How are you doing on your journey of Wealth Building?
Are you on track? Ahead? Behind? Tough to know, right?
I take notice when I see a new tool being introduced in the financial blogging community, especially one which improves upon existing techniques and helps us monitor our journey toward Financial Independence. This post is about exactly that – a new wealth measurement tool “invented” by my friend JW over at The Green Swan. (He’s an awesome blogger by the way. Check out his site, you won’t be disappointed)
The FIRE Prowess Gauge
JW just invented a new wealth creation metric named the FIRE Prowess gauge. He wrote about it here, and his post led to this post. I’m hoping it leads to many more (See the P.S. section below).
I love this thing. It simply compares how much total income you’ve earned over a given period of time to how much wealth you’ve created, and gives you some guidance on how you’re doing on your journey toward Financial Independence. For example, if you earn $100 and your net worth increased by $50, your score would be .50, or 50%.Wealth Created / Income Earned = FIRE Prowess Score Click To Tweet
It’s easy, it’s intuitive and it gives you a sense of “How Am I Doing?. Finally, it allows folks to share their numbers without revealing anything too “personal”. Today, I’m going to show you how it works, using my own numbers in the explanation.
First, here’s the score of the only two bloggers on earth who have published their FIRE Prowess Scores:
- JW’s crushing it at 132% (Lifetime = 93%)
- I scored a 57%, (Lifetime = 44%)
Today, I’ll show you how I got that 57% (2016) and 44% (Lifetime), explain what the scores mean, and show how you can calculate your own score (it’s easy, trust me). I’ll use my own numbers to explain how the metric works.
I challenge you to run your own numbers and compare them to the scores above, it’s a fascinating exercise.The new FIRE Prowess Gauge for measuring wealth creation is good. It's really, really good. Click To Tweet
Don’t take my word for it, the concept is so good that it even won a Rockstar Award. (for those of you not aware of blogging sub-culture dynamics, a Rockstar Award is a big deal. I keep a list my Rockstar Award posts on this page on my website. Yep, big deal. Bottom Line: This is a good metric, even the experts like J$ agree.).
To demonstrate how good I think this metric is, see the open invitation to my blogging friends in the P.S. section of this post.
How this all started
When I read JW’s original post on the “FIRE Prowess Gauge”, I was immediately intrigued. I left the following comment on his post (turns out I was a bit optimistic in my view of my progress/score, though I did exceed 100% in 2013):
True to my word, I’m writing this article today, and present for full and transparent public disclosure “My Numbers” on The FIRE Prowess Gauge. I’m also starting a new Blog Chain, as you’ll see in the P.S. section below.
My FIRE Prowess Score
A score on the FIRE Prowess Gauge is very easy to calculate. In simple terms, it compares how much your true wealth (Net Worth) increases for every dollar you earn (Gross Income).
In a minute, I’ll show my progress over time. I’ve compared my income vs. net worth for the past 16 years, and will show you how my income has been used in growing my wealth.
First, here’s my score for 2016:
It’s fantastic in its simplicity. Simply pull your Gross Earnings (before tax) and your Net Worth change from year to year. Divide the two. and you have your number. Here’s the formula:
FIRE Prowess Ratio = Change In Net Worth / Gross Earnings
Calculating Your FIRE Prowess Gauge
I’ve spent an hour or so today tweaking some spreadsheets to calculate my FIRE Prowess Gauge score. It’s pretty easy when you pause for just a minute and study the methodology. In an hour, I was able to calculate my FIRE Prowess Score over the past 16 years and will share it with you below.Are You Building Wealth? Cool new metric to measure Wealth Growth vs. Total Income. Click To Tweet
Here Are The Easy Steps To Calculate Your Score:
Step 1: Pull your gross adjusted income from your income taxes, or from Social Security (before taxes).
