# Future Net Worth and Passive Income Calculator

I’ve spent a lot of time searching the web for a simple yet effective way to try to estimate my future net worth and how that would translate into passive income.  In failing miserable to find something that was simple yet informative, I decided to create one for myself.  This calculator assumes that you already know how to budget, are able to save on a yearly basis and understand the basics of investing and passive income.

Let me start by briefly explaining the 3 Financial Goals.  I like the definitions Tony Robbins uses in his book “Money: Master The Game”.  The 3 levels of Financial Freedom are as follows:

1. Financial Security – This means that you have accumulated enough assets that when the value of those assets is transferred into a passive income investment, they generate enough income to cover your basic needs such as housing, food, clothing, healthcare, transportation, etc.
2. Financial Independence – This level is where you have enough passive income flowing in to completely match your current lifestyle.  Simply put, you could retire at this point and live the same life you do today.
3. Financial Freedom – This is the peak of the mountain where you now not only have all of your expenses paid for, but you also have enough passive income coming in to afford some of the things you’ve always wanted but have put off.  Think of things like making large donations, going on extended travel trips, buying a specific car or vacation home.  Whatever it is that you desire, you can afford at this level.

Remember that each individual person will have very different goals for each level.  I personally am an advocate for living simply in many ways but enjoy spending our money on travel and experiences.  Others may want to live in a large and expensive house with the car of their dreams.  No target value is right or wrong, just make sure that you are honest about what you want and what is truly important to you.  You may find out that the dollar values you need are much less than you thought if you are willing to live simply in exchange for reaching your financial goals much quicker.

My current example above shows a situation where an individual has no assets or debt (\$0 Net Worth), is able to save \$15,000 per year, invests those savings at an annual return of 8%, increases their annual savings by 3% each year and expects to achieve a 4.5% dividend yield on their capital when they decide to transition to a passive income strategy vs. capital accumulation.  Under this scenario, you can see how someone following this path will be able to hit their Financial Security goal by year 16 in the “Years From Now – YFN” column, Financial Independence by year 19 and achieve true Financial Freedom in 22 years!  Now that may seem like a long time, but remember that if you improve on your savings, rate of return or future dividend yield these timelines will all be compressed.  Or, you can reduce your spending and level of financial desires and also achieve freedom much faster!

Here is another example showing the same Financial Goals but with a higher rate of savings, rate of return and future dividend yield:

By increasing our annual return to 10%, Annual Savings to \$20k and Future Div. Yield to 5.5% we now reach Security in 12 yrs vs. 16, Independence in 14 vs. 19 and Freedom in just 16 yrs instead of 22!  Now that doesn’t seem like such a long time starting from \$0 to be able to do what you want, when you want without having to work a single hour a year does it?