I was recently asked by CFO Dad in a comment:
Wondering if you have ever graphed/tracked your monthly % change in assets over time. What is a “good” month? What does this average to annually, and how does this change over time? (Obviously harder to maintain a high % increase when you have a very large base). What are your thoughts on this?
Although I do track my monthly net worth change, it isn’t something I have graphed out or really analyzed. I figured it would be a fun practice, and here’s what I came up with: (click image for full size, forgive the typo)
As you would expect, as our net worth increases, the volatility of the monthly change percentage decreases. It’s an interesting view of our progress. And, it makes me feel obligated to explain the major decreases.
Apr 2005: Purchased engagement ring
Aug 2005: Got married and combined finances. The addition of the wife’s car loan did the damage.
Apr 2006: Purchased home
Feb 2007: Small dip caused by large market decline right at the end of the month.
Largest increase in a month: Nov 2005, 18.28%
Largest decrease in a month: Aug 2005, -23.29%
In 2005, we averaged a monthly increase of 3.93% which resulted in an increase of 43.5% for the year.
In 2006, we averaged a monthly increase of 5.79% which resulted in an increase of 92.06% for the year.
In 2007, we are averaging an increase of 4.38% which, if maintained, will result in an increase of about 67% for the year.
It’s pretty amazing what small monthly increases actually mean over the year. If you can maintain a 6% increase every month, you will double your net worth every year. At 4%, you’ll increase your net worth by 60% every year. At 2% you’ll increase your net worth by 26% every year. Over time each percentage point requires more and more money, but at the same time, your earning potential should be increasing as your investments grow.
We’re obviously hoping for the maximum increase every month, but for now, I feel pretty good about anything 3% or higher.
Thanks for responding to my question!
Pretty amazing monthly results and also pretty amazing what only a 6% increase will do for you over the year! 3% a month is still a very good month as well, so that’s also what I tend to target as a minimum goal.
Thanks again!
I have done this since 1992 tracking my assets, liabilities and net worth for 16 years.
I can graph the progress linearly as well. 82% of my months have been possitive including adding my wife;s student loans when we got married and the slumps of 2002 and 2007-9.
It really opens your eyes to where you are going. Spending, saving and paying down debt are done on purpose to meet specific monthly average goals. Our NW has increased at the rate of about 3100 dollars per month includeing the months in the beginning where it was only a few hundred. Momemtum, time and perceveence are the key to continuous NW increases.
Buy a spreadsheet and list all your assets and liabiilities individually and track them religiously every month. it will totally change your financial behavior when you keep score and make prudent decisions about your money.