How Much Should Your Net Worth Grow Each Year?
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Welcome the money for the rest of us. This is a personal financial 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 four. Sixty one is titled how much should your network grow each year? This was a topic suggestion from my son, bread, who was inspired by his annual review of his spending.

Now I didn't know that he reviewed his spending annually at something that i've done, that i've never told our children. You should look at your spending on an annual basis. Brett was going through that analysis and was wondering, well, how's he doing? He and his partner, they know how much their network grew, how much they spent, how much they saved.

But they want to know what 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 used to use meant for that.

I had used meant for over a decade, but min shut down. So now we use monarch money, which is one of the sponge to the podcast, and IT works great. Our budget, though, IT is in a rgdt budget. So each month will look at the spending.

I look the spending from monarch money and then i'll take that, that monthly expenditure and i'll put IT in the spread ad sheet for that month and then kind of chew IT up at the end of the year to see, well, how did we do? The spread ship goes back over a decade. And surprisingly, our spending hasn't really changed dramatically.

It's the gently over one hundred thousand dollars and less than two hundred thousand dollars not in income tax. And the categories aren't that different. So if we look at last year, seventy two percent of our spending was really five categories.

Our highest category was travel. Eighteen percent charity, was percent shopping, which would be anything that we bought apart from food in restaurants was fourteen percent. Expenditure on uh our mortgage and property taxes, about fourteen percent. And then food and restaurants, eleven percent.

What I have found is, is generally even as our network grows and and especially as our network grows, we should get to a level spending that are comfortable with that doesn't necessary keep growing and growing each year in terms of wanting to buy more, more, more. The life style that leoni live is not that different than how we live twenty years ago. We do travel more, but we don't travel extravagant.

Back when we were in our twenty years, I was a newly minted N. B. A. Remember, standing in front of the world headquarters of N. C R.

My first corporate job had my briefcase, brand new briefcase, standing there thinking, I guess, some grown up now. And I went work for N, C, R S, but couple years as a credit analyst and then a year as a planning manager. But my focus wasn't on how much my network was growing each year.

IT was more focused on how do I get my income higher so that we can pay down our debt. T with a 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 the problem don't do, but I did.

And and it's possible that second mortgage paid off for that consumer debt, which too high interest rates for purchasing a gym membership. During that period, we were saving where we were incorporate finance. I was contributing to our four N.

K. But the focus was on income and the focus was on lifestyle. What life style do we want for a family? Where do we want to live? Do we want a yard with the garden?

How many hours that I want to work. Specifically remember being at the first job, corporate, for observing how much people work. And as a planning manager, I I got access because I did the budgeting for our division.

And so I saw what the president of the division made and what my boss made. I I saw what everyone made, and I saw how little I made compared to some of them. I was also surprised that that some didn't make as much as I thought they would make in corporate finance.

And her lifestyle became pretty important to me. I wanted to be home on the weekends. I met an acquaintance that came our division, that had worked in another area, events. You are in the consolidation of division.

And he mentioned just how many hours IT was, and that he would travel and go to one of the satellite offices and work so many hours and be there all week, and how homesick he got for his family. And I realized after several positions at ncr, that I get restless, I get bored, and I could have stayed, incorporate finance and just sort of move to the next position. But I would have require moving a lot of rooting my family, and that's where I decided.

Well, i'll get something in the investment arena, the financial markets. So everything is moving around me. Markets are changing. And then I don't have to move all the time and hopefully find a position where the hours are reasonable.

About the time I read an article by Peter druck er, who is a management consultant, educator, austrian american, born in one thousand nine hundred hundred and nine. He died in two thousand and five. He wrote an article and I could not find the article, but he was talking about different work environments and whether you are working for a very big organization.

And he might call IT an elephant. I was some big animal that just it's harder to get ahead because of the bureaucracy. And I could see that, that at ncr, I mean, there are some that, that get ahead and get into senior management, but most do not and just continue working in, I guess, middle management.

The alternative is to join a small company where there was more opportunity, where you could create opportunity. And that's what I decided to do. I joined the firm fg.

Small advisory firm. IT was on when I joined in the mid nineties. IT had only been around six or seven years.

I was the twenty nine employ that they had done well, but I took a thirty percent paka. I joined fg at the same story that I had when I joined ncr three years earlier. And at the time my net worth would have been well under hundred thousand.

