot about how you feel about that particular ingredient.
For example, I’ve been diligent about tracking my savings rate for this year above everything else. It could be because I’m looking for evidence that habits I’ve built over the last 3 years are sticking, or that I need the security I get from seeing the gap between what I make and what I spend.
A New Number?!
JW over at The Green Swan has created what’s called the FIRE Prowess Score.
FIRE Prowess = Change in Net Worth / Total Gross Income
To calculate, pick a period of say a couple years and add up your change in Net Worth, then divide by all your pre-tax income from the same period. While you can calculate each year separately, it’s recommended that you do as long a time frame as you can. This will give you the most realistic picture of your wealth building progress.
Once you have your numbers, figure out where you fall on the scale below:
Here is how to read your FIRE Prowess Gauge via the Green Swan:
- Negative or 0.0x – Not even on the path toward retirement, let alone FIRE. If you aren’t saving and investing any money and your net worth isn’t growing then it is time to make some changes and develop positive financial habits. It may be a change to a frugal lifestyle or getting an advance degree to take the next step in your career.
- 0.0x to 0.25x – You’re conscious of your retirement and know you should plan for it, but early retirement may not be on your radar at this point.
- .25x to 0.50x – You’ve got the ball rolling and you’re certainly trying! Keep investing wisely, perhaps add a side-hustle or few lifestyle tweaks to lower expenses and FIRE can be within your grasp.
- .50x to 0.75x – You’re working hard toward your retirement goals! Early retirement is definitely possible. Keep working hard and that investment snowball will be rolling (compounding) in no time!
- .75x to 1.0x – FIRE is on your mind and you are performing in overdrive right now!
- 1.0x and over – You are killing it! Don’t make any stupid mistakes and FIRE will be within your grasp in no time. In this scenario, your net worth is more than your lifetime earnings which Joe at Retire By 40 recently wrote about. This is certainly a tough milestone to reach, but maybe one day I can make this claim!
My FIRE Prowess Score
I’ve been tracking my net worth since the end of 2014, so my score at the moment consists of 2015 and 2016. Not a lot of data, but enough to get a general idea of where I’m headed.
|2017 (through August)||55%|
My “lifetime” score (about 3 years of net worth tracking) is 44%.
2017 has certainly been my best financial year ever, both in terms of income and net worth progress. It’s been a combination of increasing my savings rate and riding a positive wave in the stock market.
According to the chart, I need to continue to work on increasing income and/or reducing expenses. And I completely agree! I’ve been working hard on the expenses part the last couple of years and this year have been fortunate to be able to earn overtime, which has really helped boost my income. Overtime isn’t guaranteed though, and I know I need to increase my base salary and continue to build up passive income.
The FIRE Prowess score is a really interesting take on measuring wealth building, especially over a period of several years. The numbers don’t lie. Plus, they’re a lot more than numbers…
They tell a story. About your work, your lifestyle, your approach to accumulating and building and cultivating financial wealth. With any multi-year set of money data there’s also a lot of history in there that tells the story of You. It’s a good reminder that money is just one ingredient in the Rich Life recipe.
Blogger Chain Gang!
This all started over at The Green Swan and has morphed into an internet wide (okay, a small slice of the internet, but still wide!) chain gang. We money bloggers love stats, and this is a really good stat. You can check out the chain of blogs that have calculated their FIRE Prowess Score.
To be added to the chain, write a blog post about FIRE Prowess, calculate your scores, and tell all other bloggers ahead of you via Twitter. Also, keep the chain updated in your post.
Anchor: The Green Swan – The Swan’s FIRE Prowess Gauge2 2016: 132% Lifetime: 93%
- The Retirement Manifesto – Is Your Wealth Building On Track? 2016: 57% Lifetime: 44%
- OthalaFehu – My Swan FIRE Prowess Numbers 2016: 72% Lifetime: 61%
- Budget On A Stock – My FIRE Prowess Score 2016: 52% Lifetime: 55%
- Shnugi – Calculating My Savings Rate 2016: 71% Lifetime: 54%
- DadsDollarsDebts – DDD’s FIRE Prowess Score 2016: 26% Lifetime: 32%
- Debts To Riches – My FIRE Prowess Report Card 2016: 29% Lifetime: 43%
- Adventure Rich – The Adventure Rich FIRE Prowess Score 2016: 45% Lifetime: 47%
- Freedom Is Groovy – The Groovies FIRE Prowess Score 2016: 163% Lifetime: 90%
- Working Optional – Calculate Your Progress To Financial Freedom 2016: 97% Lifetime: 75%
- Budgets Are Sexy – My Total Lifetime Wealth Ratio 2016: 135% Lifetime: 60%
- Life Zemplified – FIRE Prowess Score for Life Zemplified1 2016: 78% Lifetime: 76%
- Physician’s Wealth Services – Physician Wealth’s FIRE Prowess1 2016: 43% Lifetime: 46%
- Married And Harried – Married And Harried FIRE Prowess Score 2016: 32% Lifetime: 14%
- Ms. Liz Money Matters – Introducing the FIRE Prowess Score2 2016: 279% Lifetime: 72%
- Actuary On Fire – The Swan’s FIRE Prowess Gauge – My Results1 2016: 61% Lifetime: 59%
- Trail to FI – FIRE Prowess Score, Trail to FI Edition 2016: 34% Lifetime: 53%
- Maximum Cents – Maximum Cents’ FIRE Prowess Score 2016: 94% Lifetime: 70%
- Retiring On My Terms – ROMT’s FIRE Prowess 2016: 119% Lifetime: 57%
- Minafi – The Minafi FIRE Prowess Score 2016: 74% Lifetime: 94%
- Military Dollar – FIRE Prowess Scores and How to Correct for Military Paychecks 2016 81% Lifetime 83%
- Finance Yo Self – That’s Me! 2016: 44% Lifetime: 44%
- The 7 Circles – FIRE Prowess Gauge 2016: 246% Lifetime: 219%
- Money Metagame – The Good, Bad & Ugly of the FIRE Prowess Gauge1 2016: 108% Lifetime 68%
Readers! What did you learn from measuring your FIRE Prowess Score? Did it change your recipe in any way?