For many of us humans, it’s in our nature to move the goalpost after reaching a prior goal. I’ve been doing it my entire life, both personally and professionally. For me, growth and never-ending improvement are core values. I had an old boss who took this to the extreme with his philosophy of “strive but never arrive.” I was on board with the concept, but he took it to such an extreme that he never let the team celebrate any major milestones or improvements because no achievement was ever good enough.
I prefer to leverage the philosophy over a long life of achievement and celebration. This way, it feels more like a game that never ends versus a life sentence from which I can’t wait to be set free. It’s another good reminder of the Law of 50/50 that I’ve applied to both time and money: it’s all about finding the right balance.
You could say that I’ve spent the last 18 months celebrating the major milestone of achieving an eight-figure net worth back in November 2022, when we hit our $10,000,000 BHAG. During this period of downtime, we have continued to see our net worth grow with a fraction of the effort it took to get here—the MAGIC of COMPOUNDING! In the last 18 months, our net worth has increased almost 20% to just shy of $12,000,000 with minimal effort.
This got the gears churning as I contemplated the likely outcome over the original 20-year timeframe we set for our $10M net worth target. In 2015, when we set this goal, our net worth was less than $200,000. Before I jumped back into a spreadsheet to visualize a conservative target, I made an agreement with myself, and that was that any new target would be much more passive in terms of my effort and time. In other words, I’m not willing or interested in returning to the hamster wheel to manifest this new target.
Instead, the plan is to complete my final transition to that of a full-time capital allocator. I have another 18-24 months remaining to run the business I sold before another anticipated liquidity event when their PE sponsor goes to market, and I can gain liquidity on the value I rolled over to the larger platform company. After that, I just want to manage my family’s wealth and pursue the things that interest me most, like family, fitness, reading, writing, investing, and travel.
All of this translates to the fact that the remaining 11 years of the original 20-year plan will shift the burden of effort from labor to that of capital, which ultimately means that the POWER of COMPOUNDING is expected to do the lion’s share of the heavy lifting to achieve our new $25M target net worth by 2035.
The chart below shows how I visualize labor (red) decreasing and capital (green) increasing its effort in the continued compounding of net worth over time.
The Original Plan & Assumptions
I’ve brought in the original summary table of the 20-year plan to achieve the $10M target by age 48 in 2035.
The Updated Plan & Assumptions
In the table below, I have taken the original plan and updated it with actual numbers through 2023 and a forecast for 2024 and 2025. The astute observer may notice how conservative I am with the following assumptions that I have changed from the original plan:
- Annual Rate of Return: Decreased the annual rate of return to 5% + any new contributions, which is why you get more than a 5% YoY increase.
- Annual Income: I decreased our annual income to $500,000 starting in 2025. I expect our income to go down again in 2025 as I don’t know when the next liquidity event will be for sure, but I’m projecting (hoping) it will be in 2026. That said, my base salary is ~$400K, and if investments continue to cash flow, I should have $250,000+ in passive income. I still have an annual profit distribution that should be $75K to $150K and bonus potential. Although Mrs. GYFG is still working, she plans to go down to a couple of days a month starting in 2025, but the buyer still owes her $200,000 for the business, which will supplement her decrease in salary.
I’ve always tried to build conservative plans to account for the unknowns. In this particular update, I also wanted to see what was possible in a scenario with fairly conservative return assumptions, thus the 5% annual rate of return. Plus, I’m protecting for the possibility, God forbid, that our income takes a major cut. Notwithstanding, I’m also not blind to the fact that the next liquidity event is very likely to blow this revised plan out of the water to the good.
The punchline here is that this plan relies on modest compounding at 5% with lots of wiggle room for income and liquidity to help surprise and accelerate to the upside.
Note: In the contributions column, I have tried my best to pull out how much of my income is not related to monetizing my business equity in the form of a liquidity event that contributed to the net worth increase (basically from all other earnings, not liquidity event-driven). Obviously, from the income column, that has to pay for living expenses and taxes.
Target Allocation of $25M
In addition to updating the plan, I am being much more intentional about how net worth is allocated across asset classes now than in 2015. The original allocation on $10M was allocated per the below table and is compared to where we actually are today and where we are targeting in the future:
| Asset Class | 2015 Target | Today as of 4/30/24 | New Target |
| Stocks | 59% | 6% | 40% |
| Real Estate | 22% | 29% | 23% |
| Primary Residence | 10% | 16% | 13% |
| Other Real Estate | 12% | 13% | 10% |
| Business Equity | 4% | 32% | 15% |
| Cash & Equivalents | 10% | 21% | 13% |
| Cash Value Insurance | 0% | 2% | 3% |
| Cash & Treasuries | 10% | 19% | 10% |
| Other | 5% | 12% | 9% |
In the table above, I have created it in a way that makes the original target comparable with both the current allocation as well as the new target by 2035. Below is the visual of the 2035 target.
If feasible, I would like to shift the business equity into the stocks bucket. However, right now, I don’t have enough visibility to know how long that will take me. I also have restrictions on how much of my equity I can sell at each liquidity opportunity. For example, in the anticipated liquidity event in 2026, unless it is a certain kind of transaction, I will only be able to liquidate 40% of my holding based on my age.
Next Stop: $25,000,000
All aboard!!! (choo choo)
– Gen Y Finance Guy