I'm sure IT was less than fifty thousand dollars at the time. And I was thirty. I didn't I didn't have much assets.

The answer I had, human capital, the desire to grow, to learn, to contribute. Before we continue, let me IT pause and share some words from a returning sponsor to the show. Shop of fine. If you're running a new or existing business, I can't think of a Better partner than shop a fy.

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Again, I wasn't focused on that worth. I was focused on how do I increase my income. And I wasn't increasing in at the level I wanted.

So I thought i'll just start my own firm. And the prose father passed away, and we were ready to move from ohio out west. But that was filling out my A D V, my form who filed to the sec.

I was ready to file them. And two senior consultants at our firm left, and they had the bulk of the clients. And and so there was a mad scramble to go after those clients.

And in the founder, fred diamond, and I went on many, many meetings to to texas, florida, to new orleans to try to save these clients. So they didn't leave with his other consultant. And most state, I think, all of our clients stayed, at least the ones that I worked with.

And I immediately got a fifty percent race. A year and a half later, I was offered ownership. But I still didn't have much, much net worth at that time that worth less than one hundred thousand dollars to borrow five thousand dollars from my parents to buy ownership in F.

E. G. I got on our executive committee and and as part of that negotiation, when the senior consultants lapped, I got our founder degree to let me move out west, which we did in two thousand one.

But all through that time, once they saw how their network could be impacted by people living IT was an I opened to them and they realized that they had a huge amount of the network in this illiquid company. And that's when they made the decision. They wanted to monetize their hard work of more than ten years.

And we spent three years trying to sell that firm, which we eventually did in two thousand two. And I turned to five thousand dollar and investment into about four hundred thousand dollars. I in two percent of the firm.

But I had kind of a reputation of being restless. I was no longer on our executive committee. After we sold, we moved to.

I know how I was tell a commuting. There was a time that I promised my colleague to see if I could work part time and pursue their projects. I was building websites.

I started a blog, riding on the internet, blogging, building websites. I, back in one thousand and ninety nine, read a book by Harry rubin called following. And I was about to in projects and working for yourself.

And so i'd spent this time in a big company, and then I was in a smaller company. But I. Wanted to work for myself.

I'd never done that other than in high school. I had all time to little entrepreneurial gigs that I did, never making very much money. But I like the freedom. So again, when we talk about networks, that's just a number.

What we really need to focus on is what is the light star we want and is your way to create that lifestyle today, even as our network grows over time, what is a take to create a lifestyle that we want? How much income? After i've been an investment advisor ten years, my business partners and I had the opportunity to purchase back our investment advisory firm.

And this is after I ve been running a portfolio. I was a chief portfolio strategist of an investment product that a few of my colleagues and I had developed. And IT was doing well at A A very good track record, partly because timing was right.

Emerging markets were doing super well. Small cap stocks were doing very, very well. We were over wait that. And so we were meaningly outperforming our benchmark and that was attracting clients.

And this was also a time where client and damage foundations tions were much more interested in in outsourcing the management of the asset to advisory firm to where the the investment committee wasn't making the allocation decisions, who is called outsource asset management, outsource cio. And we started that product that track record a partner. And I put up fifty thousand dollars, I guess, twenty five, eight, two further track record.

And that was most of my net worth, liquid net worth going into that track record of that product that we developed that did well and started to attract clients. So we're running this. And then my other partners decided they wanted to buy back the family and the opportunity to bite back for half of what we sold.

And then IT was a negotiation. Well, what percent had everybody own? And how much should we get paid? We are already kidding.

A percent of the revenue for the product that we developed and go is ten percent of the revenue. And IT was a chAllenging decision. I decided to stay and committed.

And as part of that, we borrowed millions and millions of dollars, over ten million dollars, to buy back this firm. And I found the spread sheet of my network because we had signed personal guarantees for this bank, barring that, we were doing. And so every year I had fill out this spread sheet.

So at the time we bought back that firm, I was still spending about what we do now, right? IT looks like I spent a one hundred eight thousand dollars in two thousand four, and my network was around six hundred thousand dollars. Most of IT was from the proceeds of having bought the firm and selling IT three years later.

And I put IT a third of in a netware, two hundred thousand and others back in to F E G. As we bought back the company in a very leveraged fashion. We filled out that spread s sheet every year and was able to see my allocation.

