Every once in a while, a blogger will put out an idea that takes the personal finance blogger world by storm. Like, a mini-storm. A summer rain shower. I don’t want to oversell it.
A few weeks ago, JW over at The Green Swan wrote an article that has turned into just such an idea. He came up with a way to gauge your progress towards Financial Independence/Retiring Early (FIRE). Then, Fritz at The Retirement Manifesto published his own post about the FIRE Prowess. Then OthalaDehu. Then Budget On A Stick. So on and so on. I’ll link to everybody at the bottom of this page so you can check out their results, too, if you’d like.
I was immediately intrigued. I’ve been at the FIRE game for a while, so I felt pretty confident that I would have a “good” FIRE Prowess score. On the other hand, I think I’m paid pretty well and I haven’t always been as focused on FIRE as I am today, so maybe my score wouldn’t be quite as high as I thought. I figured it was worth it to find out.
I also decided to put my own twist on the FIRE Prowess tool. You see, for the vast majority of people it’s really easy to figure out their score. For military members, it isn’t so easy. There might be other careers that have similar trouble. I’ll explain why below, and how you can accurately gauge your FIRE Prowess.
What Is the FIRE Prowess Gauge?
Simply put, your FIRE Prowess is the amount your net worth has changed over time, compared to your total gross income. That’s expressed as an equation:
FIRE Prowess = Change in Net Worth / Total Gross Income
Because your FIRE Prowess score is measured as change over time, it *should* get higher the longer you work. In the short term a falling stock market or significant change in income may cause a dip, but over time you want the lifetime score to go up. Your 1-year score might be lower than the previous year, and even your rolling 5-year score might go down. But ideally, your lifetime score will keep rising. It’s an indicator that you are nearing retirement!
JW designed the FIRE Prowess Gauge to be “a tool to measure how efficient you’ve been in chasing your FIRE ambitions.” It is designed to be universally applicable, and it shouldn’t matter what your income level is. Anybody can use it, no matter if you’ve been chasing FIRE for over a decade or if you just learned that term today.
It’s really popular to use things like net worth, income level, or percentage of your FIRE goal to determine how well you are doing financially. The FIRE Prowess Gauge is not intended to replace any of those things. It’s just another way to check up on your progress. So if your score is low, don’t despair! Just keep plugging away – you’ll get there.
Before moving on, I highly recommend reading JW’s post to fully understand the reasoning behind the FIRE Prowess Gauge. I especially like his section on How To Read Your FIRE Prowess Gauge, because it gives a breakdown of different score ranges and what they mean for your ability to FIRE.
What is my FIRE Prowess Score?
As I’ve mentioned before, I normally only check my net worth once each year, on January 1st. So this section is based on my FIRE Prowess as of January 1st 2017, not today.
JW is tracking (in his handy-dandy running tally) the 2016 and lifetime FIRE Prowess numbers for a group of bloggers. So here are mine.
For 2016, I achieved a FIRE Prowess score of 81.04%. My lifetime FIRE Prowess score is….83.41%! Not quite as high as I was guessing, but definitely nothing to sneeze at either. It just means I need to keep working at it to push myself over the edge.
Now let’s take a closer look at my FIRE Prowess over time.
I started tracking my net worth closely in 2007. For some reason, in 2013 all of my prior net worth data disappeared. The way my spreadsheet is set up is that the yearly goals are right next to the end-of-year numbers. I still have my goals listed for 2007-2012, but the January 1st real numbers for those years are *poof* gone. Bummer.
However, I’m a giant nerd who keeps track of things in multiple places, so luckily I have rough net worth data for those years in a separate spreadsheet. Don’t judge me for duplicating data, it’s obviously come in handy at least once! The numbers aren’t necessarily 100% accurate because my second spreadsheet is used for a different purpose, but for the sake of this exercise they are close enough.
You can see from my chart that I had huge jumps in 2011 and 2013. Those jumps correspond to the purchase of my rental property and a big year for the housing market where my rental and primary property were located. The jump in 2011 is because I bought my rental property via a short sale. When it was appraised after purchase, I was immediately valued for 20% over the purchase price. That gave my net worth a huge bump. Then in 2013, both that property and the primary residence I bought in 2012 benefited from a rapid upswing in housing values in their market. To say I got lucky with my houses is putting it mildly.
