With the current amount of monthly savings, when will you hit the $1 million savings? Are you saving enough for your kid's college education? Will $100,000 be enough when you retire? Will $2.5 million be enough when you retire? How will your upcoming house mortgage payments affect your retirement savings? All these and related questions, boil down to one simple question. How do you find if you are saving(and investing - remember that saving is not the same as investing) enough right now?
There are multiple ways and even more tools and best practices to calculate and find if you are roughly on track towards a good saving and investing regime. It is futile to aim for accurate numbers or to assess if you will have saved $2.4 million by the age 63. What is more important, is to assess if you are roughly on track. With the innumerable variables in life, it is next to impossible to predict accurate numbers and financial milestones. Yet, educated best practices and tools, historical learnings and future trends can help give you a very good view of your overall direction.
In this article, I want to talk about using Personal Capital to get a bird's eve-view of your financial situation and to understand if you are roughly on track to a decent tomorrow. This is a free tool available both as a website and for your mobile(I tested it on Android though and not on iOS). You can read more about their free retirement and calculator features on their website.
Note, I am just an individual researching for personal finance best practices for self-use and this is not a sponsored/advertised article by anybody. I write on what worked or did not work for me.
Let's jump now to how I find this tool useful.
It is important that you link both your positive and negative cash flow accounts so that the Net Worth calculations give you a more accurate picture of your current standing, instead of incorrectly providing an inflated net-worth when you have huge mortgage/loan/credit card dues pending. Remember that this whole exercise is not to boast to your friends, but as an eye-opener for yourself and to aid path correction where possible. The more data you provide it, the better your recommendations and reports will be.
There are few major categories of accounts you should add, which are:
The super nice part is that once you provide your account credentials, Personal Capital will automatically go to your account and fetch latest snapshots of data to keep your information current. In case there is no automated support for some of your accounts, you can always add a manual account where you define the current dollar balance, category etc. Personally, most of my accounts are linked for automated access, but some are keyed in manually as they were not yet supported.
With this, Personal Capital should be able to begin its magic of number crunching and calculating various reports and widgets such as your assets vs liabilities, your expenses over time etc. It will even categorize most expenses to tell you where you spend the most over months.
From the top. Personal Capital uses the Monte Carlo way of calculating your future outcome. This essentially means that instead of assuming one fixed rate of interest on your investments, it performs thousands of permutations and combinations of investment returns on your savings and tells you the approximate percent of probability to meet your desired financial state. This is good because nobody can predict the future. With unlimited variables in life, it might not be smart to plan your financial goals with as strict criteria as assuming a standing 11% return no your investments for the next 20 years.
From the top menu, click the 'Planning > Retirement Planning' menu option.
You may add additional income events such as to factor in social security income from some age, perhaps additional income stream from your spouse for some future years. Other possibilities are RSU vestings, expected inheritance etc.
Personal Capital attempts to make your inputs easier, by providing a lot of help. It can assist it predicting your current savings, your recurring saving amount, expected social security etc.
The more inputs you give, the better your prediction will be. Now, Personal Capital will give you a nice graph with a probability percentage. So if your desired retirement expenses are $6000 per month, it might tell you that there is only a 30% probability that you will have that much money at that time, given your current inputs. Try raising your saving amount per month on the Savings slider, and see what makes your probability go beyond 60%. That might be a good amount to aim and invest every month.
For your expenses, Personal Capital again comes to your rescue. For big expenses such as house purchase or education, it was wizards to help you arrive at ballpark figures, and even link your goals such as education link to specific saving accounts(such as 529). Everything ties in together to give you a much better holistic view.
The tool also considers inflation, and some other nice factors to give a nice future view.
If finally, the tool says that there is 40% probability of meeting your financial goals, then simply try increasing your yearly saving amount. This is a 'what-if' feature and will help you see if now the tool says that there is better probability to reach your goals. This will tell you that you need to try and aim to save and invest at least the figure which you entered in the yearly savings box.
Pro Tip: Do not check your Net Worth every day!
Give this a try and share your feedback in the comments. Do you have any tips or quick tricks to plan for future expenses?
There are multiple ways and even more tools and best practices to calculate and find if you are roughly on track towards a good saving and investing regime. It is futile to aim for accurate numbers or to assess if you will have saved $2.4 million by the age 63. What is more important, is to assess if you are roughly on track. With the innumerable variables in life, it is next to impossible to predict accurate numbers and financial milestones. Yet, educated best practices and tools, historical learnings and future trends can help give you a very good view of your overall direction.
In this article, I want to talk about using Personal Capital to get a bird's eve-view of your financial situation and to understand if you are roughly on track to a decent tomorrow. This is a free tool available both as a website and for your mobile(I tested it on Android though and not on iOS). You can read more about their free retirement and calculator features on their website.