At the time, I was ninety four percent stocks. This was liquid asset, so not cutting, realized six percent cash. And you could see every year from two thousand five to early two thousand nine, my allocation to stocks kept going down.

IT was eighty eight percent in two thousand six, seventy six percent in early two thousand seven, sixty eight percent in two thousand and eight. And by then, because this was a highly leverage transaction, the company was doing well. Our track or IT was solid.

We continue doing bringing clients. We are raising fees on existing clients. My network exceeded a million dollars for the first time, and then the great financial crisis hit. And before that, that spring, a two thousand and eight, I completely got out of stocks.

So by early two thousand nine, I had only six percent in stocks, and I kept my allocation to stocks basically single digits or less from early two thousand and nine until I left F. G. In twenty twelve.

And the reason why is because I realized that that my profession, I was a stock, I was in a profession that was tied to the success of the stock market, and I was highly leveraged personally in that business that's investing in primarily in stocks, in other risky assets. And as a result, I shouldn't be compounding that risk by keeping my personal portfolio primarily. And so at that point, IT was bonds, cash and real estate.

We were the I were buying homes. We are fixing them up. SHE was handling most of that, but that's another aspect about our net worth.

The growth of our network depends on our profession. Riskier professions will have a more valuable network because there's no guaranteed. I often look back on the decisions we made.

The leverage job, the firm by IT back launch, a product track worker, could have gone the other way. IT might not have been successful in our network, would have been a lot less. We get one shot at this as we go through time. And so recognizing your network will fluctuates based on your career choice.

The syndicate, a mention this in food by anoma, which I read over the break, and he talked about the distribution of wealth outcomes for a dentist much narrower versus would say, an actor or even, let's say I would say corporate financial, probably little more predicted, but that's a key component. luck. Luck can play a role.

How much income your professional takes and how steady that income is and what opportunities are presented. And so when we say what, how should network grow each year? China depends on your profession and in the lifestyle of created.

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I read an article by Peter darker in the harvard business review called managing one self and drug or row. We live in an age of unprecedented opportunity. If you ve got ambition and Spark, you can rise to the top of your chosen profession, regardless of where you started out.

Now you can rise, but there's no guarantee you rise. And he talked about that as knowledge workers, we have to be our own ceos. And so he had a series of questions, which I think we're important.

And I read that article in two thousand five and and I asked myself, the questions are or read to here, and you can ask yourself the same questions, what are my strength? I think around that time, maybe strength finder, the book came out, but it's important know what your strengths are and how do you perform, what environment you work best, and how do you learn the best you do? You learn best by reading, which I do, or do you learn best by listening? Now the question drako ask, what? What are my values? Bat will help determine how you make an an income and how much your network, how much you wanted to grow.

At some point, people can just stop up and say they had enough, which is what I did in twenty twelve. I hit my number and I knew that I, with this amount of wealth, i'd be fine, not super rich, don't gonna to figure out how to make an income because the the next stage wouldn't last for forty, fifty years. And I didn't want to put that type of stress on my portfolio.

But reading an article like this back in two thousand five, I was already thinking about these things in this PC talked about second career, second life. I'll get to that minute. But IT is other questions as where do I belong? Like what type of organization of fit? And that's something that I dealt with without my my career.

I worked for a big CoOperation. I worked for a small CoOperation. I have worked for myself for a parity time now. I have business partners again, and we're building a business with asset camp.

And then and the final question, what should I contribute? What do I want to contribute? Darker mentioned in this article how how it's very difficult to plan out more than eighteen months in advance at our company.

We have a budget for the year is some things we want to accomplish, but we don't know how things are unfold over the next year. It's hard to plan out that far ahead, which is why you need that, that flexibility in that peace manage yourself. There was a section called the second half of your life, and he talked about, again, this amid two thousands, how for most people they did manual labor.

And he said they were lucky enough to survive forty years of hard work in the mill or on the railroad. And that back then, or even today, people can have careers of fifty years or more. He writes forty five.

Most executives have reached the peak of their business careers, and they know IT after twenty years of doing very much the same kind of work, they are very good at their jobs, but they are not learning or contributing or driving chAllenge and satisfaction from the job, and yet they are still likely to face another twenty, if not twenty, five years of work. That is why managing oneself increasingly leads. Want to begin a second career.

That's exactly where I was in the mid to late two thousands. We'd d brought back the company in a leverage's way and IT ballooned my network, which was a liquid. But I couldn't see myself staying another twenty years until I retired.

