The steps of step one
1. Calculate Assets
Your assets here are considered all financial assets at today’s market price including Bitcoin, Stocks, Cash, Bonds, Real Estate, and other items of value like Cars or Collectibles.
2. Calculate Liabilities
Your liabilities are all your debts or owings to persons or companies like a Mortgage, a Credit Card Debt, a Leverage Loan, loans from family, Car Notes, or other personal lines of credit.
3. Calculate Net worth
Net worth is the simple calculation of your Assets Less Your Liabilities.
4. Calculate income
Income represents all of the inflows of cash or capital to you daily, weekly, biweekly, monthly, or annually. It can be expressed as Net or Gross. Gross is before deductions like Tax and Benefits, Net is after all deductions that are not considered variable expenses.
5. Calculate expenses
Expenses represent the outflows of cash, money, or capital daily, weekly, monthly, or annually. These are in five major categories like Housing or Shelter, Food or Nutrition, Health, Communication, and Transportation. Enter it as the same period as you did your income.
6. Calculate savings
Savings is the simple calculation of your Income less your Expenses. This is the amount you create in excess of your personal needs every period.
7. Calculate Savings rate
Savings rate is the simple calculation of your Savings divided by your income, expressed as a percentage. Even without any savings, this savings rate alone can determine your future date of financial independence.
8. Calculate SWR
Safe Withdrawal Rate is a concept based on the Trinity Study, a Monte Carlo simulation of historic financial returns showing that for any 30 year period, the chance of success of a retirement fund is very high if you withdraw 4% a year from your Net worth annually.
9. Calculate FI GAP
The FI Gap represents the difference between your Safe Withdrawal Rate and your Expenses. Watching the Gap fall every month or year is a great way to see the progress.