Setting a 2006 Net Worth Goal

Its about time for me to start setting a 2006 net worth goal. It looks like I will end this year with a net worth of $206,000-$208,000, above my target of $205,000 for 2005.

So how do a pick a target for 2006? Well first let me highlight the major financial themes I expect in 2006:

Income
-I expect my earned income to remain flat for the year as I hope for at least a minor raise which should offset an expected smaller bonus than I received for 2005.
-My cash balance pension will vest late in 2006 which should add at least $10,000 to my net worth.
-I anticipate my tenants will renew their lease this summer allowing me to continue to generate net positive cash flow from my rental property.

Expenses
-I expect significantly larger expenses with several large purchases this year including home closing costs, etc. I expect these purchases will be roughly $10k above and beyond my typical expenses.
-I may need to temporarily relocate for 6 mos for my job which could result in an extra $3,000-$6,000 in unreimbursed living expenses.
-If I purchase a home I expect my living expenses will go up at least $400/mo over my current arrangements. I will anticipate 6mos ($2,400) of additional living expenses although I don't know when I will buy a house nor how much my monthly cost would be.

Overall I expect the one time benefit I receive from vesting of my pension to offset my expected jump in expenses for large purchases for the next year. At this point I will also ignore the possible expenses that I may incur if I need to relocate - if I end up relocating, it will be a good excuse to revisit my annual target and adjust accordingly.

According to my long term plan to reach my $2 million net worth goal, I am way ahead of where I need to be so I don't need to take any drastic actions or be too aggressive in this upcoming year's goal although it would be nice to continue to get further ahead of schedule to allow myself more flexibility in the future.

Year	Annual Target	12/31 Net Worth
2001	$ 21,000.00	$ 21,000.00
2002	$ 45,360.00	$ 44,000.00
2003	$ 73,491.60	$ 88,000.00
2004	$ 105,852.10	$ 155,736.61
2005	$ 142,949.32	est $207,000.00
2006	$ 185,346.99
2007	$ 233,670.59
2008	$ 288,613.89
2009	$ 350,946.08
2010	$ 421,519.75

In 2005, I set an annual target that was $50,000 over my 2004 EOY net worth. Based on the themes I laid out above I think I should be able to do slightly better than that in 2006 mainly due to the additional returns from my increased net worth.

My goal for 2006 will be to increase my 2005 net worth by $55,000. Since I am planning considerable larger expenses this year than in the past (more on these later in the year) this should still challenge me to continue to grow income and the ROR on investments. This would put my target for 2006 at $262,000.00, assuming I close 2005 with a net worth around $207,000.00.

Now back to savoring my success in 2005 before I need to buckle down again and focus on meeting my new 2006 net worth goal!

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Comments (2)

DATE: 10:22 PM
This is my first time on your site and I am amazed to see other people setting annual net wealth goals and keeping tabs on savings rates. I have found a new home. I just finished setting our family's 2006 net wealth goals and like you, I am happy to see we are ahead of long terms goals as well. Something to be said for steadfastness.

Posted by Anonymous | September 10, 2006 3:05 PM

Regarding your formula to project your future net worth or net worth goal:

It looks like from 2001, you assume 10% compound annual growth of your total assets, and you roll additional savings into your assets of $22,260 increasing by 6% per year.

Does this formula accurately predict the two different components of your net worth growth? That is,
1) return on assets, and
2) retained earnings/savings rolled into assets

For example, it is unlikely that the cash you have tied up in your primary residence will return 10%. So you must rely on your rental, stock investments, etc. to compensate for this.

It seems that giving oneself more exposure to the stock market (vs. having all of one's net worth in their home) increases the likelihood of attaining 10% return on assets. Over 60% of my net worth is tied up in my primary residence (gag). One of my long-term goals is to get this to below 10%.

If you can follow your plan, it looks like you will reach your goal in 2021! Not bad, 44 is a good age to shift gears.

Posted by Jonathan C | March 14, 2007 5:47 PM