CountAbout happily announces its latest feature upgrade- the FIRE widget. The FIRE widget helps you track how close you are to financial independence and the ability to retire.
What is FIRE?
FIRE is an acronym that stands for “Financial Independence” and “Early Retirement”. People within the FIRE movement strive to accumulate enough passive income to cover their expenses. Once their potential for passive income is greater than their expenses, they are “financially independent”.
What does the FIRE widget track?
The FIRE widget tracks your monthly expenses and your potential for passive income and plots these as a function of time. This method for visualizing your path towards FIRE was first popularized by Vicki Robin in Your Money or Your Life. Ms. Robin referred to this graph as a “wall chart” as she encouraged people to put it on their wall and look at it each day.
What is the “income (FIRE)” line and how is it calculated?
Passive income is money that your money makes for you. If you are primarily invested in the stock market, your passive income consists of stock market gains and dividends. Many studies have examined a “safe withdrawal rate”, or the amount you can safely withdraw from your portfolio each year and not outlive your money. The most common rule of thumb is that once you begin withdrawing from your portfolio, you can sustain a 4% withdrawal rate (adjusted for inflation). However, in analyzing historical portfolios, the 4% withdrawal rate can fail if there is a dramatic stock market crash right after you begin withdrawals. The FIRE widget allows you to choose your desired withdrawal rate and calculates your passive income potential from the size of your assets- this is referred to as “income (FIRE)” on the graph.
How do I set up the FIRE widget?
To set up the “expenses” line, select all of your expense categories that you wish to track in this analysis. For instance, you might wish to exclude work expenses since after achieving early retirement you will no longer be working.
The income (FIRE) line is calculated from your net worth. You should select all accounts within CountAbout that comprise your liquid net worth (investment accounts and banking accounts). You are also allowed to select a withdrawal rate that you’d like used in the calculations.
How can I customize the FIRE widget
Complete control over accounts/spending categories
When you create your FIRE widget, you have complete control over the spending categories you wish to include in the widget. Likewise you can choose with assets you’d like included. For instance, if you have a savings account that is earmarked for a new car and you do not wish to include that in your FIRE calculation, it is easy to exclude this from the widget. You also have complete control over which spending categories are included in the widget.
Withdrawal rate
You are free to select a withdrawal rate that matches your expected withdrawal rate in retirement or early retirement.
Cash flow assets
The FIRE widget is designed to predict passive income based off of withdrawals from equity portfolios. However, it is easy to include a rental property or pension in this line. To do this, you can manually create an account within CountAbout. The value of the account should be equal to the monthly cashflow, multiplied by 12, and divided by the safe withdrawal rate. For instance, if you wanted to simulate an asset that generates $1,000 per month and you chose a 4% safe withdrawal rate, you would need to create an account with a value of $300,000 (i.e. $1,000*12/0.04).
Multiple scenarios
You are free to set up as many FIRE widgets as you’d like within CountAbout. This is great in case you want to examine different scenarios.
- Examine different withdrawal rates
- Examine scenarios with and without an expense category. For instance, you could run a FIRE widget comparing your expenses without daycare against your passive income
- Examine different groups of assets. Creating a widget that has a simulated pension against another widget with only assets.