My Wealth Projection Spreadsheet

[KGZotU]

I'm attaching the wealth projection spreadsheet I've been working on. I've changed my projected income and initial assets to protect my privacy a bit.

I teach in a remote Alaskan village, hence the pretty weird income, expense, travel, etc. schedule.

At the end of each month I:

• Enter all expenses into the "Notes" column.
• Replace projected income/expenses with actual income/expenses in all columns. At this point, my projected net worth for the month should match my actual net worth as reported in Yodlee. This tells me that I've noted all income/expenses.
• I enter my actual net worth in the net worth column. If there's a deviation between the projection and the measurement that I can't eliminate, I mark it down in the deviation column.

My philosophy is:

• Track and project expenses: Budgeting feels like self-denial to me. I like understanding how my current spending will effect my future, and making well-informed predictions about future spending. The "base figure" numbers in the top row are predictions, not restrictions. Every month I note all expenses in the "Notes" and replace projected spending with actual spending. Then I look at patterns of spending to assess whether I should change my predicted spending.
• Granularity: I like to break my spending into as many categories as possible. This makes it easier to understand how my spending will change in the future, as for example when I'm done teaching here and no longer spending $3k/yr in flights. It also makes it simpler to predict recurring expenses, like Amazon Prime.

Other things to note:

• I haven't accounted at all for inflation, not in my income and not in my expenses. I also haven't accounted for inflationary losses to my assets. Any ideas on how best to account for that?
• The interest column works for both debt and investments. I put APY at 6% because I have a mix of investments and student loan debt and I figured that was a decent estimate for both. Your actual effective APY will change as your asset allocation changes, and you could use multiple asset and/or interest columns to reflect that.
• The "Apparent APY" looks at interest accrued for the month, and calculates what the APY would be if that rate of return were repeated over the year. It's a tool to help me estimate my actual APY.
• If you're adding or removing columns, double check the formula in the "Net Savings" column.

[chicagomeg]

What I've done to account for inflation in mine is to make my projected investment returns after inflation, so that all the future amounts are shown in 2012 dollars (soon to be 2013!). It seemed simpler to me to understand it like this.

[sol]

What I've done to account for inflation in mine is to make my projected investment returns after inflation, so that all the future amounts are shown in 2012 dollars (soon to be 2013!). It seemed simpler to me to understand it like this.

I've taken the exact opposite approach.  I've set up my spreadsheet to measure actual returns, and then projected my expenses to grow with inflation.  This way your spreadsheet projections for value and the actual future numbers will match up.

The only down side of this approach for me is that I sometimes forget that a million dollars in twenty years is worth a lot less than a million dollars today.  Still, it's an accurate projection of my real future numbers, so as long as I inflate my future expenses without cheating myself by thinking I can spend less in the future, it all works out.

[KGZotU]

I can see the value in either, and how to implement either. Many thanks.

[arebelspy]

I also prefer valuing things in today's dollars, and just set my returns at expected real returns (above inflation - I.e. a 1% real return, or whatever).

For example, when using this tool, I like to use "display money at present value" in the graph (though I uncheck and see how fun it is to have tens of millions in my 90s, I like to see it in current dollars).

http://heliosophiclabs.com/~mad/RetCalc/html/retsim.html

You project your income to double in the next 4 years?

[KGZotU]

I also prefer valuing things in today's dollars, and just set my returns at expected real returns (above inflation - I.e. a 1% real return, or whatever).

I think that's what I'll do. For estimates, I'll look into some sources here: http://www.bogleheads.org/wiki/Historical_and_Expected_Returns

You project your income to double in the next 4 years?

Not quite. I mentioned that I fudged the numbers to protect my privacy. I wanted to share the tool and idea more than my situation.

But I do have some fixed overhead that comes out of my enlarging paycheck, like district-owned housing. And I can see how my gross will increase next year with a masters degree, and the following year with more credits, etc. So I do have a weird progression of income.