My $2 Million Net Worth Goal Part 3: Lessons Learned

Previously I discussed the starting points and assumptions I used to develop a forecast of my annual net worth that I used as a basis for formulating my $2 million net worth goal. Since I have been chasing this goal for 4 years, I have found some things that worked well and things I would changed if I had to do it again.

Lessons Learned:
Issue #1: A big assumption I made was a 10% ROR on my savings. At the time this seemed like a reasonable objective, but I now recognize this is my biggest challenge. I have masked this today with additional cost cutting and savings, however long term it is absolutely critical to focus on improving the ROR on my net worth. I will be focusing a lot of attention on improving my ROR in future posts.

Issue #2: Nowhere in this goal setting exercise do I factor in life events such as an engagement ring, home closing costs, wedding expenses, dual incomes (or lack of), or raising children. I did estimate my living expenses and make an assumption that my overall consumption would increase by 6%/yr which should account for some of this, however I have learned from my friends and colleagues that starting a family will change everything and I have clearly underestimated the future cost of living. All the more reason to get ahead early I guess.

Issue #3: Inflation. That about sums it up. When I did this goal setting exercise I knew there would be inflation, but I didn't really take into account that inflation would be more than 2%/yr. I figured my investment strategies would also hedge against inflation mainly by focusing net worth in stocks or real estate instead of cash or bonds. However I recognize that inflation COULD be more significant than I initially anticipated.

Issue #4: Healthcare. One issue that will ultimately become the biggest is healthcare. To reach my goal of being financially free I need to find a way to pay for healthcare at least up to the age of 65 (assuming Medicare will be around) without relying on employment. Most likely I will either need a lot more than I anticipate or I need to find another way to afford health care costs.


Things that worked:
-Defining a single goal. A net worth goal of $2 million is pretty simple to remember, straightforward to explain, and easy to focus on.
-Its only a rule of thumb. I only forecasted a goal for 20yrs in the future. If I miss my goal it may take me a couple of extra years to reach it, but worst case I will probably still reach my goal.
-Breaking it down into a yearly target helps with planning. Unfortunately, volatility of the stock market I have learned will affect whether you can reach your goals no matter how much you try and save. If your worried about the volatility of the stock market I have a couple of suggestions:
1) Set a yearly target range. This will give you some flexibility, if unexpected events occur. I figure its ok to miss an annual target, but plan to take corrective actions in the following year to stay on course.
2) The volatility may actually help you reach your goals just like dollar cost averaging. If the market tanks 10% one year you would have to save an extra 10% just to break even, which traditionally is a better time to invest more since the stock market is 10% than it was. Think about it.
3) Look for alternative investments. Its not necessarily easy, but one might be willing to make a real estate investment that would give you a more consistent 8% ROR, plus tax breaks, to reduce the volatility in your returns.

Hows My Progress?
I formulated this $2 million net worth goal in 2001 when I started my career. So far I am on track and gaining ground to reach it before I turn 45.

Year	Annual Target	12/31 Net Worth
2001	$ 21,000.00	$ 18,670.95
2002	$ 45,360.00	$ 37,964.36
2003	$ 73,491.60	$ 97,036.82
2004	$ 105,852.10	$ 155,736.61
2005	$ 142,949.32	est $207,000.00
2006	$ 185,346.99
2007	$ 233,670.59
2008	$ 288,613.89
2009	$ 350,946.08
2010	$ 421,519.75
2011	$ 501,279.53
2012	$ 591,271.75
2013	$ 692,655.05
2014	$ 806,712.05
2015	$ 934,862.24
2016	$ 1,078,676.18
2017	$ 1,239,891.19
2018	$ 1,420,428.53
2019	$ 1,622,412.51
2020	$ 1,848,191.35

As you can see I got behind in my goal in the very beginning. It was a frustrating time because the stock market continued to go down and I was losing more money than I was saving. However, because I was focused on getting as close to my goals as possible, I did everything I could to cut costs and save more money to invest. This tactic ultimately benefited me starting in 2003 as my investments began to rebound.