ROMT’s FIRE Prowess Score
Last month, The Green Swan introduced a new FIRE metric that has received a lot of attention, the Swan FIRE Prowess Gauge.
FIRE Prowess is easy to calculate. It’s simply the change in your net worth, divided by your gross income, for any time period.
FIRE Prowess = Change In Net Worth / Gross Income
Most of us will have FIRE Prowess scores between 0.0x and 1.0x. The higher your FIRE Prowess number is, the better you are doing at increasing your net worth.
Numbers above 1.0x mean your net worth is growing faster than your income, which is an incredible result, presumably driven by both a relatively frugal lifestyle in the context of your income, and strong investment results.
A negative number means your net worth is headed in the wrong direction, which could be caused by spending more than you earn, a job loss, borrowing money to purchase depreciating assets, poor investment performance, or many other factors.
The Green Swan describes FIRE Prowess as a tool to measure how efficient you’ve been in chasing your FIRE ambitions. The Green Swan designed the metric to be universal and agnostic to income level, how costly or frugal your lifestyle is, and your current net worth. The Green Swan notes FIRE Prowess shows how efficient your lifestyle is compared to income (reflecting how well you do at Earning and Saving) and how well you do putting your net worth to work for you via investments.
I agree with The Green Swan, and many others, that FIRE Prowess is a useful new way to measure one’s progress towards financial independence.
I have been tracking my finances via Quicken or Microsoft Money since 2000, so I had the ability to calculate my FIRE Prowess for the better part of two decades, and the majority of my working career:
My results are generally good, and trending in the right direction.
That said, I was surprised at the year-to-year volatility in my FIRE Prowess number. Thinking back on my financial history, though, the numbers do make sense.
That negative number in 2002? I not only left my job to start graduate school full-time, but my portfolio suffered from the bottoming out of the equity markets following the bursting of the tech bubble.
The 1.35x Fire Prowess Score in 2004? A return to full-time work at a higher salary after getting my master’s degree, in addition to a nice sign-on bonus from my new employer that went right into the market. That is still my best FIRE Prowess year ever, but now that I am tracking my number, I have a new goal to shoot for!
-0.07x in 2008? Losses in the stock market in both my brokerage and retirement accounts from the global financial crisis, along with normal spending, more than offset all of my earnings for the year.
And the relatively weak 0.12x number in 2012? That was my first full year in a new job with a lower salary after our family moved out of the big city.
My lifetime FIRE Prowess score is 0.57x, which means my current net worth is 57% of my gross earnings since I started tracking my net worth in 2000. Given that federal, state, and local taxes have probably soaked up over 30% of what I’ve earned over the years, and I’ve obviously spent a lot of the other money I’ve earned on food, housing, education, children, medical bills, and countless other things, I think this is a pretty good result.
According to The Green Swan, a FIRE Prowess score between 0.5x and 0.75x means: 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!
The Green Swan also encourages reviewing a rolling 5-year FIRE Prowess score. For me, the rolling 5-year FIRE Prowess score was 0.78x for 2016, and the trend has been improving since bottoming out following the financial crisis:
According to The Green Swan, a FIRE Prowess score between 0.75x and 1.0x means: FIRE is on your mind and you are performing in overdrive right now!
Sounds good to me!
As I mentioned earlier, I was surprised at how volatile my FIRE Prowess score was from year to year, but pleased with the overall result and the trend over the past several years. Makes me think the ROMT family may have a chance at this whole financial independence/early retirement thing after all!
You may have noticed from the first graphic that I calculated a R-squared to investigate whether annual stock market returns were strongly connected to the historic changes in our net worth.
I hypothesized the annual returns of the S&P 500 might go a long way in explaining the changes to our net worth. While there was a relationship, returns on the S&P 500 perhaps explained 23% of the variance in our annual net worth. That connection was not as strong as I thought it might be. Many other factors, most notably our annual level of spending and earnings (which can both vary considerably), have likely also had a significant impact on how our net worth has changed over the years.
I think the FIRE Prowess Gauge is a great new tool to help us track our progress towards financial independence and early retirement, and look forward to continuing to use it in the future.
And I’m certainly not the only one who feels this way!
An increasing number of personal finance bloggers and readers, myself included, are sharing their FIRE Prowess Scores via a chain of ever-increasing length.
My 2016 FIRE Prowess number of 119% is pretty strong relative to peers! My lifetime result of 57% is in the middle of the pack compared to this group of personal finance bloggers, who likely have higher numbers than the average American.
The results of the chain to date follow:
- 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 (that’s me!)
- 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, and Ugly of the New FIRE Prowess Gauge
- 2016: 108% Lifetime: 68%
- Link 24: Summit of Coin – Savings Rate or Fire Prowess Gauge?
- 2016: 36% Lifetime: 46%
What’s your FIRE Prowess Score?
Dads Dollars Debts
August 19, 2017Nice work. You are added to my end of the chain. Seems like you are doing pretty darn well for your self!
ROMT
August 19, 2017Thanks for adding me to the end of your chain! In the interest of full disclosure, my lifetime FIRE Prowess number would certainly be lower if I had my net worth data from the 1990s.
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The Green Swan
August 19, 2017Great post ROMT! One of my favorites so far. I love how far your FIRE Prowess goes back, I think that may be the longest and it is very interesting to see how it has varied throughout the years. 57% lifetime for almost 2 solid decades is impressive work!
I also love how you took it a step further by calculating the r-squared! Especially given the long time horizon of your FIRE Prowess it is interesting to know the S&P only explains 23% of the variance!
Thanks for joining the FIRE Prowess gang!
ROMT
August 19, 2017Thanks for stopping by and for getting this party started with your original post!
I was surprised there wasn’t a stronger connection between our net worth and what the stock market had returned.
Glad to be part of the chain gang, now it’s up to someone else to keep it going!
actuaryonfire
August 19, 2017Really nice analysis and I admire your committment to data colection over the years! I’m not sure whether R^2 versus the S&P500 is the right measure to look at. I think I would like to look at the performance of ROMT Inc. versus the S&P500. It looks like your net worth has shown much less drawdown than the stock market and has outperformed some years.
So I think what would be interesting is looking at rolling 3 year returns vs S&P500, std. deviation and information ratio. I think your net worth would outperform stocks.
And if that is the case then I’ll hire you to manage my account!
ROMT
August 19, 2017Ha! I make no claims about being able to consistently beat the S&P 500!
As I have thought about this more, I think there are several reasons why the relationship between the annual change in our net worth and the annual change in the S&P 500 was not as strong as I would have guessed:
1) Not all of our net worth is held in stocks. We’ve also had material exposure to cash, real estate, bonds, etc. at times in the past.
2) Our base level of spending each year is fairly consistent. But some years our spending has been much higher (paying for grad school, large medical bills, children, engagement ring, wedding/honeymoon, buying a car in cash), and not necessarily driven by an increasing amount of income.
3) Our income level also varies significantly from year to year, with a significant part driven by a variable bonus. This means our net worth could rise despite a bad year for the stock market, and vice-versa.
I think someone who has invested consistently in the market over the years, and lived in the same home, with the same job, and relatively consistent earnings and expenses, would likely see a more significant relationship between the change in their net worth and the S&P 500 than I did.
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Mrs. Adventure Rich
August 19, 2017Great job! Its awesome that you have numbers going back that far… our data is only a few years at the moment but I look forward to having numbers 10+ years old!
ROMT
August 20, 2017Until now, I never really thought about how useful all of the data I have collected over the years could be when blogging. One of the benefits of being in my mid-40s!
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