S.E.M. Savings Rate Calculator

Simpli-FI.money’s Simple Economic Model (SEM) Savings Rate Calculator (Scroll down for actual calculator).

One of the first articles written for Simpli-FI.money covers the concept behind Simpli-FI.money’s Simple Economic Model.
The SEM Calculator answers the following question: If I start with “zero” dollars today, how long would it take me to build an investment portfolio that could either replace my current expenses (Financial Freedom) or my current income (Financial Independence)? To answer this question, we focus on your long-term savings rate.

The ONE factor you control on how long it takes you to achieve Financial Freedom or Financial Independence is your SAVINGS RATE. This calculator illustrates why it is perhaps the most important “intentional” decision you make. To understand the importance of your Savings Rate and how it impacts your journey to Financial Independence see Coach Holdren’s “Why Your Savings Rate Matters” article.

The higher your savings rate the less time it takes. Simpli-FI.money’s SEM Calculator helps you estimate the length of time needed to achieve your financial goals. It also projects year-by-year income, expenses, savings, and investment growth along the way. The calculator displays the information visually so you can see when you achieve these two key milestones:

• Financial Freedom: when your Investment Income is greater than or equal to your Expenses.
• Financial Independence: when your Investment Income is greater than or equal to your Income.

By default, the tool assumes an inflation rate of 2%, a Safe Withdrawal Rate of 4%, and long-term portfolio growth of about 7.18% (roughly doubling every 10 years). For simplicity income is assumed to be 10 with a savings rate of 20%; which means your expenses = 8.

You’re savings rate determines what you save as long term investments, the remainder is assumed to be Expenses. Based on your savings rate the calculator estimates how long it will take to achieve each milestone given your Savings Rate.

Your savings rate is the one input you can most influence. The remaining inputs you have less influence over, the economy determines those. By focusing on what you can influence most, you can determine how long it will take to reach the two milestones.

Adjust the inputs to see how your savings rate and assumptions influence the timeline to freedom and independence.

To learn how to put this calculator to use in the real world, see Simpli-FI.money’s series on the “Core Financial Habits” or jump to the first article in the series, “Developing the Core Financial Habits – Introduction“.