Monday, October 01, 2007

Wealth Builder Ratios - Q3 2007 Update

Here is my Q3 2007 Wealth Builder Ratio update. This update also represents results for the 2007 year to date. At this point, I am very pleased with this year's results versus goals and 2006 results. Q3 2007 has delivered signficant returns versus the first half of this year through June 30, 2007. For more details on the relevance of these ratios, please see this How Much Is Needed To Be Wealthy - The NUMBER.

Ratio and Target

Q2 2007

Q3 2007


Income to Salary

Target=0.8 2007 - 0.8


The significant increase is due to a 15% gain in our company stock, which is a signficant part of our retirement account.

Tracking this number is giving me an indication of what our income might be like during retirement. Obviously, with income at 9% of my salary for the first half of the year, we would have been spending our retirement principal during Q1 and Q2 2007. However, for the second year in a row, significant gains have been achieved in the second half of the year.

to Salary

Target>20 2007 - 16.5

The significant gain this quarter is due to 15% rise in my company's stock, the gain in my taxable accounts and a contribution by the company to my retirement account.

Debt to Salary

Target=0 2007 - 1.53

Currently, our only debt is our home mortgage. In January, we made a payment equal to 4% of our principal.

My financial goals for 2007 are:

1. Continue to maintain an Investment Income to Salary ratio > 0.8. (on track)

2. Add 1.5 to my Savings to Salary Ratio for a year-end value of 16.5. (on track)

3. Reduce my Debt to Salary Ratio by 0.1 to 1.53. (done)

(For reference, Salary refers to gross salary.)

Both #1 and #2 are directly correlated with how well our stock, bond, and CD investments do. If our stock investments return about 10% in 2007, I should be able to comfortably achieve these goals. The S&P return through September 28, 2007, is 7.7% and the Dow is up 11.4%. Number 3 is on track since we made an additional payment equal to about 4% of our mortgage principal.

When I was bullish on the market, I expected to achieve these financial goals for 2007. I still believe 2007 will be a strong finish for the market (and my company's stock), and hope to exceed the 2007 goals.

For more on Strategies and Plans , check back every Monday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC


pfstock said...

Hi Super Saver: How's it going? I'm glad to see that you've posted an update to your numbers. The "investment income to salary" ratio is definitely a volatile one. I prefer to average my numbers over a three-year term. I could see that ratio easily turn negative in a short-term bear market.

Since "salary" appears in the denominator of all of your ratios, a decrease in that number (i.e. a pay cut) would improve all three of your numbers. Ironically, a raise may actually put you further from your goals.

Super Saver said...


Agree averaging over a longer period is a good idea for understanding performance. I did it over a quarter to understand what it might look like in retirement when I have to withdraw money, irrespective of market preformance. This analysis has led me to plan on setting aside three year's income needs in a interest bearing account. That way market fluctuations will have little emotional impact when we withdraw.

Mathematically, you are correct about the denominator effect on the ratios:-) However, for us, increases in income ultimately helped since we saved a higher percentage of the after tax income - i.e. spending growth was much slower than income growth.