Step 2: Now, you pull your Net Worth figures from the beginning to the end of the period. Here’s a very simple example. For the sake of simplicity, I’m using figures that tie EXACTLY to the FIRE Prowess Score that I achieved for the year 2016, though the income and returns aren’t my actual numbers:
Step 3: Once you’ve gathered your numbers, the rest is simple math. Using the example above, we divide the change in Net Worth (+$56.8k) by the Gross Income ($100K), and we arrive at the result:
$56.8 k change in Net Worth / $ 100 k Gross Income = 56.8% FIRE PROWESS SCORE
It’s as simple as that. You can do it for a year, or you can do it for a decade. The longer the timeframe you use for your analysis, the more relevant your score. I just did it for 16 years, and it took me less than an hour.
My FIRE Prowess Score Over Time
JW is quick to point out that a single year’s FIRE Prowess Score (FPS?) can be misleading. It’s best to use this FPS metric over time, to compare the wealth you’re creating over a longer time frame vs. your income over the same period. This avoids “hiccups” in the trend (2008, anyone?), and gives you a more realistic view of how you’re doing over time.
I’ve done this exercise, and am excited to present to you today (for the first time in HISTORY)…
My FIRE Prowess Score since the year 2000:
The Blue Line above represents my annual FPS (FIRE Prowess Score) for each of the past 16 years (57% in 2016), and the Red Line represents my 5-year moving average (67%). The number that matters the most to me is presented below:
My Lifetime FPS Score: 43.9%
In fairness, my “working” lifetime is longer than 16 years, which is the timeframe I’ve used to calculate the 44% in the headline above. I’m planning to work this formula back to 1985 (32 years!), my starting year in Corporate America. For the sake of this article, I stopped at the most easily accessible numbers in order to share this concept with you, and start The Chain Gang (see the P.S. section for detail on The Chain Gang). So for now, I’ll peg my “Lifetime Score” at 44%.
I’m excited about this concept and was excited to share my results. Prior to publishing this article, I sent this tweet to JW @TheGreenSwan1 to announce my Fire Prowess Score to the world:
What Does Your FPS Score Mean?
JW includes the following guide to help interpret your Financial Prowess Score. I’ve thought about it as I’ve written this post, and cannot raise any substantial disagreement with JW’s ranking system.
As a reminder, my 2016 score is .57, my 5-year moving average is .67 and my “LIfetime score” is .44:
My LIfetime score of .44 puts me in the “Top End” of the .25-.50 range, which means “I’ve got the ball rolling…..FIRE can be within your grasp.” My 5-year rolling average of .67 says that “FIRE is on your mind and you are performing in overdrive right now”.
Given that I’ll retire at the age of 55, I’d say the ranking is pretty accurate. FIRE is within my grasp, and I AM in Overdrive right now. I’m doing well, but I’m not crazy-early FIRE like some seek to attain. The score reflects that. It works, at least in my situation. The more aggressive you’re being toward FIRE, the higher your score.
Bottom Line: The FIRE Prowess Gauge is a good metric, and provides a tool that you can you use as you evaluate where you are on your road to Financial Independence.
The FIRE Prowess Gauge is a simple metric to check your progress on your journey toward Financial Independence. It’s easy to calculate, and quickly answers the question of “How Am I Doing” regardless of your income or savings. It works in whatever situation you’re in (pre-retirement only, I’m afraid, as the results are skewed after you retire), and gives you a way of comparing where you’re at versus others on your road to retirement.
Calculate your FIRE Prowess today. Take a few minutes (it’s worth the time), and calculate your FIRE Prowess Score, then compare your result to the ranking system provided above, and to other bloggers in The Chain Gang in the P.S. section below. Does your score accurately reflect your situation and your position on the road to FIRE?
Mine was pretty darn accurate. See the PS section below, and check back in over the coming weeks as we track others who calculate their FIRE Prowess Score. I’ll keep track of every blogger who posts their FIRE Prowess score in the P.S. section below. Feel free to send me your number, it’ll be interesting to compare how we’re all doing, and whether this score is an accurate reflection of your progress on your path toward Financial Independence.
PS – The FIRE Prowess Score: The Chain Gang
JW and I have chatted and would like to invite other bloggers to join in the sharing of The FIRE Prowess Gauge concept via a new Chain Gang. If you want in, here’s all you need to do:
- Write a post on the topic, run your numbers, give some commentary on how accurate a gauge you think this is.
