Comments on: Forget about net worth, consider the bottom line http://earlyretirementextreme.com/forget-about-net-worth-consider-the-bottom-line.html --- a combination of simple living, anticonsumerism, DIY ethics, self-reliance, and applied capitalism Fri, 25 May 2012 19:02:53 +0000 hourly 1 http://wordpress.org/?v=3.3.2 By: jake http://earlyretirementextreme.com/forget-about-net-worth-consider-the-bottom-line.html/comment-page-1#comment-18483 jake Wed, 08 Dec 2010 05:00:45 +0000 http://earlyretirementextreme.com/2007/12/forget-about-net-worth-consider-the-bottom-line.html#comment-18483 I compiled a "Income Statement" and converted what I got in to a google doc. I will likely have to revamp a bit to distill the same info out of a tax return. I wanted to compile quarterly updates for my own curiosity, so I decided to start with my most readily available income statement, my paycheck. https://spreadsheets.google.com/ccc?key=0AghnjiBzfbnUdC1ZeDg5TmNjUWJjS3lPVmRTR3VQcnc&hl=en&authkey=CPv6v-oI The data is from our favorite minimum wage ERE http://earlyretirementextreme.com/how-to-get-wealthy-on-minimum-wage.html Feel free to copy/hack as you chose, although I'd recommend changing the permissions immediately after copying. Comments welcome. I know that the there is room for modification on how I treated 401k deposits from my pay check and how I handled loan dispersement. Both of those will be figured out once I address cash flow and balance sheets which typically house investment and loan accounts. I compiled a “Income Statement” and converted what I got in to a google doc. I will likely have to revamp a bit to distill the same info out of a tax return. I wanted to compile quarterly updates for my own curiosity, so I decided to start with my most readily available income statement, my paycheck.
https://spreadsheets.google.com/ccc?key=0AghnjiBzfbnUdC1ZeDg5TmNjUWJjS3lPVmRTR3VQcnc&hl=en&authkey=CPv6v-oI

The data is from our favorite minimum wage ERE
http://earlyretirementextreme.com/how-to-get-wealthy-on-minimum-wage.html

Feel free to copy/hack as you chose, although I’d recommend changing the permissions immediately after copying.

Comments welcome. I know that the there is room for modification on how I treated 401k deposits from my pay check and how I handled loan dispersement. Both of those will be figured out once I address cash flow and balance sheets which typically house investment and loan accounts.

]]> By: George the original one http://earlyretirementextreme.com/forget-about-net-worth-consider-the-bottom-line.html/comment-page-1#comment-18206 George the original one Tue, 23 Nov 2010 17:44:07 +0000 http://earlyretirementextreme.com/2007/12/forget-about-net-worth-consider-the-bottom-line.html#comment-18206 @cm - I'm not sure how old your post was... the "basic life" expense is actually much lower than most people realize. You chose $25,000 in your example, but that is more than four times what Jacob has proven is possible to live on. Thus his example using the median US salary (or slightly less) is applicable to a large majority. @cm – I’m not sure how old your post was… the “basic life” expense is actually much lower than most people realize. You chose $25,000 in your example, but that is more than four times what Jacob has proven is possible to live on.

Thus his example using the median US salary (or slightly less) is applicable to a large majority.

]]> By: Jacob http://earlyretirementextreme.com/forget-about-net-worth-consider-the-bottom-line.html/comment-page-1#comment-18189 Jacob Mon, 22 Nov 2010 16:41:51 +0000 http://earlyretirementextreme.com/2007/12/forget-about-net-worth-consider-the-bottom-line.html#comment-18189 @Tom - For me there's no psychological benefit by assigning money to one account or the other. Cash gets invested as much as possible when the market conditions are there. @Tom – For me there’s no psychological benefit by assigning money to one account or the other. Cash gets invested as much as possible when the market conditions are there.

]]> By: Tom http://earlyretirementextreme.com/forget-about-net-worth-consider-the-bottom-line.html/comment-page-1#comment-18184 Tom Mon, 22 Nov 2010 11:50:50 +0000 http://earlyretirementextreme.com/2007/12/forget-about-net-worth-consider-the-bottom-line.html#comment-18184 Perhaps this belongs in a different segment but when you are building out this investment portfolio to use as your source of expenses, do you keep the earnings as reinvestments until ready or pull them into your cash holdings? The latter would have you progressively modifying your savings/net_income from 10%, 11%, 12%... as you increase your portfolio returns. Financially, reinvestments are generally cheaper but psychologically you are not realizing any value in your efforts. Considering that this takes years to materialize, how much of this is practically executed as a reinvestment without seeing any returns? Perhaps this belongs in a different segment but when you are building out this investment portfolio to use as your source of expenses, do you keep the earnings as reinvestments until ready or pull them into your cash holdings?

