Once again, I’m adding a link to a blogging chain.
The last chain was a series of articles about drawdown strategies. A group of bloggers detailed out how they expected to support themselves when their paychecks stopped. It was a fun exercise and it forced me to get more specific about where my money will come from in different market conditions.
The latest chain is a new way to assess our efficiency at reaching financial independence. The FIRE (Financial Independence/Retire Early) Prowess Score was developed by JW, the 30 something behind The Green Swan, it goes like this:
FIRE Prowess Score= Change in Net Worth / Total Gross Income
His goal was to develop a measurement that worked across all income levels so geeky bloggers (watch me raise my hand!) could compare themselves on an even playing field. The typical measurement we’ve used is savings rates.
The downfall of savings rates is that it’s easier to save 75% of your income if you make $500,000 a year than if you make $50,000 a year. The savings rate super heroes in this space are often doctors.
I love that this is called a prowess score. Prowess means skill or expertise in a particular field. Yep that makes sense. But it also means bravery or courage–and I think it truly takes some courage to rock this FIRE Prowess Score. You have to live differently than those around you. You have to focus your limited resources on things that matter to you and ignore the things that don’t. That takes some courage for sure.
OK so how does it work? Let’s say you are calculating your FIRE Prowess Score for the last 5 years:
-Add your income for those five years–I got my historic income from SSA.gov
-Take your current net worth and subtract your net worth from 5 years ago
-Divide your change in net worth into your total income
=And you have your FIRE Prowess Score
Here’s an example:
5 year increase in net worth: $100,000
/ Income 5 years @ 75,000/year = $375,000
=FIRE Prowess score of .27
JW gave us descriptions for the different score levels so we can pat ourselves on the back or berate ourselves to do better:
If over the last 5 years your FIRE Prowess is:
- 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!
OK so drum roll please . . . here are my scores:
2016: 2.79 off the charts!
5 Years 2012-2016: 1.34 I’m killing it!
10 Years 2007-2016: .89 not too shabby!
Post College: .72 it took me some time to get this FIRE thing going.
Worst Year: -1.34 in 2008 when my net worth shrunk 16%
How did I rock it so much in 2016 you may ask? I quit my freaking job! I had a full year of growth in net worth against a bit more than half a year of income. We may need to come up with a different scoring system for those at the end of their accumulation phase (that’s just a nice way to say older folks).
As long as the stock market cooperates, I’m really going to rock it this year. My net worth continues to grow and my income is almost non existent. So far my FIRE Prowess Score is 20.97 for 2017. Oh shucks, JW said this score doesn’t work for folks who aren’t working . . .
I think JW’s descriptions are spot on. I would say over my lifetime I’ve been focused on saving for retirement but I didn’t put my savings into overdrive until my last 10 working years. I also made some investing mistakes early on–thinking I was some sort of Warrenita Buffett rather than just shoveling money into a S&P 500 index fund.
Check out the other bloggers’ scores in the chain:
- 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 2016 119% Lifetime 57%
- Link 19: Minafi – The Minafi FIRE Prowess Score 2016 74% Lifetime 65%
- 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%
Calculate your FIRE Prowess Score whether you’re pursuing early retirement or not.
What can you do to improve it? Save more of your income and invest it smarter–show your prowess!