Altering the FIRE Prowess Gauge for military members
If you read JW’s original post, he recommends looking at your tax return to find your gross income each year. Of course, like many things, that doesn’t work quite right for military members.
If you are in the military, or in another career where your tax return doesn’t tell the full picture of your gross income, you are going to have to do a little more work to figure out your FIRE Prowess. That’s because military members have a LARGE percentage of our income that isn’t counted as taxable income, and therefore isn’t apparent on your tax returns.
I talked about the difference between military pay and allowances before. As you know, military pay is usually taxable, while allowances usually are not. Generally, that means your tax returns will only reflect your pay, not the income you received from allowances. And if you’ve deployed to a Combat Zone Tax Exclusion area, your pay was almost or completely tax-free, too. So looking at your tax returns is not going to give you an honest look at your FIRE Prowess.
Instead, you have to do a wee bit more work. If you’ve never deployed, you can use your tax returns to find out your base pay for the year. Then you will need to add in your BAH and BAS to each year’s base pay to get your total gross pay.
To find your BAH for each year, you can visit the BAH calculator. Make sure you account for changes in zip codes, ranks, and dependent status to get an accurate picture of your BAH each year. For instance, my last promotion was in April. So for that year I have a January-March BAH rate and an April-December BAH rate.
For BAS, you can find that information on the annual military pay charts on DFAS. BAS rates generally don’t change by rank or location, so you most likely will only have to adjust it if you went from enlisted to officer sometime during your career.
If you deployed and your tax returns don’t reflect your full base pay, you can also use the pay charts to figure out that part. Again, make sure you account for changes in pay due to promotions, time in service increases, etc.
If you have any other pay or allowances beyond the Big 3, make sure you add them in, too. You’ll probably have to look back at your LES to find these.
SOAPBOX TIME! I know a lot of people in the military who don’t count their allowances as part of their income. I obviously can’t tell you what to do. But I would suggest that if you don’t consider your allowances when you are thinking about your income, you are misleading yourself. After all, it’s money that you are given for being an employee of the US government. And, not counting it means you aren’t comparing yourself apples-to-apples with civilians or future you. Remember, there will come a time when you will no longer be in the military. If you aren’t considering how much of your income comes from your allowances, you might be unpleasantly surprised when all of a sudden you stop receiving them.
Reading your own FIRE Prowess scores
Did this post inspire you to take a look at your own numbers? If so, there’s more! JW put together this breakdown of what the score ranges mean for your ability to FIRE. From his website:
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.
- 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!
- 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.
How I feel about the FIRE Prowess Gauge
While this tool doesn’t tell you the full story of your finances, I appreciate it for its ability to level the playing field across different incomes, savings/investing styles, length of time as an income earner and as a FIRE pursuer, etc.
I also love that you can use this score to track your progress over time. It’s very popular to track net worth growth year over year, and I do that along with many other financial bloggers. But net worth growth is largely dependent on both income and the starting balance that year. The FIRE Prowess score gets rid of that and just lets everybody track their progress on an even playing field. Pretty cool, no?
I created a new spreadsheet (finance bloggers love spreadsheets) so I can easily track and update my FIRE Prowess score in the future. Now that it is populated with my income and net worth for the last 10 years, it will be a simple matter of updating just my future year numbers. Fritz at The Retirement Manifesto has a good example of what a spreadsheet could look like, so I followed his example.
Finally, I like this method of tracking my progress because it doesn’t require me to share my net worth with the world! It is very popular for finance bloggers to share their net worth numbers, and I’m not ruling it out for the future. But for now, it is something I prefer to keep private.
Want to Join the FIRE Prowess Chain?
JW has invited other bloggers and our readers to join in by sharing our numbers. If you want in, here’s all you need to do:
- Write a post on the topic, run your numbers, give some commentary on how accurate a gauge you think this is.
- Include a link to every other blogger who has written ahead of you in The Chain somewhere in your post.
- Tag all other bloggers ahead of you in “The Chain” via Twitter when you finish your post (this will take several tweets as the chain grows).
- As a courtesy, attempt to keep “The Chain” updated in your post as others join behind you. Give them a backlink. This isn’t mandatory, as it’s a bit burdensome, but you’re encouraged to support the request if you can.
- 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: 56% 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: (that’s me!) 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%
Do you know your FIRE Prowess score? If so, put it in the comments below! And if you have any questions about how to calculate your score, let me know!