My $2 Million Net Worth Goal Part 3: Lessons Learned

Previously I discussed the starting points and assumptions I used to develop a forecast of my annual net worth that I used as a basis for formulating my $2 million net worth goal. Since I have been chasing this goal for 4 years, I have found some things that worked well and things I would changed if I had to do it again.

Lessons Learned:
Issue #1: A big assumption I made was a 10% ROR on my savings. At the time this seemed like a reasonable objective, but I now recognize this is my biggest challenge. I have masked this today with additional cost cutting and savings, however long term it is absolutely critical to focus on improving the ROR on my net worth. I will be focusing a lot of attention on improving my ROR in future posts.

Issue #2: Nowhere in this goal setting exercise do I factor in life events such as an engagement ring, home closing costs, wedding expenses, dual incomes (or lack of), or raising children. I did estimate my living expenses and make an assumption that my overall consumption would increase by 6%/yr which should account for some of this, however I have learned from my friends and colleagues that starting a family will change everything and I have clearly underestimated the future cost of living. All the more reason to get ahead early I guess.

Issue #3: Inflation. That about sums it up. When I did this goal setting exercise I knew there would be inflation, but I didn't really take into account that inflation would be more than 2%/yr. I figured my investment strategies would also hedge against inflation mainly by focusing net worth in stocks or real estate instead of cash or bonds. However I recognize that inflation COULD be more significant than I initially anticipated.

Issue #4: Healthcare. One issue that will ultimately become the biggest is healthcare. To reach my goal of being financially free I need to find a way to pay for healthcare at least up to the age of 65 (assuming Medicare will be around) without relying on employment. Most likely I will either need a lot more than I anticipate or I need to find another way to afford health care costs.

Things that worked:
-Defining a single goal. A net worth goal of $2 million is pretty simple to remember, straightforward to explain, and easy to focus on.
-Its only a rule of thumb. I only forecasted a goal for 20yrs in the future. If I miss my goal it may take me a couple of extra years to reach it, but worst case I will probably still reach my goal.
-Breaking it down into a yearly target helps with planning. Unfortunately, volatility of the stock market I have learned will affect whether you can reach your goals no matter how much you try and save. If your worried about the volatility of the stock market I have a couple of suggestions:
1) Set a yearly target range. This will give you some flexibility, if unexpected events occur. I figure its ok to miss an annual target, but plan to take corrective actions in the following year to stay on course.
2) The volatility may actually help you reach your goals just like dollar cost averaging. If the market tanks 10% one year you would have to save an extra 10% just to break even, which traditionally is a better time to invest more since the stock market is 10% than it was. Think about it.
3) Look for alternative investments. Its not necessarily easy, but one might be willing to make a real estate investment that would give you a more consistent 8% ROR, plus tax breaks, to reduce the volatility in your returns.

Hows My Progress?
I formulated this $2 million net worth goal in 2001 when I started my career. So far I am on track and gaining ground to reach it before I turn 45.


Annual Target

12/31 Net Worth


$ 21,000.00

$ 18,670.95


$ 45,360.00

$ 37,964.36


$ 73,491.60

$ 97,036.82


$ 105,852.10

$ 155,736.61


$ 142,949.32



$ 185,346.99



$ 233,670.59



$ 288,613.89



$ 350,946.08



$ 421,519.75



$ 501,279.53



$ 591,271.75



$ 692,655.05



$ 806,712.05



$ 934,862.24



$ 1,078,676.18



$ 1,239,891.19



$ 1,420,428.53



$ 1,622,412.51



$ 1,848,191.35


As you can see I got behind in my goal in the very beginning. It was a frustrating time because the stock market continued to go down and I was losing more money than I was saving. However, because I was focused on getting as close to my goals as possible, I did everything I could to cut costs and save more money to invest. This tactic ultimately benefited me starting in 2003 as my investments began to rebound.

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Comments (14)

DATE: 9:28 AM
Great Post...the health care stuff is what I am most concerned 30 years, i imagine that health care costs will be through the roof...

DATE: 11:16 AM
If anyone needs a reality check on healthcare costs - check out this post on one person's increasing costs of health insurance.