The latter would have you progressively modifying your savings/net_income from 10%, 11%, 12%… as you increase your portfolio returns. Financially, reinvestments are generally cheaper but psychologically you are not realizing any value in your efforts.

Considering that this takes years to materialize, how much of this is practically executed as a reinvestment without seeing any returns?

]]> By: cm http://earlyretirementextreme.com/forget-about-net-worth-consider-the-bottom-line.html/comment-page-1#comment-18102 cm Wed, 17 Nov 2010 04:15:53 +0000 http://earlyretirementextreme.com/2007/12/forget-about-net-worth-consider-the-bottom-line.html#comment-18102 This analysis strikes me as sort of misleading, and the problem is the normalizing. This is because cost of living for a sort of "basic life" is roughly fixed--let's say it requires $25,000 per person/year--whereas one's gross earnings can be any multiple of that. That is, one could need $25k to get by on, but one could make $25k, or $50k, or $100k. As that income number changes, the percentage saved changes dramatically, from 0% to 50% to 75%. In fact, if one made, say, $1 million/year, the % saved would now go to 97.5%! Sure, some childish people find ways to burn through even a million dollars a year, wasting it on silly luxuries, but my point is, if 10 people agree to live at your level of "ERE luxury", the % saved is going to depend greatly on their income. Normalization hides this point. Another way of saying this is: Anyone could easily save 77% of his income--provided he made enough money! This analysis strikes me as sort of misleading, and the problem is the normalizing.

This is because cost of living for a sort of “basic life” is roughly fixed–let’s say it requires $25,000 per person/year–whereas one’s gross earnings can be any multiple of that. That is, one could need $25k to get by on, but one could make $25k, or $50k, or $100k. As that income number changes, the percentage saved changes dramatically, from 0% to 50% to 75%. In fact, if one made, say, $1 million/year, the % saved would now go to 97.5%!

Sure, some childish people find ways to burn through even a million dollars a year, wasting it on silly luxuries, but my point is, if 10 people agree to live at your level of “ERE luxury”, the % saved is going to depend greatly on their income.

Normalization hides this point.

Another way of saying this is: Anyone could easily save 77% of his income–provided he made enough money!

]]> By: Steve http://earlyretirementextreme.com/forget-about-net-worth-consider-the-bottom-line.html/comment-page-1#comment-18082 Steve Tue, 16 Nov 2010 13:37:10 +0000 http://earlyretirementextreme.com/2007/12/forget-about-net-worth-consider-the-bottom-line.html#comment-18082 Hey Jacob, your link: "This is why I always prefer to buy quality. " still goes to an old blogspot url. You might want to do a search/replace of the site for any leftover blogspot linkages. Hey Jacob, your link:
“This is why I always prefer to buy quality. ”
still goes to an old blogspot url.

You might want to do a search/replace of the site for any leftover blogspot linkages.

]]> By: jake http://earlyretirementextreme.com/forget-about-net-worth-consider-the-bottom-line.html/comment-page-1#comment-18074 jake Tue, 16 Nov 2010 04:07:01 +0000 http://earlyretirementextreme.com/2007/12/forget-about-net-worth-consider-the-bottom-line.html#comment-18074 I actually started to do this myself a few months back after...um wondering if I'd invest in myself and trying to make a quarterly report. While being a sufficient enough of a dork to come up with my free cash flow and debt:asset ratio. I stopped short of the last few calculation you made. I have now been intellectually taunted to add a few more calculations to our personal 10Q's. I actually started to do this myself a few months back after…um wondering if I’d invest in myself and trying to make a quarterly report. While being a sufficient enough of a dork to come up with my free cash flow and debt:asset ratio.

I stopped short of the last few calculation you made. I have now been intellectually taunted to add a few more calculations to our personal 10Q’s.

]]> By: Bits & Pieces 11/16/10 http://earlyretirementextreme.com/forget-about-net-worth-consider-the-bottom-line.html/comment-page-1#comment-18069 Bits & Pieces 11/16/10 Tue, 16 Nov 2010 01:32:35 +0000 http://earlyretirementextreme.com/2007/12/forget-about-net-worth-consider-the-bottom-line.html#comment-18069 [...] Yakezie links today: Forget about net worth, consider the bottom line, Cheap Cooking: Fantastic Frugal Meal Ideas from Past and Present,  and Retiring Wealthy On An [...] [...] Yakezie links today: Forget about net worth, consider the bottom line, Cheap Cooking: Fantastic Frugal Meal Ideas from Past and Present,  and Retiring Wealthy On An [...]

