While there are many ways to measure progress towards financial independence and early retirement, I tend to focus on the numbers more than the less tangible aspects of the journey.

As we continue down our path to FIRE, I will post a Quarterly Financial Scorecard every three months, documenting our progress along the four dimensions I am measuring.

But before posting our Quarterly Financial Scorecard for Q2 2017, I want to outline what we are measuring during our quest for financial independence:

I. Net Worth

Tracking our net worth is perhaps the most obvious way to measure our progress towards financial independence.

I’ve analyzed our spending for the past few years to determine how much money we need to finance our current lifestyle, and we’ve also started making changes to reduce or eliminate expenses to build our wealth faster and lower potential future costs. Using the 4% rule and our expected future annual expenses, I have a target for what our net worth should be to finance the comfortable, but not extravagant, lifestyle we’d like to live in the future. In the interest of conservatism, we’re excluding the equity in our home from our net worth calculation, which should give us a bit of an extra cushion, as we could downsize or move to a lower cost area to bolster our financial position in the future.

We are still several years away from reaching our net worth target, but IF our lives continue on their current paths (which is of course not guaranteed!) it is absolutely achievable.

IF I stay with my current employer for the next few years; and IF I continue to get paid roughly the same level of salary and bonus; and IF I continue to max out my 401(k); and IF our family remains healthy and doesn’t have any large unanticipated expenditures; and IF financial markets don’t have meltdowns similar to the tech bubble or the global financial crisis; and IF inflation remains in check, the numbers suggest we will achieve our net worth goal while Mrs. ROMT and I are still in our 40s.

I recognize there are a lot of IF’s involved – but that is the nature of life!

II. 529 Account Funding

I’ve mentioned before that we intend to pay for the majority of our children’s college educations. If everything goes according to plan, we will be early retired before our kids are in college. While it’s conceivable I’ll be earning some money by working on things I want to after that occurs, my expectation is our income will be lower than it is today. Because of that, we want to make sure our kids’ college educations are largely funded before our FIRE date.

I’ve calculated a target for how much money we’d like to have put away in 529 plans for education expenses before early retirement. My expectation is we’ll still have several years after that for the financial markets and the power of compound interest to continue growing those assets before the kids are college age. Unfortunately, much of our potential future growth could be eroded by the fact that college tuition expenses continue to climb at a faster rate than inflation.

529 funding is a somewhat soft target for us, because there is a lot of uncertainty around exactly what those expenses will eventually be, as they are largely dependent on whether the kids will attend a private or public college, and what type of financial aid and/or scholarships they may qualify for. That said, we want to have fairly well-funded 529s in place to cover a large chunk of potential college expenses, so that we’re not dipping too deep into funds set aside for early retirement a decade from now (money in the kids’ 529 plans is not included in our Net Worth calculation). This is an area that will require some real attention from us over the next few years, as we have a lot of work to do to get to our target number for 529 account funding.

III. Passive Income

I am tracking our passive income (currently dividends and interest) as a percentage of what we expect to spend annually on our future lifestyle. This is truly a “stretch goal” for us, and unless we hit the lottery, I sign a multimillion dollar contract to play in the NBA, or the stock market goes up more than 50% every year, there is no way we will be able to fully fund our proposed lifestyle solely by passive income while we are still in our 40s.

My expectation is that we will declare ourselves financially independent and walk away from the daily grind once we hit our Net Worth and 529 Account Funding targets, but I am still tracking our progress on financing our lifestyle completely through passive income, because it would be incredible if we could support ourselves without needing to regularly sell any of our investments. In that situation, we would likely be able to live a somewhat more exotic lifestyle than anticipated, while still having a large pool of assets to share over time with family and charities and use to leave a legacy.

IV. Target FIRE Date – Friday, July 2, 2021

Mrs. ROMT and I will still be in our 40s (barely!) on this date, and it would be great to be heading into early retirement at the beginning of the summer, giving us two full months together as a family before the kids will have to head back to school.

This will be the easiest number to track as we monitor our progress, and also the only one that should consistently be getting smaller. Every quarter we will be three months closer to our target date!

As I mentioned earlier, barring a major change to our personal financial situation or the global financial markets, we should be able to hit our Net Worth goal by our Target FIRE Date. 529 Funding will be more challenging, but is certainly possible, while it is unlikely we will be able to completely fund our anticipated lifestyle through Passive Income within the next four years.

In my next post, I’ll share where we were in relation to our targets as of June 30, 2017 in our Quarterly Financial Scorecard for Q2 2017.

Four years to FIRE!!!

What are we missing? Are there other financial metrics we should focus on during our quest for early retirement and financial independence, or will we be in good shape if we can hit the targets I’ve outlined here?