Financial Freedom Simulator

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freedomnovasimulator

I started Freedom Nova as part of an MBA project to help individuals understand how to reach financial freedom. With this in mind, I’ve been looking for ways to create a simple tool or simulator to so that you can punch in your own numbers to get some concrete numbers to help you reach your financial dream.

Yes I’ve simplified it to the point that I’m ignoring quite a few factors, which I will touch upon for each step. However, my goal is to bring awareness to your financial situation and help everyone understand that financial freedom isn’t as impossible as it might seem. Rome wasn’t built in one day!

Please note that this initial version is not mobile friendly, thank you for understanding!

So let’s get started! Click on each tab to get details as you finish each step!

The first step is essentially a budget calculator.
This step actually serves 2 purposes:

Purpose 1 – Coming up with your Current Budget:
By punching in how much you spend on a monthly basis, it helps you realize how much money you are spending and potentially wasting. When I was a banker and helped clients go through a similar budget calculator (the one that I created actually goes into much more depth), many clients were surprised (often horrified) at how much money they were spending.

By putting in your current income and expenses you’ll hopefully be a little more careful with how you spend your money, if you aren’t already. Remember being frugal and being cheap is completely different!

Purpose 2 – Coming up with your Financial Freedom Budget:
At first glance, you’d think these two would be the same thing, but they aren’t. At different stages in our lives we have different needs and wants and that’s why it’s actually very important to review your budget one a regular basis.

For the purposes of completing the Freedom Nova simulator, I want you to spend some time and think about how much you need once you reach financial freedom. You might not need to buy work clothes, might not spend as much money on lunch as you might spend more time at home, hence have more groceries to pay. You might go on more vacations and take on more hobbies but have less transportation costs, just to give you some food for thought!

On the flipside, unlike when you have a job, when you’re financially free you won’t be working and will therefore will need passive income sources. That’s why it’s important to start looking for and creating passive income sources besides your investment portfolio to reduce the magic number.

Don’t know where to start? If you have bank and credit card statements, that’s a great place to start to see how much cash you’ve withdrawn as well as all your debit and credit card purchases.

I know I’m making this a little confusing as this looks exactly like a regular budget calculator and that’s because it is! However, you need to look into your future and think what you won’t be paying then that you are paying now. For example, once you reach financial freedom you won’t have to put in monthly contributions to the investment portfolio, and that’s why I left the default to 0. But if you are doing your budget calculation for your current state, then you can punch in an appropriate number. If this is completely confusing, let me know!

Now that you have the monthly budget down, the next step is to find out what your magic number is! The magic number is the size of your investment portfolio that you need in order to provide an ongoing income. The magic number investment portfolio is strictly based on income from the portfolio and does not deplete the principal. This means that you need to earn interest or dividends from the investment portfolio and that is the primary source of income for your investment portfolio.

When you construct a financial plan with a professional they will usually project when you retire, consider your life expectancy while taking into consideration the amount that you need on a monthly basis. The great thing about this plan is that you will need a lot less than the magic number you come up with here, the scary thing is that once those funds are gone you have nothing left.

The Components:

How much do you need every month?
This is the number that we came up with first part of the simulator and will be inputted automatically if you did the budget calculator (step 1) of the Freedom Nova simulator.

What is your tax rate?
This will be your average tax rate, please refer to your local tax rates and input accordingly.
Annual Amount needed before taxes
This portion of the calculator simply multiplies your budget by 12 months and then adds back the tax that you will need to pay to give you the full amount you will need from your investment portfolio.

Projected Investment Portfolio Income
The projected amount of income the investment portfolio will produce every year.

This step is very simple as the magic number will pre populate if you have completed steps 1 & 2.
You simply need to enter:
• You current investment portfolio balance
• Monthly Contribution amount to your investment portfolio
• Projected investment portfolio return
By punching those numbers in, you’ll get the estimated time it will take for you to reach financial freedom!

The Freedom Nova Difference
But wait, there’s more! If you’ve been reading articles on the Freedom Nova website you’ll see ways to earn a little extra cash, save money in a variety of ways (in fact I wrote a book to show you 200 ways to save money on Amazon) and how to have an investment portfolio that could potentially have a higher return. While I can guarantee anything, I do believe that by reviewing your investment portfolio and stashing away as much as possible you will be able to reduce the time it takes to reach financial freedom!

How did you do? What do you think?
I’ll be the first to admit, the simulator isn’t perfect but I truly hope that I was able to help you come up with a somewhat concrete number that you can work towards. It always helps to have a goal and by now being equipped with this goal, you can chip away at it.
If you don’t mind, please take a minute to enter your results for these 3 polls so that everyone that visits this page can gauge where they stand. And if you have any questions, concerns, or comments please feel free to e-mail me at anytime here!

Thanks for visiting Freedom Nova and please be sure to share this simulator with any of your friends that you may think will benefit from this!

How much do you need to live off of every month?

What is your Magic Number?

Did you find the Freedom Nova simulator helpful?

How much more confident are you about your financial future after using this simulator?

Your Next Steps!

Earning a little extra income means that you can put more towards your investment portfolio, the best place to start is Monster List of Income Sources that has over 80 creative ways for you to make money.
Budgeting your money, finding ways to save, planning for your future is a vital part of reaching financial freedom. Be sure to check out the Financial Planning section, my biggest recommendation would be to read the Monster List of money saving tips article.
I’ve also turned that article into a book that you can buy on your local Amazon!

Money saving tips to reach financial freedom

Ensuring that you have a proper income and return from your investment portfolio is an essential component of making all this work. Understanding how to create passive income sources like dividends and making sure that you’re taking enough but not too much risk is also very important.
Check out the Investment Management Section for the most recent updates.

Here are 3 articles I recommend you read right now!
7 Reasons why dividends are so awesome!
Determining Your Risk Tolerance
Essentials to Constructing your Investment Portfolio

I will be the first to admit that the Freedom Nova financial freedom simulator does have its limitations. I’ve attempted to make this as simple as possible, which on the flipside means I’m ignoring at least a few factors.

Here are few that come to mind, I will update this as more are pointed out and will hope to improve the simulator as much as possible:
• Doesn’t take into consideration different life goals we might have (vacation home, children’s education, etc.)
• In terms of portfolio growth, it doesn’t consider the taxes (unless you reduce the taxes from your annual portfolio return)
• It isn’t mobile friendly! This is due to my personal lack of computer skills, if anyone is willing to help me with this I would greatly appreciate it!
• The passive income that you might be able to produce from the investment portfolio might not be stable and might not always be safe (dividends might drop, interest might not be paid, etc.)
• Increasing your investment return isn’t as easy as the simulator shows, and of course the investment return will vary every year (the simulator assumes an average return)

If you notice anything else that you think might be a limitation, please feel free to e-mail at michael@freedomnova.com or fill out the form on the contact page! Please and thank you!

Please understand the Freedom Nova financial freedom simulator is for informational purposes only and is not in any way providing financial or investment advice. Please consult with a financial or investment professional before making any decisions with your finances or investments.

Please like, follow, and/or subscribe to Freedom Nova!
   

Must Reads!

  • Read about figuring out your roadmap to Financial Freedom here!
  • Grasp the essentials of constructing your customized Investment Portfolio here!
  • The Master List of ways to save money!
  • Master List of Income Sources!

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