I just, I thought of IT frightened me. I would would have been so bored. Maybe not.

I don't know. I just, I bet I couldn't do IT. And that's why I left in twenty, twenty. And i'm glad I did because of the ten years i've had, two of years now being on my own.

But even then, just the other day, I was looking at thinking about one of my pension fund clients. And I I would go, this was a industrial firm and admit with them a few times a year, and we would sit around the board. And this is where corporate finance people to CEO CFO senior people with make decisions on, i'd recommend decisions on the pensions.

And I just remember sitting around the conference table thinking, well, this could have been my profession, corporate finance. And here and watch, just tell people aged because i'd work with them a number years. I can see that these guys are getting older.

One of the guys retired this past year as a CFO, and he joined the company that year after I started working with them and has been there twenty years and rose to be CFO and has a network now primarily from this company stock of forty million dollars, much higher network tork than than I did we ever have. There was part of me that fell little jealous, like, gosh, how would I live if I had forty million dollars of that worth? I realized, well, not that differently.

We might stay in nice hotels when we travel, but we would. You kind of get this set lifestyle and and that's how we would live. Now the proof SHE would like to do more housing projects remodels and have the capital to do that.

So let's just think about two thousand and twenty three. How much should your networks have grown based on how the financial markets did? We have motor portfolio examples of money for the restless, plus we update the performance of those portfolios on a quarterly basis.

We have adaptive models, which are more diversified. They tend to be less void to less interest rate sensitive, higher cash flow. And we have some static portfolios or just made up of vt, the VGA global stock market d tf and bnd, a vanar total bond markets tf.

And if we look at those portfolio, twenty, twenty three was a good dear. So if you're just think about your liquid investments, the alter conservative portfolios did around eight percent, moderate portfolios did around thirteen and fourteen percent, and aggressive portfolio, which would have upper to seventy five percent stocks return sixteen and twenty percent. So your nett orth last year, not counting additional savings, your portfolio is proud.

I up anywhere from eight to twenty percent. Our network increased just around eight percent because, again, were conservative investors were despite last week episode on retirees or near retirees should have their investments on stocks. I can do that.

I am much more cognizant of volatility. Drag, for example, twenty twenty two is a very, very difficult year for investment Marks. Stocks were down eighteen percent bont her down sixteen percent.

And as a result, if we think about these portfolio, two year analysts returns on these models are diversified portfolio. Our static portfolio haven't made up those losses yet. If you just vanguard total stock market D T F and the vanguard bond market D T F in any weight between the two, you are still under water.

For the past two years, rea returns are in the low single digits, are added models, and more aggressive ones are are positive. After two years, the more conservative ones because the bond market and twenty twenty three return six percent after after the bond market lost sixteen percent in twenty twenty two. Now there are adaptive bond portfolio did much Better than negative sixteen percent in twenty and twenty two.

But it's been in the chAllenge a couple years. So we've think that there will past four years with the pandemic in the way, twenty, twenty one very strong returned and then twenty two very negative returns. There's there's been some violation late.

And so when we think about network, my goal is I don't want a volatile network at this stage of my life. I wanted to compound and grow more than our spending to maintain its purchasing power. But at this point, I don't have the stomach for IT. Or do I have the time to make up if things don't work out well, i'm not going to take a third of my network and invested in the company in a highly leveraged way like I was willing to do twenty years ago.

And that's why I figure out what our net net worth is, is, is so chAllenging ing IT depends on your lifestyle, my human capital you have, what is your career, how much of a risk taker are you, how much leverages do you want to use, what lifestyle do you want? And recognize the role of luck that if you want to take more risk, I think perfectly fine, particularly when you're Young, to have a volatile network, but make sure there's a backup, a plan and make sure you've defined kind of a lifetime le you want. And how can you get that today? So maintain your flexibility, your optionality be able to make choices, don't spend a little whole lot of time comparing what your net network is to others to focus on the lifestyle you want and conclusions.

Then there isn't one answer to how much your network should grow. Ideally, IT is growing because you're saving, you're building up a buffer. You are investing asset your seeking to increase your network in a compounding way.

But how volatile is depends on your current choice IT depends on the lifestyle you want. And so focus on creating getting Better, increasing the quality of your output that all we can do, we can create and release IT. And beyond that, there is an element to luck and recognizing opportunity, but they're no guarantees.

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