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.
- Laziness.
- 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.
Just a little tips here, ignore it if you don’t really find my idea is not good.
But there’s a theory “don’t put all your egg in one basket”.
So your idea to invest in only one kind of investment is very risky according to me.
Diversification never turn out that bad if you know the proportional percentage.
And I found the percentage in the book call “4 pillar of investing”
Hope this helps 🙂
Broad index funds like VTSAX *are* diversified. That’s the whole point. 🙂
One could add in some bonds, but there’s a case for 100% equities, especially for early retirees with long time horizons. I don’t know if Thriftygal is 100% in equities, but I am, and I’m comfortable with that. (Of course I’m not FI yet, so that’s easy for me to say when I still have steady work income every month. Still…if you’re able to tolerate high volatility, and have some safety margin, I like it as a long term strategy.)
I couldn’t have said it better myself!
Aw, thanks. I wandered over here from MMM. Really like your blog – I’d like to spend some time travelling the world when I reach FI too. Also for some reason the FIRE blogs I come across generally seem to be written by dudes – it’s nice to hear from another woman, and one who likes a lot of the things I do (reading, cooking, travel). I’ve added you to my RSS reader and will be back. 🙂
I agree – beyond helpful content, great to see a woman in this space, especially since women are the most targeted with consumerism.
Seriously, it IS nice to see more ladies! I, too, came from MMM. I’m glad you are making writing a priority! I look forward to reading more. 🙂
I also wandered over from MMM — I usually don’t ready any other FI blogs, but now that I think about it I don’t think any of them were written by females. Based on all the comments from females, looks like you’ve found a great niche!
Hi Thrifygal
I thought I’d send a comment to say that this post and your charts were an inspiration to me! I’ve followed MMM for over a year and gotten myself into financial shape. I love MMM’s writing but until I saw your chart I didn’t think to visualise my progress.
I’m also a lawyer (ex Corporate, now working at a not-for-profit) but also hoping to be an ex-lawyer, in my 40th year of life and my 14th year of work. I’ve always been frugal due to my upbringing, but never understood that early retirement could be an achievable goal. I also didn’t have the knowledge to plough into index funds when I first started working (in fact I don’t think they existed in Australia at retail level in 2000 when I started working) and so I missed out on some investment games and instead bought an underperforming property.
After reading your post I did a chart for the first time impressed upon me that I’m already technical able to walk away – although I’m not convinced that it would sustain a lifestyle that I’m entirely happy with. My goal now is to keep tracking, keep extraneous expenses to a minimum, and if my Expenses line stays under my Passive Income for a year or so, and I enjoy and embrace my lifestyle, rather than feel like I’m experiencing some kind of hardship, then maybe I’ll take a sabbatical for a bit – then see how I feel about returning to work. I’m the kind of guy who often takes half an hour to jump into a cold swimming pool. But once I’m in, I’m in!
Here’s my chart
http://s1104.photobucket.com/user/misterhorsey/media/PIvE_zpskousrxjl.jpg.html
Not sure how you found living in Sydney (my home town!!!) but Cost of Living in Australia, particularly cost of housing, seems a lot higher than North America and elsewhere so I think I may need to bide my time a little until that reverts to the mean.
I also shared your post with a friend who is really interested in frugality and early retirement as well. He told me it finally clicked with him when he saw the visuals and until then he also didn’t think it was actually doable. He’s only in his twenties so it can seem daunting at that age with only a few years of work and savings behind you.
Anyway, will keep following your blog. Thanks again!
Awesome! Thanks for sharing. I’m super impressed.
And I looooved living in Sydney, although I agree that the cost of living was a bit of a turn-off.
How do you get comfortable with index funds? It’s kind of like a Ponzi scheme (most corps don’t issue stock to generate value for us commoners! Their incentive is to extract capital) Most institutions basically invest OPM in an index (an index-like portfolio) to keep up with the status quo, with no consideration to the value they’re getting. Given how prevalent this is, index funds are likely to be efficiently priced for most of your life, meaning very low future returns.
I don’t understand why people are against picking individual stocks, as if it were inherently bad. Money management is serious business, so I’d expect more people to spend the time to research securities.
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Your last sentence has volumes of import. The mathematics of dollar-cost averaging works the opposite in accumulating vs distributing portfolios. One dollar spent in retirement during a down market is much more painful b/c it makes real your market losses. Thus retirement living expenses should be drawn from non-equity assets.
I love the complicated words. 🙂
Hello Anita! I recently started reading your blog and am super inspired by you! At first I was overwhelmed by your graphs but am now realizing that if I don’t map there things out for myself I’m just working off assumptions and won’t be able to truly tack progress and make informed decisions. Thanks so much for posting your spreadsheets!! I have a question which may have an obvious answer, but I’d rather be clear. In the “Cash” column would that refer to savings/money market accounts?
Yup! 🙂
I read Your Money or Your Life in the early 90’s or whenever it came out. The chart is a classic and one I have made many times in my past on old fashioned graph paper. I love the fact you actually implemented in digital fashion and share it with the world.
So useful, huh? I love my retirement chart. 🙂
Hi Anita –
Do you have any suggestions for where to include taxes in the spreadsheet?
I entered all my info save the taxes in the Raw Numbers sheet and found that my Percentage of income saved was artificially high due to taxes not being included (that I saw) in any of the expense columns. Would adding a third expense column called ‘Tax’ and entering my monthly tax payments there still give accurate results?
I tried to include taxes when I first started doing this worksheet so many years ago, but I found it to be too much hassle, so for income, I only used net income and not gross. If you wanted to include taxes, I think you can just add a column like you suggested and that should give you accurate results.
Sounds great – thank you for responding!
Hi,
Do you include fixed expenses in expenses?
I was confused by this when reading Your Money OR Your Life.
Yes! You include all expenses, fixed and variable.