Thepowerofthrift.com has been in existence for more than three years now and, in that time, several readers have asked me to post the spreadsheets that I use to generate my financial independence charts. So without further ado, here is a list of reasons why I haven’t posted it yet.
Reasons I Neglected to Post My Spreadsheets to My Blog Earlier
- Technological ineptitude. I didn’t actually know how to.
- There are (roughly) four trillion personal finance and financial independence blogs out on the Interwebs. Surely some of them have financial independence tracking tools that are probably pretty good. I haven’t personally tried any of them, but I’m sure they exist.
- The one absolute truth about personal finance is that it’s personal. How could I possibly capture all the various income and expense buckets other people accumulate to make it useful?
But requests kept coming, so I decided not to let the perfect be the enemy of the good. I carved out some time and created a generic template of the specific spreadsheet that I use for my financial independence charts. If you’d like, you can check it out here using Google Docs.
I like to keep my expenses as simple as possible, but no simpler.
In a perfect world, I would only use one investment account to grow my money, one credit card for all my purchases, one bank account to pay my credit card bill, my rent and my utilities and no cash. I recognize that real life often necessitates slightly more complicated financial planning, but I am constantly reassessing and muttering to myself, “Keep it simple, Stupid.”
The best indicator of how well you’re doing with your finances is column L, percent of income saved. If you’re saving 0% of your income, you’ll be working forever. If you’re saving 100% of your income, you don’t have to work. Obvious, no?
As I mentioned in my first bullet point above, me and the technology don’t always get along so well, so my spreadsheet might not be the most efficient. Prior to starting this blog, I used real graph paper on the back of my closet door to track my wall chart and that is still the way I recommend. Looking at the chart every morning while getting dressed really kept me motivated. If Google Docs doesn’t appeal, I also put the spreadsheet here and here and here. Hopefully one of those formats will work for you. Personalize it to suit your needs….if those links allow you to do that.
This is what your expenses and projected passive income chart may look like after five years.
I love looking at this.
The red line is my expenses each month. I calculate the green line based on a method I found in the book, Your Money or Your Life. The formula in the book reads:
(capital x current long-term interest rate) / 12 = monthly investment income
In my head and for my charts, I’ve tweaked the formula for myself as:
(net worth x estimated yearly withdrawal rate) / 12 = monthly projected passive income
My estimated withdrawal rate for my own finances and the number used in the spreadsheets is 4%. I derived that number from the aptly titled “4% rule”. This method, necessarily, involves a bit of assumption. I expect my investments to return 7% a year and inflation to hover around 3% a year.
estimated yearly withdrawal = expected rate of return on investments - expected inflation
My net worth was actually negative when I started this project. I owed more in student loans after graduating law school than I had in an old 401(k). Five years later, I have zero debt and enough saved where I can theoretically retire.
Here is my chart at the end of October 2015.
Pretty, no? I spent the month wandering and on way too many planes. I was visiting family and friends, so my expenses were down dramatically. The market is up from last month, causing my net worth to increase an insane $44k in October. The most amazing part of that figure is that my last day on payroll at my firm was the end of September.
As fun as it was to chart this past month, I do need a new system to track my finances now that I’m retired. I don’t expect many (if any) future months to feel this gratifying. Truth be told, I’m terrified of the day when I LOSE $44k in a single month due to market fluctuations. In the past I would have giggled in delight, imagining all the VTSAX that I could scoop up on sale. Now that I’m not working and don’t have a backup income stream, seeing my safety net shrink might scar me.