I'd like to share some thoughts on my quest for FIRE, as illustrated by some reports produced while I was playing around in Microsoft Money. I started using Money a year ago, and from memory and paystubs and online services was able to reconstruct my entire investment history (nearly so, except only for two 401Ks that lasted less than a year each before being rollovered to a current IRA.) For a numbers geek like me, the Money reports are pure gold.
This report is of my net worth history (with the actual numbers redacted as not pertinent), from the time of my very first investment (Vanguard S&P 500 in a Roth IRA) five years ago this month.
Can you spot the point where I really got Foolish and serious about saving and investing? :)
Top line is the overall net worth, and the others are the breakdown of each account. 401k, taxable account, Roth IRA, rollover IRA, bank checking, and so on. That net worth line is a bit rough in places, but pretty steadily climbing overall. I'm a 100% mutual fund coffeehouse investor; I don't have the time or knowledge to track and predict individual stocks. The bulk of the assets are held about evenly in the 401k and taxable investing, both with similar long-term growth profiles. The taxable account looks jumpy because I like to save $5k to $10k at a time in a local checking account, then pick an investment for it.
This next image is the same report, with a few annotations where I'd like to comment on the rough spots:
As you can see, each of the dips is only temporary. We can draw a straight line right across the top of each of those dips and match the long-term trend. To explain a little further on each: Dip A was because I was still new and intimidated by investing, and was just saving money in checking instead (and I don't have bank checking history back that far in Money.) I was actually saving all along, it just doesn't show up in this graph until I actually plunged into a mutual fund (Vanguard Value VIVAX which turned out to be a pretty good call.)
Dip B happened from a few factors: a general stock market correction, a short-term loan to family while they moved house, and that I was moving myself so kept an extra cushion in checking. By the end of the summer, the stock market had recovered and the loan and previous security deposit were paid back. Dip C was a single pre-planned large expense: Lasik surgery. Also, the month right after that (March 2007) was a three-paycheck month for an extra net work kick. Dip D was similar: another general stock market correction and recovery, some business travel expenses with delayed reimbursement, and finally August was another three-paycheck month with which to get undipped (if that wasn't a word, it is now.) Thinking about it now, I suppose Money could track expense reimbursement and family loans as accounts-receivable assets, though I haven't done so.
Finally, here's a similar but different view of the same data:
Why is this image so much smoother than the previous ones? This one simply backs off to show data points only every quarter, rather than every month. In other words, by taking a longer-term view of the forest, the few downed trees simply disappear and the overall upward trend becomes extremely clear. If I have a moral to this story, that's it. To FIRE, just keep saving and don't worry about jumpy stock traders or the particular type of tax buckets you're using. Disciplined spending and saving behavior is what's important, not the details. Simple sheer quantity of savings is far more important than anything else to establish financial independence.
I'm hardly FIREd yet, but that trend-line only needs to keep going for another ten years or so. And even in the short term, the security of knowing I could step away from my job any time, worry-free for a year or more, is an incredible feeling. I come to the office because I WANT to, not out of need or desperation. Couldn't imagine going through life otherwise now.
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