Changing it up a bit here from the normal posts to bring you a really interesting concept, hope you enjoy!
I love learning about new ways to understand personal finances, financial freedom and especially new tools to help keep my own finances in check. I stumbled upon a very simple yet powerful concept called FIRE Prowess created by JW over at The Green Swan, who by the way has a great blog that you should check it out!
So what is FIRE Prowess? It’s a financial metric that helps gives you a sense of how you are doing financially given your current lifestyle and earning ability. Its quite simple (which is good as I am a firm believer in K.I.S.S) as it compares how much total income you have earned over a certain period of time to how much wealth you have created during that period of time.
FIRE Prowess = Change in Net Worth / Total Gross Income
Need an example? Here are the steps to calculate your score:
– Grab last years’ tax return and find your AGI (Adjusted Gross Income). For the example lets use $200,000
– Find out your net worth figures from the end of the period (ex: $1,100,000) and subtract out the net worth numbers at the beginning of the period (ex: $1,000,000). This will give you the change in net worth.
– Once you have gathered the numbers, the rest is easy. Just divide the change in net worth ($100,000) by the total gross income for the period ($200,000).
The answer is your FIRE Prowess Score = $100,000/$200,000 = 0.5
My Background and FIRE Prowess
I have been officially tracking my net worth for just over 3 years. I have a general idea of what my net worth was prior to this, however, once my wife and I got married and I inherited a nice chunk of medical student debt, the spreadsheets came out in full force.
Prior to 2016 (when I launched Physician Wealth Services), I believe that my FIRE Prowess score was considerably higher but I don’t have enough accurate data to support my claim. Since the firm’s launch (February 2016), income has been sporadic and inconsistent compared to the prior decade. I guess it all balances out as my wife has finally finished training (4 years of medical school, 3 years of residency and then 3 years of fellowship), and her income has risen dramatically. Thankfully our expenses haven’t.
I feel like the numbers might be slightly skewed by the sudden increase in value to our rental properties as the market here in Vegas really has heated up. I have used conservative numbers for the valuations of the homes, but its hard to ignore 10% + year over year growth in the real estate market.
As you can see below, my score for 2016 is 43% and my lifetime score is 46%. Based on the explanations by JW, we are right in the “ball rolling” category. I think that this number will increase with more stable income and my wife settles into her practice. It will be interesting check up on my progress as the years go by. One day I might make it into the “killing it” stage.
Directly from The Green Swan site
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.
The Official FIRE Prowess Score Chain Gang
Want to check out the whole gang that is calculating their FIRE Prowess numbers? There are some really great blogs that I enjoy very much on this list so make sure to stop by and check them out!
- 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%