So you’ve decided to become financially independent. Great! In your pursuit of FIRE, you’ve made some changes:
- Daily coffee from Starbucks – GONE
- Car loan payment – Adios, sucka!
- Bike commute – Cardio!
But how well are you doing? Have you gotten the ball rolling, or should you focus on cutting back some more?
The primary metric for gauging our FIRE progress has been the savings rate. This is simply dividing your savings by your income, like so:
Typically, FIRE-seekers aim for a savings rate over 50%. The only problem is that everyone calculates it differently. Do you count your total income before or after taxes? Is your savings everything that you allocated to put into savings (like retirement accounts), or is it just all the money that you don’t spend now but will in the near future?
There is no standardized way to calculate savings rate, so there really isn’t a standard metric to compare FIRE progress with your peers.
That is, until now!
Introducing the FIRE Prowess Gauge! This simple metric was created by JW at The Green Swan for determining how aggressively you are approaching financial independence. It is different from savings rate because it accounts for changes in net worth due to income and investment gains, not just savings from your salaried income.
The FIRE Prowess Gauge is defined as:
That’s pretty straight forward! It’s hard to mess that up, because we are talking in absolute terms. No gray areas, like you might encounter with your savings rate.
And like any standardized gauge, there is a scoring system. Here are the guidelines that JW at The Green Swan came up with.
If over the last 5 years your FIRE Prowess is:
- Negative or 0.0x – Not even on the path toward retirement, let alone FIRE. If you aren’t saving and investing any money and your net worth isn’t growing then it is time to make some changes and develop positive financial habits. It may be a change to a frugal lifestyle or getting an advance degree to take the next step in your career.
- 0.0x to 0.25x – You’re conscious of your retirement and know you should plan for it, but early retirement may not be on your radar at this point.
- .25x to 0.50x – You’ve got the ball rolling and you’re certainly trying! Keep investing wisely, perhaps add a side-hustle or few lifestyle tweaks to lower expenses and FIRE can be within your grasp.
- .50x to 0.75x – You’re working hard toward your retirement goals! Early retirement is definitely possible. Keep working hard and that investment snowball will be rolling (compounding) in no time!
- .75x to 1.0x – FIRE is on your mind and you are performing in overdrive right now!
- 1.0x and over – You are killing it! Don’t make any stupid mistakes and FIRE will be within your grasp in no time. In this scenario, your net worth is more than your lifetime earnings which Joe at Retire By 40 recently wrote about. This is certainly a tough milestone to reach, but maybe one day I can make this claim!
My wife and I graduated from college and started working three years ago, so we don’t have five years of income and net worth data yet. But that doesn’t mean I can’t join in on the fun! I can still calculate our FIRE Prowess Score for 2016 and “lifetime,” which is just 2016 and 2017.
JW suggests using your Adjusted Gross Income from your tax returns to determine your total pre-tax income (minus a few deductions), so that’s what I did.
So for 2016, our numbers were:
A FIRE Prowess Score of 0.34 puts us in the “got the ball rolling” range, which sounds about right. Last year was when we really decided to start saving aggressively, but we did also pay for our wedding. That set us back a bit.
From the beginning of 2016 through the end of July 2017, our “lifetime” numbers are:
Looks like we are headed in the right direction!
Going forward I would expect our FIRE Prowess to increase, and a quick calculation confirms that. Since this time last year, our net worth has increased over $56,000, which is more than 2x more than in 2016. Since our income is relatively similar, I would expect our 2017 FIRE Prowess to be around 0.6.
Since the description for the 0.25 – 0.5 range describes our situation last year pretty well, I agree with the rating system.
I like this metric so much that I plan on tracking it from now on as part of our yearly updates. Hopefully there will be a steady upward trend!
While I think it is a good measure of financial focus, I don’t think it should be confused with effort. Because the FIRE Prowess Gauge considers investment gains, those with a higher net worth will likely have higher scores.
This doesn’t mean that someone just starting out isn’t putting in enough effort – they just don’t have the years of saving to provide momentum.
So is the savings rate irrelevant?
I don’t think so. There is still value from the information you get from the savings rate, most notably how much money you are actively stashing away.
Now if only someone would standardize the savings rate…
The Chain Gang
Check out the growing list of bloggers calculating their FIRE Prowess! If you want to join, take a look at The Retirement Manifesto’s post for instructions.
- 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 – My Results 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%
Readers In The Chain:
- Daren: FIRE Prowess Score 2016: 78% Lifetime: 47%
- Todd: FIRE Prowess Score 2016: 75% Lifetime: 29%