Knowing how long until you can FIRE is one of the most challenging tasks. Those pursuing Financial Independence Retire Early (FIRE), will know it’s quite simple to calculate your FIRE number. It’s 25x your annual expenses. That gives you your target portfolio number. From this you can sustainably withdraw at a safe withdrawal rate (SWF) of 4% and never run out of money (in theory).
The problem is that it’s tricky to know if you are on track to hit that target number, by a given age. There are many things to consider such as your net worth, expenses, income. Then there is the question of how well your investments are performing.
In terms of tracking how money flows out of my accounts, I pretty much automate this. I use Emma for my own personal accounts and Snoop for the joint account with my partner. Then I’ll use a Net Worth spreadsheet to keep track of all my account balances including my investments, savings rate each month etc.
I’ve also been super impressed by the money management features of Revolut recently. Check out the other apps I think you should be using here.
I was using a very simple google docs file but I have since moved onto a Personal Finance Suite in excel. The later now includes my monthly/annual budget, net worth tab and a few cool visualisations. These display my net balances and savings rate by a customisable date range.
In short, there are three documents I use:
Personal Finance Suite (excel document)
My Financial Independence planner (google sheet).
My Financial Freedom Calculator (macro-enabled excel document)
FYI – Before using the Financial Independence or Financial Freedom calculators check you understand the 7% rule for calculating investment returns.
Tracking Your FIRE Journey
There aren’t any apps that actually tailor to this specific need in a safe and secure way. At least there aren’t any that I can think of. So, you might be wondering if anyone has example spreadsheets and can share how they track their finances.
Like I say, you can use an app or spreadsheet to track your net worth. When It comes to understanding if you are on track to retire early, you need a specialist tool. This is because you need to understand if you are investing enough each month to reach your goal.
In order to do this, the spreadsheet needs to have an integrated compound interest calculator. This is because you need a calculator that combines your:
Age
Starting investment amount
Monthly investment
Expected returns
Time-frame
You will also want to understand you retirement portfolio within the context of the income. All within the context of portfolio survival rates and asset allocation. You might also want to know how much your portfolio might grow once you retire? The FI planner is a much more comprehensive document for understanding all of this.
The Financial Independence Planner (Google Sheets)
The reason the FI planner works so well is because it tells you how much you need to invest each month. As this is based on your current and required future investment, it’s the perfect benchmark.
The planner is a super-comprehensive tool when it comes to understanding the end-to-end FIRE journey. From building the portfolio to maintaining it in retirement.
In short, it proves answers to the questions that you need to know, such as:
How much you need to invest each month to FIRE.
What your financial trajectory will look like as each year passes by.
What your portfolio will look like by the age you want to retire.
What income your will have in retirement
The risk and portfolio survival rate by your drawdown % and asset allocation.
This is the real separating difference between the FI planner and the Financial Freedom calculator. The former will tell you exactly how much you need to invest each month. The later tells you how much you need to cover your expenses.
Financial Freedom Calculator (Excel)
The financial freedom calculator is a perfect way of understanding the investment portfolio size you need to reach to achieve Financial Independence. It does this at both a top level (total investment portfolio) and a granular month to month level.
It’s going to calculate the value of the portfolio you need to become financial independent. It’s going to compare the income you will have in retirement vs your income from your portfolio over time.
This is probably the first step in working out when you can become financially independent. I would say this is more of a beginner tool. Both are quick and easy to use, but the financial freedom calculator is going to give you the breakdown in seconds.
If you want a very straightforward tool for calculating a quick plan to reach FIRE then the excel tool is the way to go. Once you input your current investments, monthly contributions and current expenses. If you want the meaty details of FIRE, get the FI planner.
These tools should be combined with knowledge around the basics of investing in the stock market. The perhaps if you are a little closer to retirement, how to live off your investments or strategies for investing into retirement.
Of course, if you are earlier into your investment journey, then you might want to know they top index funds that make my shortlist. These are simple broad market ETFS that you can passively invest into, on your way to Financial Independence. – For more information on Index Funds click here.
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