DATE: 12:14 PM
Hi,How did you formulate your annual targets?Thanks,SMB

DATE: 1:33 PM
In your second year, you had a net worth increase of 60K. Can you explain how that happened? Thanks!

DATE: 1:37 PM
Oops. Forget it. I see your increase is about 60K every year. Nice savings! (Nice salary too I guess)

DATE: 7:12 PM
2003 saw a nice pop in the stock market which really helped my returns on investments. I would say I had somewhere between 10-20k in investment returns that year. I need to dig through my records and see for sure.

DATE: 3:14 PM
Hi - Thanks for your blog; it's terrific. I'm on the other end of your plan - in my 50's with just over $2 million net worth, plus my house, having spent my career as a mid-level corporate cog. I think your goal is both reasonable and do-able. Feels very good when you've achieved it, take my word. You are correct that kids and a stay-at-home spouse will throw things off. With 3 kids my tuition costs will end up being about $600k when I'm done in 3 years. That's just brutal, particularly when you get no financial aid if you've saved well, have a decent job, and the kids are reasonably spaced. Then add in a wedding or 2 and, well, you get the picture. There are other choices, of course, than footing the whole bill for your kids to go to really expensive schools and all, but that was our choice. I agree with others that health care costs are a big worry. At your age I'd suggest that a high deductible plan with an HSA might be the ticket over the long haul. My company just introduced one, and I signed up - wish they'd had one when I was younger. Anyway, good luck. Look forward to keeping up with your journey.

DATE: 9:25 AM
Good post, and with a new 3-month old in the house, I can validate that you will throw all forecasting out the window because:a) There are a lot of new, unexpected expensesb) You will be willing to spend on the new addition at a much greater rate than you spend on yourself.Regarding health care: I think that when you are pre-medicare and post-corporate job in your 50s or early 60s, there will be work opportunitites where you will get paid in health insurance instead of cash comp, because you'll value the HI more than the cash. It's 20-30 years away, so don't worry too much. 25 years ago, IBM had no 401(k). (They didn't exist until the 1980s). So things will change, and you're right about one thing: saving early will make a huge difference.

DATE: 8:55 AM
As an aggressive saver myself, I definitely identify with your quest (learn to love ironing; it will save you $400+/year on shirts alone, which drycleaners just launder like you would at home)However, I do submit to a couple passions - primarily travel. There I spend about $5K/year exploring the world. Will this mean I hit my milestone at age 49 instead of 45. Maybe. But if, god forbid, I didn't live to 45, I would not die cash rich and experience poor.It relates to that often cited "latte factor" - don't drink a latte everyday and have $40,000 more at retirement. I'd say, enjoying a latte everyday might make working much more enjoyable, but you'll need to work to 66 instead of 65. 1 year of work for 30 years of small pleasures might well be worth it.The only caveat is you cannot make the same choice on everything. Pick a few passions. The book "Trading Up" gives an interesting take on this.

DATE: 6:28 PM
Yup, there's your reward for being responsible, saving, living within your means and not taking on debt.Having to pay full price for medical, school etc. etc. etc. rather than have the government bail you out. sweet.

how do you factor in the slumping in the real estate market in calculating your networth? don't you need to mark to market your real estate investment to arrive to your accurate networth?

Thats a great question. For me -- I have listed my real estate assets at cost basis so they aren't marked to market as many other peoples. However if the housing slump significantly cuts housing prices I made need to.

Very intreguid by this - looks like an excellent performance. Wondering how 2008 impacts performance? I have set similiar goals, and been impacted by the 2008 market. Also, in the net worth, does that include savings, investmnets, 401k/IRA, cars, house, other items? I see a lot of conflicting reports about "net worth" including or excluding home equity (although I dont really have much of that left to wrry about :-))

this is interesting. i've lived the same exercise for the previous 18 yrs or so. i'm 44 now. my net worth is over 1.8M. $1.2M is in financial / cash.

its unlikely that i hit $2M in my 45th yr; but possible with a series of lucky events.

46 will be my year. $2M by 46, not bad.

i learned alot in this time

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A personal finance weblog of my journey to reach my goal of $2 million + the value of my primary residence.
Current Net Worth: $1,938,393


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