Net Worth
The fundamental measure of wealth. Total assets (Cash, Investments, Real Estate) minus total liabilities (Debt, Mortgages, Loans). A positive trajectory is the primary goal of personal finance.
Safe Withdrawal Rate (SWR) & The 4% Rule
The estimated percentage of your portfolio you can withdraw annually in retirement without running out of money. The "4% Rule" (from the Trinity Study) suggests that a balanced 50/50 portfolio has a near 100% chance of surviving 30 years at this rate. More conservative investors may use 3% or 3.5%.
FIRE Number
FIRE stands for Financial Independence, Retire Early. Your FIRE Number is the invested capital required for passive income to cover your annual living expenses indefinitely. Formula: Annual Expenses ÷ Safe Withdrawal Rate. Example: $50,000 / 4% = $1,250,000.
Dynamic FIRE Target: As expenses grow over time, the required FIRE Number grows with them.
Income & Expense Growth
These simulate two forces: Inflation (decreasing purchasing power) and Lifestyle Creep (spending rising with income). If expense growth exceeds income growth, savings rate shrinks and FI gets pushed out.
Investment Returns (Compound Interest)
Assumed annual return on your invested assets. Historically, the US stock market has returned ~9-10% nominally, or 6-7% after inflation. Use conservative estimates (6-8%) for planning.
How the engine works (per year)
- Income and expenses grow by their respective growth rates.
- Any outstanding debt accrues interest; surplus savings is applied against the debt first.
- Investment balance compounds by the investment return rate.
- Remaining savings is added to investments; deficits are pulled from cash, then investments.
- Real estate grows at a flat 3%/year assumption.