The personal finance industry is like anything else. Everyone wants to get to generally the same goal of early retirement, financial independence, etc but everyone takes a different route. Usually this results in tracking a single metric that defines success or failure. For me personally, I have transitioned from one metric to another as I have made progress to my ultimate goal. To begin with I had a singular focus on quickly and dramatically paying down debt. Once I got it down to a reasonable amount, I transitioned to net worth. I’ve now been tracking my networth on a monthly basis for 2 entire years. This is my first time looking at the numbers in any detailed manner.
First, the stats. As of 1/1/2015 my net worth was $75,746.99. My net worth as of 1/1/2017 was $141,473.30. Breaking it down a little further leads to an average monthly gain in my net worth of roughly $2,750. Thats remarkable! That monthly growth is a combination of paying down debt, piling up cash and investing in retirement. So far I’m very happy with the results. I know I’ve got a long road ahead of me but the monthly check ins continue to build my confidence that I’ll reach my goal and helps me get through the tough times.
The largest lesson that I take away from looking at these numbers is that the foundation of financial independence is savings rate. Whenever I do financial projections the exponential nature of it always becomes crystal clear. Compounding is a beautiful thing isn’t it?!?! Right now, I’m at the stage where I don’t see a whole lot of benefit from compounding and my primary growth engine is my savings rate. I’m at the early part of the exponential curve when the only choice is to suck it up and grind it out. I’ve accepted it and am ok with that. I know where I’m headed and I realize that to get there I need to focus on the next 3-5 years.
What are my plans for the next 3-5 years? The primary focus is to save, save, save. More specifically:
1. Avoid lifestyle inflation. As my income grows up I will fight hard to increase our costs. Our savings rate was 32% in 2016 and I’d like to see that increase in 2017.
2. Continue to grow my income at work. For now, this is my primary source of income and will continue to be. I have the potential to make significant salaries if I continue to develop at work and bring more value to my company.
3. Start passive income streams. The long term plan is to build a real estate portfolio to accelerate my net worth and achieve a reasonable asset allocation between equities and real estate. In the shorter term I’m hoping to build an audience via this blog and provide value to my readers.
While I realize the next few years are important, I don’t want to get to far ahead of myself. For 2017 I only have 2 focuses:
1. Control costs
2. Save up cash
Thats it. There are a million things I could do but I only want to focus on these for 2017. While I finish up school I don’t have time to get a real estate portfolio started the way I would like and don’t want to invest a ton of time into the blog. Its best to start small and simple and grow from there.