Savings Rate or FIRE Prowess Gauge?

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Early last week, I stumbled onto a post from Adventure Rich about the FIRE Prowess Gauge and their results. Their article was the seventh in a chain of 23 articles (the last I checked) from financial bloggers. This gauge has swept across the blogging community and I immediately calculated our FIRE Prowess Gauge. 

Being the numbers guy that I am, I compared my results to almost every article written on the topic. This led me to the original author, JW at The Green Swan. In his article, he stated, "Savings Rates Be Damned." This caught my attention, because I am a huge fan of tracking our savings rate. Since the beginning of this blog, I have been calculating and writing about our savings rate. A few examples of my articles detailing our spending and saving below:

To me, it has been important to track our savings rate, because an increase in our savings rate means that we would need less to live on today. Needing less to live on today lends itself to needing less to live on in retirement. Therefore, I think there is a place for a savings rate in our calculations for FIRE (Financial Independence/Retire Early).

However, JW explained that a savings rate only takes into consideration two financial factors in building wealth. In reality, there are three factors that affect how fast you build wealth: Earn, Save and Invest. The savings rate is a calculation of how much you save, divided by how much you earn.  This essentially leaves out the growth of your investments in that calculation.

Thus, JW introduced the Swan FIRE Prowess Gauge. The calculation is simple:

FIRE Prowess = Change in Net Worth / Total Gross Income

This calculation includes Earn, Save and Invest. I have always known the importance of tracking our net worth, but I had never thought of using a statistic to track our gain in comparison to our income. It's a great idea, because this statistic includes savings, growth of investments, and income earned in a given timeframe. Basically, this statistic tells you how you are doing on your path towards reaching FIRE or as I like to call it the Financial Summit.

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JW even created a grading scale, which allows you to check your progress towards your Financial Independence goals or (FIRE). His grading scale and explanations are listed below:

  • 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!

Not only did JW create a grading scale, J. Money at Budgets are Sexy also created a similar grading scale:

  • 0%-10% – Meh
  • 10%-25% – Now we’re cooking!
  • 25-50% – You’re on fire, baby! Give me your number!
  • 50-100% – Marry me.
  • 100%-1,000% – How do I get into your will?

Both grading scales give you an idea of where you should be landing. Negative or 0 are not good. 100%+ is pretty amazing! As for being on track, it looks like you want to have a score of 25% or higher. Of course, the higher - - - the better!

How does this stat look for the Summit of Coin family?

I found the numbers below to be very interesting. We tend to fall in the middle of this range. Based on the two grading scales, we have the ball rolling and we're on fire! For a couple married for just slightly over 4 years, I would say that we are on the right track. 

Summit of Coin FIRE Prowess By Year

  • 2013: .434 or 43.4% - Can't be too upset with this number. This was our first year of marriage, where most of our net worth gain was from paying down debt.
  • 2014: .361 or 36.1% - Looks like getting out of debt made us a little sloppy. 
  • 2015: .578 or 57.8% - Moving in with my wife's parents definitely helped. No rent = extra savings! I also started the blog in 2015. Being held accountable will make you watch your spending.
  • 2016: .362 or 36.2% - Homeownership and birth of our daughter make this number a little lower.
  • Current 2017: .619 or 61.9% - Dang! We are killing it this year! This may not be killing it for you, but this is our largest gain over the course of our marriage. We have gained a lot by an increase in value of our home and we have invested a lot in our Roth IRAs, my wife's 401k and my 403b.

As JW stated in his article, the FIRE Prowess score can fluctuate year by year, depending on the value of investments. Therefore, he believes that the best way to look at your score is over a 5 year period. 

Our Lifetime (4 year) FIRE Prowess Score: .457 or 45.7%

We are excited to see that our net worth is increasing at close to 50% of our income each year. As we continue to invest more money, I anticipate our FIRE Prowess Score to increase, because we will be enjoying the beauty of compounding. 

At some point, a dream of financial independence requires your investments to be making more than you do currently. This stat does a good job of showing how close you are to reaching the wonderful goal of FIRE. Once this number begins to cross over the 100% threshold, you can begin to start thinking about early retirement.

Our FIRE Prowess Score was calculated with the help of Personal Capital's free online Net Worth Tracker! Start tracking yours today!

The Swan Fire Prowess Chain Gang

JW challenged other financial bloggers to calculate their FIRE Prowess Score and to share with a post. Before my post, there were 23 other financial bloggers that took the challenge. For further reading and even some inspiration, you can follow the links below:

If you want to join the chain gang, check out the FIRE Prowess post for instructions on how to join/post!

Will This change my view on the Savings Rate?

It may change it a little, but there is still motivation for me to keep our savings rate as high as possible. If anything, it has just given me another section to update within our savings rate articles. It might become a savings rate and FIRE prowess score update type of article. It's just another stat for me to calculate....I'm sure my wife is excited to hear about it.

What is your FIRE Prowess Score? What could you do to make it better?

Reaching the Financial Summit, Starts with You!

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