The FIER Calculator v1.1

A little explanation about my FIER (Financial Independence and Early Retirement) calculator.

This little spreadsheet was created, as I wanted a way to track my Increase in Net Worth, until I reached such a point that I reached that magical x25 number.

If you don’t know what the ‘x25 Rule’ is, it may be worthwhile checking out the post covering it here.

But, I decided to make it more complicated than that. Of course.

I decided I didn’t actually like the x25 rule as much as I liked. This came from the fact that not every part of your net worth will give you a 4% return on investment. Especially your home.

Despite my home making up a very large proportion of my net worth, it does not (and never will) make up a large proportion of my passive income. In fact, as it stands, it is making me 0% return on investment.

How is it different?

Most of the Financial Independence spreadsheets I have seen assume a 4% return on your net worth. As discussed above, this is not the case.

For my calculator, I wanted to be able to allocate different levels of returns depending on where the capital was invested.

For example, capital that is in the share market will, on average, on the long term, have a much higher return on investment that money that is sitting in a high interest bank account.

How it works.

Saving for retirement is all about habits, and this is how this calculator works.

With my FIER calculator, you simply enter into the assets spreadsheet, on a fortnightly basis, the amounts that are currently allocated to each of your asset ‘classes’. In here as well, you enter your expected return on that particular asset.

In the liabilities spreadsheet, enter where you owe money as well as the interest rate of each of these amounts.

From these amounts, the spreadsheet will automatically calculate the estimated passive income (from your assets) and passive loss (from your liabilities) which will be displayed in the passive income/loss tab.

The last thing you need to enter is your expenses for the fortnight. These are any expenses such as groceries, phone bills, car repairs: basically anything that isn’t interest on your debts.

The calculator takes all of these figures and:

  1. Calculates a rolling 12-month average for your passive income, earnings and your living expenses
  2. Calculates how much your savings have increased for the fortnight, and how much your savings have increased per fortnight on average over the past 12-months
  3. Based upon your average rate of saving, it calculates how long (in years) it will take for your passive income to cover your living expenses.

Why 12-months?

the truth is, I wanted to create a calculator that averaged out over a shorter time-frame (say 3-months) so you could track more recent improvement in your spending and earning habits. However, some large expenses (e.g. insurances, car rego etc.) only happen once a year and not including these may give an unrealistic view of your savings habits.

I could change my opinion on this in due course, and even as I am writing this I am sitting on the fence (for example, it may help in instilling new habits). I think in future iterations there will be a function combining the two so you can compare long-term and short-term savings habits.

How do I reach Financial Indpendence Sooner?

There are two main ways that this can be achieved, and they are easily accounted for in the FIER calculator.

  1. Save more (Spend less or earn more) – either way results in a greater increase in your net worth per fortnight and will get to to FI sooner.
  2. Invest in assets that have better returns – this is important, make your savings go to work for you by placing them in places where your returns are going to be higher that the average savings account

Because my FIER calculator makes it’s estimates by your rolling average of savings; you do not have to enter your earning into the calculator to make it work. It does all of it’s calculations based upon your savings habits and increasing Net Worth.

I have not included super in my calculations.

Although Super technically adds to your Net Worth; it’s not much good to you for early retirement when it’s sitting, inaccessible in your super account. Obviously if you want to be able to retire on the income generated from your investments, you cannot access the income from your Super Nest Egg until you reach the governments Super Maturation Age.

Sure, drawing down on your capital outside of super should be balanced out by the returns on your super fund.

With governments playing around with Super Rules, it’s not something I’d be willing to bank on. Who knows what might happen to the rules surrounding your super account in the future. I expect that the rules about who can access their super, how quickly you can draw down on these amounts, and how much it is taxed will be changed in the forseeable future and I don’t want to be reliant on it as my saving grace as I whittle away my savings outside of super.

Sure, there are arguments for and against including super in your calculations. Being the ultra-conservative pessimistic bean counter that I am who is increasingly suspecting of our governments ability to meddle with our ‘retirement nest eggs’ I just would rather be safe than sorry with my calculations.

Here it is.

v1.1 of my FIER calculator can be downloaded from here. Now, bear in mind that it is a work in progress, and I am having to relearn a crap load of excel commands as I’m building it, but more features will be added as I go.

Let me know what you think. Obviously it is a work in progress and there are plenty of limitations to the calculator (taxes for example).

But, it should prove as a good starting point.

FIER.

My First Ever Net Worth Report

Welcome to my May 2017 Net Worth Report!

Incidentally, it’s also my first ever Net Worth Report.

There are lots of things happening in FIER land, with a few projects underway which should help with increasing my passive income and net worth once complete.

Most people would rather their bare ass to go viral on a Paris Hilton sex tape than for the whole world to see their net worth. I’m pretty much the same, but in the interests of transparency and accountability I am baring all (finances, not my white ass).

I’ve seen a few other people do a similar thing, and I thought it was pretty cool. Being transparent with my audience is incredibly important to me; so there won’t be any embellishing of my Net Worth, and you, the reader, can get a true indication of what works and what doesn’t as I win and fail miserably along the way.

These Net Worth Reports serve two main purposes. First is to hold myself accountable to continuously increase my Net Worth. Having my Net Worth posted in a public space encourages me to try new things continuously and experiment to increase my Net Worth and to report on what I learn. Secondly, it allows you guys to learn from my wins and losses along the way.

Many of the things I try (hopefully) will be winners. Many will be failures. Either way, they will serve as great lessons for both of us on our way to Financial Independence. But lessons are only part of it. Putting it out there forces me to push through these failures and read, watch, listen, learn, and put these lessons into action. Taking action is the most important part.

Important Things Going On in May

Well, since this is the first ever Net Worth report it  may be worthwhile to briefly describe a few projects that are currently in progress.

First of all, I have been busy blocking off the upstairs area of my house to allow for a Housemate to move in with me. Although I will not realise any real gains in Net Worth immediately from this project, the improvements in my house (including running power to my garage) will increase the my Net Worth, as it will increase the value of my property. In addition, increasing my passive income (from either a House Mate or Air BnB) will allow me to save more and increase my Net Worth by a little bit more month-by-month; so it’s a long game play.

This is the only major project that was active last month; I’m sure they will get bigger and crazier as we go along.

Asset Breakdown

Bank Accounts

CommonWealth Bank
Daily Expenses Account = $114.56

ING Bank
Splurge Account = $639.09
Smile Account = $100.00
Longer-term Expenses = $305.73

Loans.com.au
OffSet Account = $50,764.38

Super
Host Super = $51,529.05

Property
My House Value = $259, 000

Liability Breakdown

HECS
HECS Debt = -$33466.45

Loans.com.au
Mortgage = -176,190.46

So, adding all of these up I have a net worth of $151 252.

However, if I am really committed to retiring early (i.e. what the blog is about) I feel I would be mistaken to include my super account in these calculations. Already we cannot access the money in our super until close to retirement age, and if the current trend of increasing the retirement age is to continue, one could only expect that the Super Maturation (i.e. when we can access the money in our super) will only increase accordingly.

So, taking away what is in my super account, I have an adjusted (or accessible) net worth of $101 266. I will continue to report both of these figures in each Net Worth report.

So, we have a starting point.

Plans for the next Month

I have a few plans in stall for the next month. One is to finish these renovations so I can welcome guests into my house and start earning an income from my largest asset (my house). In addition, I will be exploring some ‘hacks’, investment strategies, de-cluttering and selling things that I don’t use and I don’t get value out of. Hopefully you will get some value out of these projects that are coming up.

Thanks again for your support, and good luck with your own endeavors of early retirement and financial independence.

Brendan