A little while ago I announced my goal of increasing my net worth by 46% over the next 12 months. After I published this post I was talking with one of my loyal readers (hi, mom!), and she asked a great question: “how on earth are you going to achieve this goal?!” Especially the part where I say I am going to try to increase by non-retirement investments by 271%.
In fairness, it sounds a little crazy to talk about increasing anything by 271% in one year. But, I’ve thought this through, and I really think it is do-able. Today I’ll talk about why this goal is feasible and share my strategy for (hopefully!) achieving it.
271% of not a lot is still not a lot
Percentages are a funny thing. They can sound really big (271%!) but because they’re all relative, they can actually describe very manageable changes. For example, let’s say that my non-retirement investment balance was at $1,000 at the beginning of my goal. To increase that by 271%, I’d only have to achieve a balance of $3,710, or an increase of $2,710. While a 271% increase sounds huge, a $2,710 increase sounds quite manageable. Over 12 months, I’d only have to save $225.83 per month (assuming no passive growth in investments) to achieve this goal.
Of course this is not my real account balance, but this example serves to illustrate the idea that, because I’m working with relatively small numbers to begin with, manageable changes can yield large percentage growth. If my net worth was a million dollars, it would probably be harder to achieve 46% growth over a year. I can only hope to one day have this problem!
Investments help themselves grow
While I will be making substantial contributions to my non-retirement and retirement investment accounts, I should also see some net worth growth thanks to the markets. The more money you have invested in stocks, bonds, mutual funds, etc., the more money you see in returns, without doing any work at all. Again, my returns are small in terms of dollar value because my investments are still small, but every little bit helps!
I am going to try to track where my growth is coming from over the next year and separate out contributions vs. market growth. That way I can see how much the markets are helping (or hurting, as they have been lately) compared to how much value I am able to contribute due to savings.
Doubling down on the budget
Although I’ll hopefully be getting a little help from market growth, I expect that the majority of my net worth increase will come from savings. A lot of personal finance bloggers talk about increasing income, and while I am certainly always game for a raise I am not currently looking to add more income streams. Life is just too busy already. This means that I’ll have to focus on saving a large percentage of what I have coming in from my job. How will I do this? By re-focusing on my budget!
I wrote about what a budget is a few months ago, and over the next few weeks I plan to share more thoughts on budgeting, including how I budget, the budgeting/financial templates that I use, and suggestions for how to build your own budget. I am a firm believer that establishing a budget and tracking spending is the best way to save a large portion of your salary. As they say in business, you manage what you measure, and money is no different.
How will you achieve your savings goals over the next year?