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RSSMy $2 Million Net Worth Goal Part 1: Assumptions
The purpose of this web log is to document my journey to financial freedom. I have defined financial freedom as a net worth of at least $2 million. It may be a moving target, but I guess we will see over time. Regardless, I wanted to share how I came up with this goal.
When I started working after grad school in 2001, I decided I need to set a goal for retirement. I am a very goal oriented person and like to have a "stick in the ground" to focus on. I decided to figure out some starting points, identify some assumptions, and use these to help me determine what was a reasonable net worth goal.
Starting Points
In 2001 I turned 25, my starting salary straight out of grad school was $65,000, and I was basically starting out with nothing.
Assumptions
I then needed to come up with some assumptions about the next 20 years:
-I assumed I would pay 20% of my income in taxes. This is probably way low but I figured I would work hard at legally reducing my taxes (when financially beneficial) through real estate investments, running businesses (at the time I was overseeing a small family business), buying a home, etc
-To make my estimates conservative I started with a annual income of $55,000 ($10k less then my income at the time) and estimated that my annual income would increase 6%/yr thereafter
-I assumed everything I didn't allocate to taxes and cost of living would go to savings
-A big assumption I made was that I would be able to make a 10% annual ROR on my savings
-I conservatively assumed I had no savings in 2001 (net worth was $0), but in reality I was probably worth $5-10k.
-I assumed my cost of living (everything other than taxes and savings) in 2001 would be $23,000 based on my chart of estimated expenses listed below and increase 6%/yr thereafter
| Estimated Living Expenses | ||
| Living Expenses | Monthly | Yearly |
| Credit Card | $600.00 | $7,200.00 |
| Car | $300.00 | $3,600.00 |
| Car Insurance | $50.00 | $600.00 |
| Mortgage | $850.00 | $10,200.00 |
| Health Care | $40.00 | $480.00 |
| Utilities | $100.00 | $1,200.00 |
| | | |
| | Total: | $23,280.00 |
Now that we covered my starting points and assumptions, my next post will detail how these helped me develop my net worth goal.
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Comments (1)
I subscribed, I love your site, and I have an US address
Posted by Jamillah | May 9, 2008 5:35 AM