I hate it when people ask me where I want to be in 5 years-- I just never know how to answer the question. But financially, I'm starting to have a better idea.
I've been playing around with a spreadsheet to try to project my net worth over the next 10 years. I'm predicting slight increases in salary, slight increases in expenses, the shift in housing expense from rent to interest+principal, and a decrease in my investment income, since a big chunk of what is now cash is transferred into home equity. Then I'm projecting out what my mortgage balance will be, and putting in different scenarios for what the value of the home will be-- very conservatively!
The other tricky thing is trying to predict investment gains. I think I need to re-estimate that part of the spreadsheet. Right now I just have in some rough numbers based on last year's totals. But of course this year the stock market has been down, so the results will be much lower. And then going into the future, I need to add some calculation that just estimates an average return, I think, based on a portion of my net worth.
Here are the numbers based on my current scenario:
|Year||Year-end Net Worth||Var %|
I think my numbers are conservative enough that I can safely say I'll be a millionaire in 10 years, unless something disastrous occurs (knock on wood). Given that I increased my net worth by about 25% last year, I think these overall increases seem reasonable. And since my percentage change in the later years is tapering off, I probably need to more accurately reflect the larger gains I'll get from non-real estate investments as my net worth grows. My budget for next year, even given increased housing expenses, is to save 13% of my gross income (*not counting maxing out my 401k, which would bring it closer to 29%), and I think my income should grow faster than my expenses.
And as for the included housing value, who knows. This scenario has it at 0% change for the first few years, and then increases of 3% per year later on. I'd like to think this is conservative, but who knows! However, even if I assume decreasing home value for the next few years and then have it increasing again slowly to the point where it's about what it was when I bought, I should still be a millionaire by 2017. Just not as much of a millionaire.
It's an interesting exercise-- one of these days, I'll get the spreadsheet into a pretty enough form to post it here-- I'd like to be able to just enter different variables and have it spit out the results for each year based on each scenario. Geeky Excel fun, my favorite!