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Author: peteyperson Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 5069  
Subject: FIRE Benchmarks Date: 9/22/2003 9:52 PM
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Hello all,

I've been reading some of the earlier posts from this newish board and I wanted to add some ideas of my own.

I think that whilst the ideas put forth by Larry Waschka in The Complete Idiot's Guide to Getting Rich are interesting, I don't think they are all that useful.

Example from the quoted book:

Stage 1: You spend less than you earn and save the difference. You are accumulating wealth.

Stage 2: Your savings appreciates in value (not including new contributions) an equal or greater amount than what you contribute. i.e. You have a $100,000 port earning 10% and your annual savings are $9000. Your port is appreciating by more than what you are saving, and if you wanted you could stop saving so much.

Stage 3: Your savings appreciate in value an equal or greater amount than your annual income. At this point you are essentially FI without the safety net of 25x spending.

As one's gross salary increases, the goalposts keep moving on you when you attempt to build up a net worth of one year's gross income. This can be very discouraging as some posters noted. Such a measurement has little relevance to FIRE. A better measurement would be to prepare a FIRE budget and compare last year's savings to the budget to see what multiple you managed to save. You could also compare total gains in your portfolio from market returns and new investments against the same measurement. Lastly, if you want to compare total net worth to something, then compare it to your future FIRE budget and not a variable gross salary which has little connection to your actual spending. Your saving is to support future spending and the measurements of progress used should reflect that.

For instance:

FIRE Budget $25,000

Net Worth: $37,500

FIRE multiple: 1.5x

As most people ultimately are working towards a multiple of your FIRE budget, intercsts's often quoted and mostly incorrect 25x, it is a far better measurement of your progress. Many will save their pay rises above inflation and so the movement of salary over the years won't change the calculation other than inflationary adjustments. Additionally, you could track what multiple of a year's FIRE budget last years new investments and return (above inflation) delivered.

This approach is modelled after your FIRE goals rather than an arbitary basis which has little relevance to your specific situation.

Hope it helps.

Petey
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