The intricate dance between profession, risk, lifestyle, and luck in determining how net worth grows.
Topics covered include:
- The various factors that shape the growth of net worth, including professional choices, risk tolerance, and lifestyle decisions.
- David Stein’s personal account of how these elements influenced the trajectory of his financial growth.
- Insights into the range of net worth increases observed in 2023, driven by the performance of financial markets.
- The importance of focusing on one’s output quality and personal journey of wealth creation, rather than fixating on comparisons with others’ net worth.
Show Notes
Managing Oneself by Peter F. Drucker—Harvard Business Review
Soloing: Realizing Your Life’s Ambition by Harriet Rubin—HarperCollins
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Transcript
Welcome to Money for the Rest of Us. This is a personal finance show on money, how it works, how to invest it, and how to live without worrying about it. I’m your host, David Stein. Today is episode 461. It’s titled “How Much Should Your Net Worth Grow Each Year?”
Annual Spending and Budgets
This was a topic suggestion from my son Bret, who was inspired by his annual review of his spending. Now, I didn’t know that he reviewed his spending annually. It’s something that I’ve done, but I’ve never told our children “You should look at your spending on an annual basis.” Bret was going through that analysis and was wondering, well, how’s he doing, he and his partner? They know how much their net worth grew, how much they spent, how much they saved, but they wanted to know what should the split be between savings for houses, retirement, pension, or cash.
We just went through the same process and looked at our annual spending. I use Mint for that, and I’ve used Mint for over a decade. But Mint shut down, so now we use Monarch Money, which is one of the sponsors of the podcast, and it works great.
Our budget, though—it isn’t a rigid budget. So each month we’ll look at the spending, I’ll look at the spending from Monarch Money, and then I’ll take that, the monthly expenditures, and I’ll put it in the spreadsheet for that month, and then kind of [unintelligible 00:01:27.18] up at the end of the year to see “Well, how did we do?” The spreadsheet goes back over a decade, and surprisingly, our spending hasn’t really changed dramatically.
It’s generally over $100,000, and less than $200,000, not counting income tax. And the categories aren’t that different. So if we look at last year, 72% of our spending was really five categories. Our highest category was travel, 18%. Charity was 16%. Shopping, which would be anything that we bought apart from food and restaurants, was 14%. Expenditures on our mortgage and property taxes, about 14%. And then food and restaurants 11%.
What I have found is generally, even as our net worth grows, and especially as our net worth grows, we should get to a level of spending that we’re comfortable with, that doesn’t necessarily keep growing and growing each year in terms of wanting to buy more and more and more. The lifestyle that LaPriel and I live is not that different than how we lived 20 years ago. We do travel more, but we don’t travel extravagantly.
Net Worth Growth When Young
Back when we were in our 20s, I was a newly-minted MBA. I remember standing in front of the world headquarters of NCR, my first corporate job. I had my briefcase, brand new briefcase, standing there thinking “I guess I’m grown up now.” And I went and worked for NCR. I spent a couple years as a credit analyst, and then a year as a planning manager. But my focus wasn’t on how much my net worth was growing each year, it was more focused on how do I get my income higher, so that we can pay down our debt? We had student loans.
During that period of three years, we bought our first house. We got the down payment for the house by selling a car to my parents. We had a second mortgage to help pay for some remodeling of that house. And it seems like at some point I took out debt for a gym membership, which LaPriel said don’t do, but I did, and it’s possible that second mortgage paid off for that consumer debt, which—too high of interest rates for purchasing a gym membership.
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