2million - My Journey to Financial Freedom

A Personal Finance Blog      ANNOUNCEMENT:2million has moved to www.2millionblog.com.     

Thursday, October 27, 2005

My $2 Million Net Worth Goal Part 1: Assumptions

The purpose of this web log is to document my journey to financial freedom. I have defined financial freedom as a net worth of at least $2 million. It may be a moving target, but I guess we will see over time. Regardless, I wanted to share how I came up with this goal.

When I started working after grad school in 2001, I decided I need to set a goal for retirement. I am a very goal oriented person and like to have a "stick in the ground" to focus on. I decided to figure out some starting points, identify some assumptions, and use these to help me determine what was a reasonable net worth goal.

Starting Points
In 2001 I turned 25, my starting salary straight out of grad school was $65,000, and I was basically starting out with nothing.

I then needed to come up with some assumptions about the next 20 years:
-I assumed I would pay 20% of my income in taxes. This is probably way low but I figured I would work hard at legally reducing my taxes (when financially beneficial) through real estate investments, running businesses (at the time I was overseeing a small family business), buying a home, etc
-To make my estimates conservative I started with a annual income of $55,000 ($10k less then my income at the time) and estimated that my annual income would increase 6%/yr thereafter
-I assumed everything I didn't allocate to taxes and cost of living would go to savings
-A big assumption I made was that I would be able to make a 10% annual ROR on my savings
-I conservatively assumed I had no savings in 2001 (net worth was $0), but in reality I was probably worth $5-10k.
-I assumed my cost of living (everything other than taxes and savings) in 2001 would be $23,000 based on my chart of estimated expenses listed below and increase 6%/yr thereafter

Estimated Living Expenses

Living Expenses



Credit Card






Car Insurance






Health Care












Now that we covered my starting points and assumptions, my next post will detail how these helped me develop my net worth goal.


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