Monthly Net Worth Growth Rates

I have been pushing myself pretty hard recently, trying to make sure I stay ahead of the life changes coming my way to reach my financial goals. I know there will be reduction in our ability to save a large percentage of our income as my fiancee and I settle down and perhaps start a family in the near future. I want to make sure I am stretching myself now, so we won't have to stretch so much later when we likely won't be as flexible.

The situation is a little depressing for me. My job income is such a large percentage of my/our total income that I am making little progress developing multiple streams of income in the grand scheme of things. For instance the alternative income (my job income excluded) is less than 10% of my total income. This is a key metric I need to use going forward to make sure I am on track to financial freedom.

However, I started looking at the performance of my monthly net worth growth since I started this blog. I charted the monthly net worth % change each month since I started this blog and a 4 month moving average (explanation in a moment):

Not too shabby - I am clearly averaging a 3%+ monthly net worth growth since I started measuring my progress on this personal finance blog. The 4mo moving average really hits it home - over any 4 month period I have never averaged less that a 2% monthly net worth gain.

Here is the exciting part - lets extend these monthly growth rates out and presume I can maintain a 2-3% monthly growth rate over the next couple years. I think 3% is a stretch because my income won't be able to keep up, but I think a 2% average net worth growth is achievable.

This is pretty uplifting. If I can average a 2%-3% growth rate, I'll hit my financial freedom goal of $2 million within the next 5-7 years. This is well ahead of my orginal targeted growth rate to reach my net worth goal by the age of 45.

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Comments (11)


you will get there even quicker if you leave big blue and go to a company that actually pays its people. Having the higher salary could get you to multiple streams of income quicker and thus to your goal quicker. Don't settle.

I was on the same road as you a little while back, about 4 years ago. One of the things that I see in your analysis is that it is throughout a period when the stock market has been on a tear. These past two years are not typical for stock returns and indications are that there is a slowdown in the works. Your fwd NW growth rate is tied to securities returns. Your tether is the equity paydown for the mortgages which are your largest assets. If stocks see a drop, it may negate your savings and for a while your growth can dip to the negative. This scenario has some likelihood, so my question is what plans have you made in the event that this negative scenario plays out. Probably the righ answer is to ignore the fluctuations and ride it out, but will you be able to resist the urge to tinker? From the way in which you seem to micromanage your financial life (I do it too) that urge may be hard to resist...

Those charts are pretty cool. Looks like you will make it in no time.

Absolutely true ETFnerd, the market has been on fire for the past 2 years so this is painting an awefully rosey picture for me.

I also have to agree that you're probably being much more optimistic than you probably should. Compounding is a wonderful thing but I don't think you can keep up those rates of growth for any prolonged period of time. A 2% monthly growth rate compounds to a 26.8% growth rate in net worth on an annual basis. A 3% monthly growth rate compunds to a 42.6% annual growth rate. Even with very prodigious savings on your part, I dont think the rest of your assets - stock market, real estate, etc. will be able to keep that up.

wow, 2$ a month is awesome! although i suspect the larger your balance sheet $ gets, the smaller the % will grow (at least this is what i found...bigger number to grow) but hey i think that's great that you are saving 'til it hurts because yup, it's true, save more now so you get momentum and have more options in the future when you have a family.

The other thing you should compute is what your effective YOY return is with this kind of monthly networth projection. My guess is that it's pretty high ...

I think you need to give yourself a bit of a reality check - keep in the back of your head so far in your investment career you haven't gone through a single bear market. Going through one of those will give you that reality check.

Aiming for 25%-40% annual growth for 7 years (keeping in mind after a while your regular income will become a very small part of your overall growth as your investments grow) is just not realistic. If you educate youreself more about the markets (and I mean, 15/20 hours+ a week), I would think aiming for 15% might be plausible.But 25 to 40? You're just kidding yourself.

$2M, my dear friend, I have to agree with the other commentors. Even a 10% yoy return is unlikely over 7 years.
As your assets increase you'll find asset appreciation becomes a larger contributor to your NW growth than income appreciation. Also, with a family, you'll find income increases tend to attract increased expenses.
Large cap domestic is projected to average 5% real over the next five years with a bit more, say up to 8% real growth for foreign and small cap. Over 7 years you'll see your returns revert much more closely to the mean.
The best bet you can make will probably be retain your longer horizon expectations. However, you might find great success in increasing your income, however if you do, the time requirements will reduce your time to develop alternate streams of income.
In the end, you have one of two choices - salary growth or diversified income sources. It's difficult to have both.
The strategies needed to succeed with each are quite different.
Regards, makingourway

Everyone loves to do a reality check and pull me back to earth ;-). Its nice to be optimistic for a change.

I agree I am not going to produce 25-45% gains on returns and savings from today's job income. But that doesn't mean I continue to grow my income -- I will soon be getting a spouse - one could hope that would at some point significantly increase the income and potential savings ability.

$2m,
How significantly do you expect your spouse to provide income growth beyond your current rate of savings as a ratio between your expenses and income?
Will this ratio continue evenly over the next few years - especially if you have children?
Can you ask her for a commitment or plan?
My spouse is a big earner, but she is also a big vacationer and likes furniture - but you can blaim me for the recent $5k office furniture expense - she would never have spent that much without my encouragement.
Overall, she's a net positive contributor. If I did a true financial eval for extended family, I might be thrown out of the house (:->)!
Regards, makingourway

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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: $1,574,185

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