I was first introduced to the concept of FIRE (Financially Independent / Retire Early) by Mr. Money Mustache. This is a movement in the personal finance community where people save a very large amount of money (usually off of a large income), set up passive income streams, and retire very early. Mr. Money Mustache was able to retire at age 30 after saving around 70% of his income every year.
FIRE Prowess Gauge
The Green Swan started a new metric to track how well you are progressing towards obtaining FIRE. You can read about it in detail here: The Swan’s FIRE Prowess Gauge // Savings Rates be Damned.
FIRE Prowess = Change in Net Worth / Total Gross Income
All you have to do is pick a time period, say 5 years, and track how much your net worth changed versus your total gross income (before taxes) for each year. You can then calculate your lifetime FIRE Prowess which is the change in net worth over the time period versus the total gross income of the time period.
Maximum Cents’ FIRE Prowess Gauge:
I have been tracking my net worth with Mint since 2014 so I am able to calculate each year’s score up to 2017. To figure out my total gross income each year I looked at my previous tax filings. The chart below shows my short term progress towards FIRE.
Looks like I have been performing pretty well. I have managed to stay above 0.50. 2015 was a down year for the market. My stocks have done very well in 2016 and 2017. You can see on the graph below that I am approaching a FIRE score of 1.0.
My 4 year “Lifetime Score” is 0.70. This is a relatively small sample size but it is more accurate than any one year.
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!
It makes sense that each years’ numbers are in the 0.50 to 0.75 range. I have been saving aggressively, adding to my investments over the years, and my salary has continued to increase. There is definitely more work to do to eventually achieve Financial Independence. Also, I’m not yet entirely sold on the Retire Early idea.
Blog Chain Gang
The following is a 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 Gauge 2016: 132% Lifetime: 93%
- Link 1: The Retirement Manifesto – Is Your Wealth Building On Track? 2016: 57% Lifetime: 44%
- Link 2: OthalaFehu – My Swan FIRE Prowess Numbers 2016: 72% Lifetime: 61%
- Link 3: Budget On A Stick – My FIRE Prowess Score 2016: 52% Lifetime: 55%
- Link 4: Shnugi – Calculating My Savings Rate 2016: 71% Lifetime: 54%
- Link 5: Dads Dollars Debt – DDD’s FIRE Prowess 2016: 26% Lifetime: 32%
- Link 6: Debts To Riches – My FIRE Prowess Report Card 2016: 29% Lifetime: 43%
- Link 7: Adventure Rich – The Adventure Rich FIRE Prowess Score 2016: 45% Lifetime: 47%
- Link 8: Freedom Is Groovy – The Groovies FIRE Prowess Score 2016: 163% Lifetime: 90%
- Link 9: Working Optional – Calculate Your Progress To Financial Freedom 2016: 97% Lifetime: 75%
- Link 10: Budgets Are Sexy – My Total Lifetime Wealth Ratio: 2016: 135% Lifetime: 60%
- Link 11: Life Zemplified – FIRE Prowess Score for Life Zemplified 2016: 78% Lifetime: 76%
- Link 12: Physician’s Wealth Services – Physician Wealth’s FIRE Prowess 2016: 43% Lifetime: 46%
- Link 13: Married And Harried – Married And Harried FIRE Prowess Score 2016: 32% Lifetime: 14%
- Link 14: Ms. Liz Money Matters – Introducing the FIRE Prowess Score 2016 279% Lifetime: 72%
- Link 15: Actuary On Fire: The Swan’s FIRE Prowess Gauge – My Results 2016: 61% Lifetime: 59%
- Link 16: Trail to FI: FIRE Prowess Score, Trail to FI Edition 2016: 34% Lifetime: 53%
- Link 17: Maximum Cents: Maximum Cents’ FIRE Prowess Score 2016: 56% Lifetime: 70%
- Link 18: Retiring On My Terms: ROMT’s FIRE Prowess Score 2016: 119% Lifetime: 57%
- Link 19: Minafi: The Minafi FIRE Prowess Score 2016: 74% Lifetime: 94%
- Link 20: Military Dollar: FIRE Prowess Scores and How to Correct for Military Paychecks 2016 81% Lifetime 83%
- Link 21: Finance Yo Self: FIRE Prowess Score for Finance Yo Self 2016: 44% Lifetime: 44%
- Link 22: The 7 Circles: FIRE Prowess Gauge 2016: 246% Lifetime: 219%
What are your thoughts on the FIRE Prowess Score? Are you on track to FIRE?