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RSSMy $2 Million Net Worth Goal Part 2: Forecasting My Net Worth
In Part 1 of this series I covered my starting points and assumptions in developing my net worth goal. In this post I am going to discuss how I used these to forecast what my net worth could reasonably be in 20 years.
I started by creating an excel spreadsheet that took my annual income, subtracted my estimated cost of living and taxes to determine the amount of savings for each year. I then used my assumption of a 10% annual ROR to determine what the value of my previous year's net worth would be in the current year. I then totaled my savings and the value of my previous savings to determine my target for net worth each year.
| Yr | Income | Cost of Living | Taxes | Yr Savings | VoPNW* | Net Worth |
| 1 | $55,000 | $23,000 | $11,000.00 | $21,000 | $0.0 | $21,000 |
| 2 | $58,300.00 | $24,380.00 | $11,660.00 | $22,260 | $23,100.0 | $45,360 |
| 3 | $61,798.00 | $25,842.80 | $12,359.60 | $23,596 | $49,896.0 | $73,492 |
| 4 | $65,505.88 | $27,393.37 | $13,101.18 | $25,011 | $80,840.8 | $105,852 |
| 5 | $69,436.23 | $29,036.97 | $13,887.25 | $26,512 | $116,437.3 | $142,949 |
| 6 | $73,602.41 | $30,779.19 | $14,720.48 | $28,103 | $157,244.3 | $185,347 |
| 7 | $78,018.55 | $32,625.94 | $15,603.71 | $29,789 | $203,881.7 | $233,671 |
| 8 | $82,699.66 | $34,583.50 | $16,539.93 | $31,576 | $257,037.7 | $288,614 |
| 9 | $87,661.64 | $36,658.51 | $17,532.33 | $33,471 | $317,475.3 | $350,946 |
| 10 | $92,921.34 | $38,858.02 | $18,584.27 | $35,479 | $386,040.7 | $421,520 |
| 11 | $98,496.62 | $41,189.50 | $19,699.32 | $37,608 | $463,671.7 | $501,280 |
| 12 | $104,406.42 | $43,660.87 | $20,881.28 | $39,864 | $551,407.5 | $591,272 |
| 13 | $110,670.81 | $46,280.52 | $22,134.16 | $42,256 | $650,398.9 | $692,655 |
| 14 | $117,311.05 | $49,057.35 | $23,462.21 | $44,791 | $761,920.6 | $806,712 |
| 15 | $124,349.72 | $52,000.79 | $24,869.94 | $47,479 | $887,383.3 | $934,862 |
| 16 | $131,810.70 | $55,120.84 | $26,362.14 | $50,328 | $1,028,348.5 | $1,078,676 |
| 17 | $139,719.34 | $58,428.09 | $27,943.87 | $53,347 | $1,186,543.8 | $1,239,891 |
| 18 | $148,102.50 | $61,933.77 | $29,620.50 | $56,548 | $1,363,880.3 | $1,420,429 |
| 19 | $156,988.65 | $65,649.80 | $31,397.73 | $59,941 | $1,562,471.4 | $1,622,413 |
| 20 | $166,407.97 | $69,588.79 | $33,281.59 | $63,538 | $1,784,653.8 | $1,848,191 |
| | | | | Net Worth in 2021: | $1,848,191 | |
As a result of forecasting my yearly net worth ($1,848,191.00 in 2021), I decided an aggressive but reasonable goal would be a net worth of $2 million. It would me a nice round number that would be easy to remember and was slightly ahead of my already optimistic forecast of what my net worth could be.
My next post in this series will highlight my yearly progress since then and cover some of my additional observations since I came up with my $2 million net worth goal.
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Comments (6)
DATE: 7:43 PM
Your assumptions of increases in pay of 6% per year is fundamentally flawed in your line of business. -insider
Posted by fuzzy | September 10, 2006 3:03 PM
DATE: 7:14 PM
Did you use a formula to determine your Cost of Living and Taxes? If so, what was it?
Posted by Anonymous | September 10, 2006 3:03 PM
DATE: 9:18 AM
fuzzy - you may be right. I spent some time discussing this with my manager and I think you are right long term, although so far my avg increase in pay has been above my assumption. I did use a formula to determine my cost of living and taxes see part 1 assumptions for details. Let me also add that I don't even think my estimates/formulas are going to be very accurate because alot of things are going to change in my life. 1) Marriage (dual income would boost income, but taxes and cost of living would go up), 2) kids (reduces taxes, but increases cost of living, may hurt income if a parent stays home). But I'll save those issues for a later time.However I think these estimates are a rule of thumb and a good gauge to help with decision making related to finances.Has anyone done something similar?
Posted by 2million | September 10, 2006 3:03 PM
DATE: 9:50 PM
In your table for arriving at the goal, you're using a "Value of Previous year's networth" for comparison - if that's to take into account inflation, I'd recommend a different approach. Using historical inflation as a guide - $2 million 20 years from now would be a little more than $1 million today. If you had a million today, would you feel that adequate for the rest of your life?You do have additional time - assuming that you work for 40 years, that's an additional 20 years - and the second million or more is always faster than the first.Best wishes
Posted by 2ยข Worth | September 10, 2006 3:03 PM
Wow, your way ahead of schedule then?
Posted by RealityBytes | February 22, 2007 5:52 PM
2008 june
check out inflation now!! gas /food
also, straight line calculation are not good for income or mkt returns, read monte carlo analysis
Posted by kp | June 21, 2008 8:25 AM