The $5 million retirement plan: focusing on a positive net worth is leading the Thomas family to early retirement.

Like so many couples in their mid-30s, Stephen and Rachel Thomas have their financial dreams. Their primary goal is to retire early, and 10 years from now, when they will both be 45, they hope to have a combined net worth of $2.5 million. A decade after that, they want their net worth to be $5 million. Stephen says the couple could live comfortably off the interest payments from $2.5 million in assets, and working toward $5 million would help them keep pace with inflation through their retirement.

Why the focus on net worth? "For me, net worth is all that's ever really mattered," says Stephen. "Your assets don't matter if you have a huge amount of debt, so I've always intuitively focused on what my net worth is."

His wife, Rachel, is cut from the same cloth. Both are not only committed to becoming millionaires before retirement age, but they understand that getting to millionaire status requires a sound financial plan, fiscal discipline, and financial investments that can build wealth year after year.

"Whether you're earning $100,000 or $25,000 a year, you're not going to have a [positive] net worth if you don't set a goal, and you're not going to attain your financial goals if you're not disciplined," Rachel asserts.

The couple is well on their way to reaching their goals. Stephen, a vice president at Federal Home Loan Bank of Chicago, and Rachel, an account executive at JPMorgan Chase Home Finance, have a household income of $300,000 and accumulated assets of more than $1 million. They figure their net worth is currently about $500,000. Stephen and Rachel believe that a great deal of their financial success is due to practicing DOFE principle No. 5: to measure my personal wealth by net worth, not income.

It took sacrifice to get to where they are today. Stephen grew up in a household where money was tight, so he accepted a four-year Navy ROTC scholarship to pay for his B.A. in economics from the University of Pennsylvania. He was assigned to the USS Reuben James between 1993 and 1994, while it was stationed in Pearl Harbor for an overhaul. "We had a lot or down time.... I worked as a mortgage broker at night because I wanted to know more about the mortgage industry."

During the decade that followed, Stephen worked for financial institutions on Wall Street in the mortgage-backed securities area. He quickly advanced up the corporate ladder in title and pay, earning a six-figure salary.

Now a mortgage industry expert, Stephen buys and sells his own real estate. In 1999, he put a 10% down payment on a $100,000 condo in Washington, D.C., and sold it six months later for $125,000.

In the meantime, Rachel has been forging her own career path in the mortgage industry. After leaving UCLA with a B.A. in economics, her first job was as a loan originator at ABN AMRO. She earned $60,000 with an $18,000 base salary, making up the rest in commissions. AI ABN AMBO, Rachel opened a 401(k), contributing 10% of her income with a dollar-for-dollar match from the company. Three jobs later, she continues saving through her 401(k) account. Her account with JPMorgan Chase has $15,000 in it and 401(k) accounts from previous jobs have been rolled over into an IRA, which now stands at $65,000.

Since they both were on solid financial footing when they got married in 2002, Stephen says discussing their financial plans was an easy conversation. "I knew Rachel and I had the exact same values financially, which is one of the things that attracted me to her," Stephen says. "She was not a big spender, but was serious and pretty adept at saving and investing. So we said, 'This is what we have collectively, how can we build [on it] and [make it] grow?'"

First, Rachel sold a condo that she bought for $140,000 for $260,000. Stephen moved to Chicago, where the couple recently purchased a home, but maintains a rental property in Maryland. He refinanced the property in 2003, trimming the interest rate from 8% to 6.87% and saving even more on mortgage interest payments by shortening the life of the loan from a 30-year mortgage to a 15-year mortgage.

By pooling their financial resources, the couple has set the goal of saving $70,000 a year. "We both maximize our 401(k) for a total of $25,000 a year and we are dedicated to saving $2,000 a month of our after-tax income, which is $48,000 a year. That gives us a total of $73,000 annually," says Rachel.

Declaration Of Financial Empowerment

From this day forward, I declare my vigilant and lifelong commitment to financial empowerment. I pledge the following:

1] To use homeownership to build wealth

2] To save and invest 10% to 15% of my after-tax income

3] To commit to a program of retirement planning end investing

4] To engage in sound budget, credit, and tax management practices

5] To measure my personal wealth by net worth, not income

6] To be proactive and knowledgeable about investing, money management, and consumer issues

7] To provide access to programs that will educate my children about business and finance

8] To support the creation and growth of profitable, competitive black-owned enterprises

9] To use a portion of my wealth to strengthen my community

10] To ensure that my wealth is passed on to future generations

PRINCIPLE 5

To measure my personal wealth by net worth, not income

After years of concentrating on improving their net worth, the couple has several lessons to share with anyone who wants to adopt parts of their personal wealth strategy:

Be analytical about saving. Whoever manages the family's finances should use a financial calculator, run the numbers, and keep track of your net worth by writing out your assets and liabilities and calculating the difference. "It takes more time to watch a movie or go shopping [than to calculate your net worth,]" Stephen says.

Know how much money you'll need to retire. Figure out today what type of income you will need at the point of retirement, then design and execute an annual savings plan to get you there. Be sure to balance your wealth accumulation with current and future levels of consumption.

Only take risks that you can afford. For example, the couple recently took a $25,000 credit card cash advance at no interest for six months and invested the money for six months with a company that renovates houses for resale. The investment yielded a 20% return, earning the couple $5.000. Stephen cautions that their expertise in finance and their ability to absorb the loss made this investment less risky for them. Using a cash advance for investment purposes is not for everyone.