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2 | Financial Independence Analyzer | |||||||||||||||||||||||||
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5 | (Psst... To edit this sheet and enter your own info, click "File" and either make a copy, add to your Drive, or download to your desktop!) | |||||||||||||||||||||||||
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7 | Welcome to your Financial Independence (FI) analyzer! | |||||||||||||||||||||||||
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9 | I created this simple tool to help you figure out how much you would need to save and invest to achieve financial independence. | |||||||||||||||||||||||||
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11 | *Caution: Grey and gold boxes contain important formulas and should not be changed. To get the most out of this tool, please only change numbers in teal boxes. | |||||||||||||||||||||||||
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13 | Let's get started! | |||||||||||||||||||||||||
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15 | ‣‣ On the first sheet, FI Calc & Scenario Analysis, you can manipulate the four numbers in teal boxes: | |||||||||||||||||||||||||
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17 | 1 | Yearly Expenses in Today's Dollars | ||||||||||||||||||||||||
18 | This is the amount of money you would need to spend today to maintain your current lifestyle. Make sure to factor in things like: | |||||||||||||||||||||||||
19 | • Housing | • Utilities | • Food | • Clothing | • Insurance | • Transportation | ||||||||||||||||||||
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21 | 2 | Initial Withdrawal (WD) Rate | ||||||||||||||||||||||||
22 | This is the initial percentage of your portfolio that you could withdraw to cover your expenses. | |||||||||||||||||||||||||
23 | The 4% Rule used for traditional retirement planning suggests a 4% initial withdrawal rate. Each year after that, you may need to increase the $ amount you withdraw to keep pace with inflation. | |||||||||||||||||||||||||
24 | However, the 4% Rule was based on a traditional 25-30 year retirement horizon and may leave you short over longer periods. | |||||||||||||||||||||||||
25 | If you want to become financially independent in your 40s, let's say, you'll likely need income for at least 40 years (assuming you live to be 80 or 85 years old). | |||||||||||||||||||||||||
26 | The longer you expect to need income for, the lower the initial withdrawal rate you should use. | |||||||||||||||||||||||||
27 | As a guideline, use 3% if you want to live off of your portfolio for 40 to 50 years. Use 4% if you expect to only live off of your portfolio for 25 to 30 years. | |||||||||||||||||||||||||
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29 | 3 | Inflation Rate Assumption | ||||||||||||||||||||||||
30 | Don't forget about cash's worst enemy - INFLATION! As prices increase over time, you'll need to withdraw larger dollar amounts just to cover your same expenses. | |||||||||||||||||||||||||
31 | Historically, inflation in the US has averaged 2% to 3% per year. Using 3% would give you more conservative estimates. | |||||||||||||||||||||||||
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33 | 4 | Average Investment Return Assumption | ||||||||||||||||||||||||
34 | To live solely off of your portfolio, you'll need to strike a delicate balance between protecting the principal you've saved and earning money on your investments. | |||||||||||||||||||||||||
35 | To accomplish this, you'll want to take on just enough risk to achieve growth, but not too much that you expose yourself to signifcant drops in market downturns. | |||||||||||||||||||||||||
36 | One possible solution is to invest your money in a moderate-conservative to moderate fashion. Doing so would earn you an average return of roughly 4% to 6% per year (historically). | |||||||||||||||||||||||||
37 | Have fun manipulating this number to see how market returns can drastically help or hurt you over time! | |||||||||||||||||||||||||
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39 | ‣‣ On the second sheet, I Want to Be FI at # Years Old, the calculator will tell you the % of your income that you would have to invest to reach Financial Independence at a desired age. | |||||||||||||||||||||||||
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41 | Want to become Financially Independent at 45? Awesome. Enter "45" into the teal box next to "At what age do you want to reach FI?". | |||||||||||||||||||||||||
42 | The percentage of your income that you would have to save/invest to reach FI at that age will appear in the gold box. | |||||||||||||||||||||||||
43 | Try entering different values into each of the teal boxes to see how each variable would impact your situation! | |||||||||||||||||||||||||
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45 | ‣‣ On the last sheet, How Long Until I Reach FI, you'll see how many years it will take you to achieve FI based on your current saving and spending habits. | |||||||||||||||||||||||||
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47 | In addition to the first set of variables, enter how much you currently have saved, your annual income, and what percentage of your income you can save. Anything in a teal box can be adjusted. | |||||||||||||||||||||||||
48 | In the gold boxes, the calculator will tell you how many years you are away from Financial Independence based on your inputs, and how old you'd be when you reach FI. | |||||||||||||||||||||||||
49 | If you want to achieve Financial Independence sooner, try increasing your savings percentage, your annual income, and/or reducing your yearly expenses. | |||||||||||||||||||||||||
50 | Play with these numbers until you're happy with the age at which you could become financially independent! | |||||||||||||||||||||||||
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52 | *** Disclaimer: | |||||||||||||||||||||||||
53 | This spreadsheet is to be used for personal informational and educational purposes only. | |||||||||||||||||||||||||
54 | ReisUP LLC makes no guarantee that the calculations nor estimates are correct, nor that they are suited to your situation. | |||||||||||||||||||||||||
55 | These calculations are merely meant to serve as guidelines for your personal planning purposes. | |||||||||||||||||||||||||
56 | As always, past investment performance is not indicative of future investment results. Do research and consult a professional advisor / fiduciary before making investment decisions. | |||||||||||||||||||||||||
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58 | © ReisUP 2017 | |||||||||||||||||||||||||
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