]]> By: Scott http://earlyretirementextreme.com/forget-about-net-worth-consider-the-bottom-line.html/comment-page-1#comment-18067 Scott Tue, 16 Nov 2010 00:16:43 +0000 http://earlyretirementextreme.com/2007/12/forget-about-net-worth-consider-the-bottom-line.html#comment-18067 Interesting analysis. I did something similar for myself a few years ago, and came up with about 60% net earnings. In my case I have a mortgage, and I only included the interest portion of the payment towards my "cost of living", which may be a bit of a cheat, but its how I look at it (I'd be curious how others see that). I didn't include depreciation directly, but I did include a certain amount for car repairs each month (no car payment). I also didn't include capital gains on my investments (which weren't that large at the time). Since then I've found more ways to cut expenses and have much more dividends, so I may be closer to 66% now. I'm starting this process much later in life than you, but I should technically be able to retire in my early 50's (Not that I will - I like the job I have). Not bad for someone with $0 in assets when I turned 36. Interesting analysis. I did something similar for myself a few years ago, and came up with about 60% net earnings. In my case I have a mortgage, and I only included the interest portion of the payment towards my “cost of living”, which may be a bit of a cheat, but its how I look at it (I’d be curious how others see that). I didn’t include depreciation directly, but I did include a certain amount for car repairs each month (no car payment). I also didn’t include capital gains on my investments (which weren’t that large at the time). Since then I’ve found more ways to cut expenses and have much more dividends, so I may be closer to 66% now.

I’m starting this process much later in life than you, but I should technically be able to retire in my early 50′s (Not that I will – I like the job I have). Not bad for someone with $0 in assets when I turned 36.

]]> By: Invest It Wisely http://earlyretirementextreme.com/forget-about-net-worth-consider-the-bottom-line.html/comment-page-1#comment-18066 Invest It Wisely Mon, 15 Nov 2010 20:47:56 +0000 http://earlyretirementextreme.com/2007/12/forget-about-net-worth-consider-the-bottom-line.html#comment-18066 I like how you added in taxes as an expense rather than ignoring it completely and starting from net income. I currently pay more income taxes than all transportation + living expenses combined, and no, I don't have a very high salary, but I do live in a high-tax regime. :P I like how you added in taxes as an expense rather than ignoring it completely and starting from net income. I currently pay more income taxes than all transportation + living expenses combined, and no, I don’t have a very high salary, but I do live in a high-tax regime. :P

]]> By: Jay Horowitz - OurTakeOnFreedom http://earlyretirementextreme.com/forget-about-net-worth-consider-the-bottom-line.html/comment-page-1#comment-18065 Jay Horowitz - OurTakeOnFreedom Mon, 15 Nov 2010 19:07:08 +0000 http://earlyretirementextreme.com/2007/12/forget-about-net-worth-consider-the-bottom-line.html#comment-18065 Too much time? :-) Too much time? :-)

]]> By: Jacob http://earlyretirementextreme.com/forget-about-net-worth-consider-the-bottom-line.html/comment-page-1#comment-10672 Jacob Mon, 19 Apr 2010 05:20:18 +0000 http://earlyretirementextreme.com/2007/12/forget-about-net-worth-consider-the-bottom-line.html#comment-10672 @Steve - I think there's a ton of useful life advice/wisdom to be learned from business administration. It puzzles me that it was not part of my basic education (the K12 equivalent). Of course what they'd have taught would just have been a bunch of testable technicalities, so maybe it wouldn't have mattered much. @Steve – I think there’s a ton of useful life advice/wisdom to be learned from business administration. It puzzles me that it was not part of my basic education (the K12 equivalent). Of course what they’d have taught would just have been a bunch of testable technicalities, so maybe it wouldn’t have mattered much.

]]> By: Steve @ cpastories http://earlyretirementextreme.com/forget-about-net-worth-consider-the-bottom-line.html/comment-page-1#comment-10669 Steve @ cpastories Sun, 18 Apr 2010 23:07:49 +0000 http://earlyretirementextreme.com/2007/12/forget-about-net-worth-consider-the-bottom-line.html#comment-10669 If people looked at themselves, and run their lives the way the best companies out there do, their lives would be a little better, at least financially. Wake up in the morning, think about your personal brand, your efficiency, various financial ratios, a report on how you did, areas you can improve on, etc. This post shows one way to look at one's finances. Funny, yes, but also very practical. Thanks for sharing... If people looked at themselves, and run their lives the way the best companies out there do, their lives would be a little better, at least financially.
Wake up in the morning, think about your personal brand, your efficiency, various financial ratios, a report on how you did, areas you can improve on, etc.
This post shows one way to look at one’s finances. Funny, yes, but also very practical.
Thanks for sharing…

]]> By: Dividends4Life http://earlyretirementextreme.com/forget-about-net-worth-consider-the-bottom-line.html/comment-page-1#comment-86 Dividends4Life Fri, 04 Jan 2008 00:46:31 +0000 http://earlyretirementextreme.com/2007/12/forget-about-net-worth-consider-the-bottom-line.html#comment-86 That was an interesting read. Thanks for sharing! Best Wishes, D4L That was an interesting read. Thanks for sharing!

Best Wishes,
D4L

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