- Include a link to every other blogger who has written ahead of you in The Chain somewhere in your post.
- Tag all other bloggers ahead of you in “The Chain Gang” via Twitter when you finish your post (this will take several tweets as the chain grows).
- As a courtesy, attempt to keep “The Chain” updated in your post as others join behind you. Give them a backlink. This isn’t mandatory, as it’s a bit burdensome, but you’re encouraged to support the request if you can.
We did this with the recent “Retirement Drawdown Strategy” Chain Gang (currently at 18 bloggers in that Chain Gang, check it out at the end of this post), and we think it may work again here.The FIRE Prowess Gauge for wealth creation is fantastic in it's simplicity. Join The Chain Gang Click To Tweet
JW and I hope you accept our invitation to join The Fire Prowess Chain! I’ll add each member of the Chain Gang to the official chain below when I get your Tweet. We’re also tracking it in the Rockstar Forum in this thread.
The Official FIRE Prowess Score Chain Gang:
- Anchor: The Green Swan – The Swan’s FIRE Prowess Gauge 2016: 132% Lifetime: 93%
- Link 1: The Retirement Manifesto – Is Your Wealth Building On Track? 2016: 57% Lifetime: 44%
- Link 2: OthalaFehu – My Swan FIRE Prowess Numbers 2016: 72% Lifetime: 61%
- Link 3: Budget On A Stick – My FIRE Prowess Score 2016: 52% Lifetime: 55%
- Link 4: Shnugi – Calculating My Savings Rate 2016: 71% Lifetime 54%
- Link 5: Dads Dollars Debt – DDD’s FIRE Prowess 2016: 26% Lifetime 32%
- Link 6: Debts To Riches – My FIRE Prowess Report Card 2016: 29% Lifetime 43%
- Link 7: Adventure Rich – The Adventure Rich FIRE Prowess Score 2016: 45% Lifetime 47%
- Link 8: Freedom Is Groovy – The Groovies FIRE Prowess Score 2016: 163% Lifetime 90%
- Link 9: Working Optional – Calculate Your Progress To Financial Freedom 2016: 97% Lifetime 75%
- Link 10: Budgets Are Sexy – My Total Lifetime Wealth Ratio: 2016: 135% Lifetime 60%
- Link 11: Life Zemplified – FIRE Prowess Score for Life Zemplified 2016: 78% Lifetime 76%
- Link 12: Physician’s Wealth Services – Physician Wealth’s FIRE Prowess 2016: 43% Lifetime 46%
- Link 13: Married And Harried – Married And Harried FIRE Prowess Score 2016: 32% Lifetime 14%
- Link 14: Ms. Liz Money Matters – Introducing the FIRE Prowess Score 2016 279% Lifetime 72%
- Link 15: Actuary On Fire: The Swan’s FIRE Prowess Gauge 2016 61% Lifetime 59%
- Link 16: Trail To FI: FIRE Prowess Score, Trail to FI Edition 2016 34% Lifetime 53%
- Link 17: Maximum Cents: Maximum Cents’ FIRE Prowess Score 2016: 94% Lifetime: 70%
- Link 18: Retiring On My Terms: ROMT’s FIRE Prowess 2016: 119% Lifetime: 57%
- Link 19: Minafi: The Minafi FIRE Prowess Score 2016: 74% Lifetime: 94%
- Link 20: Military Dollar: FIRE Prowess Scores and How to Correct for Military Paychecks 2016 81% Lifetime 83%
- Link 21: Finance Yo Self: FIRE Prowess Score for Finance Yo Self 2016: 44% Lifetime: 44%
- Link 22: The 7 Circles: FIRE Prowess Gauge 2016: 246% Lifetime: 219%
- Link 23: Money Metagame: The Good, Bad & Ugly of the New FIRE Prowess Gauge 2016: 108% Lifetime 68%
- Link 24: Summit Of Coin: Savings Rate or FIRE Prowess Score? 2016: 36% Lifetime 46%
Readers In The Chain:
- Daren: FIRE Prowess Score 2016: 78% Lifetime: 47%
- Todd: FIRE Prowess Score 2016: 75% Lifetime: 29%