Ratio and Target | Q2 2007 | Q3 2007 | |
Investment | 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. | ||
Savings 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.
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This is not financial advice. Please consult a professional advisor.
Copyright © 2007 Achievement Catalyst, LLC
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2 comments:
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.
Pfstock,
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.
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