Today I am joining the chain to discuss FIRE Prowess. It was an idea started by The Green Swan and you can read about his idea in detail here. The FIRE Prowess gives you an idea of how well you are doing saving/investing relative to earning.
The equation is:
FIRE Prowess = Change in Net Worth / Adjusted or Total Gross Income
The key to an financial independence and early retirement is earning (the denominator) and saving and investing (the numerator). This equation accounts for all three parts of this.
In fact, it can be re-written:
FIRE Prowess = Amount SAVED + interest earned on INVESTMENTS/ Amount EARNED
For this conversation though we will stick with the Green Swans version.
The beauty of this score is that it does not matter if you are a low income or high income earner. The score adjusts for that relative to your net worth and let’s you know how the savings rate is going.
The FIRE Prowess can be used to compare your overall saving muscles to that of a friend, fellow blogger, or colleague. Do you have big FIRE muscles like Hans and Franz or are you a puny muscle man.
The Green Swan is doing very well from a FIRE prowess standpoint. Over his lifetime that he and his wife have obtained a FIRE Prowess score of 0.93. Some years have been better than others with 2013 being as high as 1.38 and 2015 being as low as 0.46. Either way, this man is on FIRE, growing his net worth significantly compared to his income. He has not hit the Holy Grail of 1.0 X or over, but he will be there soon.
My FIRE PROWESS
Since I started tracking my net worth in June of 2014 until July 2017, it has increased by approximately $308,000. Not a bad increase over a 3 year span. However, if you calculate my FIRE Prowess you can see I am just adequate.
Here is how The Green Swan defines it taken from his post here. The below (in italics) is taken directly from his site verbatim.
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.
- 0.25x 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.
- 0.50x 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!
- 0.75x 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!
So how do I stack up?
Well I fall definitively in the middle with a score range of 0.25x to 0.5x consistently. This means that I am trying and FIRE is within my grasp, but I need to tweak my spending a bit.
This is consistent with where I thought we were. My goal over the last few years has been to save 25-30% of our income. That is what we are doing. I am glad I am reaching my personal goals, but definitely could make some improvements. If I want to reach FIRE, then I should consider increasing my savings to at least 50% to be able to retire within 10 years.
I am working with a large advantage which is that I am a high income earner. This in fact, is part of the reason my score is so low. Despite increasing my net worth by quite a bit in 3 years, my score remains low because my earnings have been fairly high in that span of time. I am saving well, but not as a portion of my income.
My spending has been okay. I do not make a lot of frivolous purchases, but the sell of my home in 2016 at a loss and the purchase of another home has put me behind the curve compared to other bloggers/savers/FIRE types.
I have accounted for the home purchase and know that if I want to retire early I will need to sell my home, take the equity, and buy a smaller place. That is a decision I am willing to make if I decide to pull the FIRE trigger.
If I decide to work part time and maximize my pension until I am 60 then I can stay in my home and continue my current FIRE Prowess score because I will be aiming more for FI and less for RE.
That is part of the beauty of personal finance. It is personal and you can make the decisions you need to for you. Things like the FIRE Prowess score or net worth updates may motivate you to save more, but they should not stress you out. Do what works for you. For me, that is currently saving 25-35% of my income annually. In the future I may increase that rate if I am getting burned out and want to aim for an earlier exit.
So there you have it. My FIRE Prowess. I give myself a C. I am passing but by no means acing my FIRE Class. There are more advanced students out there but that is okay. A C is a pass and sadly in medicine they say a “C still equals MD”.
Where is your FIRE Prowess score. Are you reaching the goals you are setting out for?
Now for the FIRE Prowess 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: 4% Lifetime: 46%
- Link 8: Freedom is Groovy – The Groovie’s 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 Edition1 2016: 34% Lifetime: 53%
- Link 17: Maximum Cents: Maximum Cents’ FIRE Prowess Score 2016: 94% 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: 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%
- Link 23: Money Metagame: The Good, Bad & Ugly of the New FIRE Prowess Gauge 2016: 108% Lifetime 68%
- Link 24: Summit of Coin: Savings Rate or Fire Prowess Gauge 2016 36% Lifetime: 46%
Also published on Medium.