Note, I am just an individual researching for personal finance best practices for self-use and this is not a sponsored/advertised article by anybody. I write on what worked or did not work for me.
Let's jump now to how I find this tool useful.
Linking accounts
The first step and I guess the most critical one is to link my core financial accounts to Personal Capital. I will let you research and decide if you want to trust Personal Capital with your account details, so don't take my word for it. In my case, after reading reviewing and researching around I trusted it enough to link my accounts with it. The intent is for the platform to view my accounts in a single dashboard, and provides me with a consolidated view of how my finances and goals are doing.
It is important that you link both your positive and negative cash flow accounts so that the Net Worth calculations give you a more accurate picture of your current standing, instead of incorrectly providing an inflated net-worth when you have huge mortgage/loan/credit card dues pending. Remember that this whole exercise is not to boast to your friends, but as an eye-opener for yourself and to aid path correction where possible. The more data you provide it, the better your recommendations and reports will be.
There are few major categories of accounts you should add, which are:
- Cash accounts, such as your checking and savings bank accounts. I will add even a high-yield account (such as Ally) to this category
- Investment accounts, such as your brokerage accounts, Robinhood, Wealthfront, IRA, 401k etc. You may also want to add your alternative investments such as bitcoin, though it will have to be keyed in as a manual account!
- Credit accounts, which are basically all your credit cards such as Chase etc.
- Loan accounts are the accounts such as automobile loans
The super nice part is that once you provide your account credentials, Personal Capital will automatically go to your account and fetch latest snapshots of data to keep your information current. In case there is no automated support for some of your accounts, you can always add a manual account where you define the current dollar balance, category etc. Personally, most of my accounts are linked for automated access, but some are keyed in manually as they were not yet supported.
With this, Personal Capital should be able to begin its magic of number crunching and calculating various reports and widgets such as your assets vs liabilities, your expenses over time etc. It will even categorize most expenses to tell you where you spend the most over months.
Financial Goals
Now comes the interesting part of understanding how your savings will affect your future cash flow.From the top. Personal Capital uses the Monte Carlo way of calculating your future outcome. This essentially means that instead of assuming one fixed rate of interest on your investments, it performs thousands of permutations and combinations of investment returns on your savings and tells you the approximate percent of probability to meet your desired financial state. This is good because nobody can predict the future. With unlimited variables in life, it might not be smart to plan your financial goals with as strict criteria as assuming a standing 11% return no your investments for the next 20 years.
From the top menu, click the 'Planning > Retirement Planning' menu option.
Income
You can now add your known 'income events'. You can tell Personal Capital the amount you are saving on a monthly/yearly basis. The is the most important input. The tool can even try and calculate your saving rate from your linked accounts by trying to find trends in savings. 'Saving' here means anything which you are stashing for future, including all your investment account contributions. So this will include your stock accounts, your IRA, your 529, your Wealthfront, 401k etc.You may add additional income events such as to factor in social security income from some age, perhaps additional income stream from your spouse for some future years. Other possibilities are RSU vestings, expected inheritance etc.
Personal Capital attempts to make your inputs easier, by providing a lot of help. It can assist it predicting your current savings, your recurring saving amount, expected social security etc.
Expenses
Next, add your 'spending goals'. The category for 'Retirement Spending' is the most critical here. You can define your expected retirement date and the monthly expected expenses. Beyond this, I would recommend you to add as many known big expenses as possible. This is where you should try to add as many big-ticket expenses as you can think ahead of. Begin with just two or three big ones to keep it simple, and them keep on adding more as you remember or get time to think. Some examples are upcoming big car purchase downpayment and loan payment(or maybe plan for a new car every 5 years and see how that affects your expenses!), big vacations, home purchase, kid education, marriage events, medical expenses etc.The more inputs you give, the better your prediction will be. Now, Personal Capital will give you a nice graph with a probability percentage. So if your desired retirement expenses are $6000 per month, it might tell you that there is only a 30% probability that you will have that much money at that time, given your current inputs. Try raising your saving amount per month on the Savings slider, and see what makes your probability go beyond 60%. That might be a good amount to aim and invest every month.
For your expenses, Personal Capital again comes to your rescue. For big expenses such as house purchase or education, it was wizards to help you arrive at ballpark figures, and even link your goals such as education link to specific saving accounts(such as 529). Everything ties in together to give you a much better holistic view.
The tool also considers inflation, and some other nice factors to give a nice future view.
If finally, the tool says that there is 40% probability of meeting your financial goals, then simply try increasing your yearly saving amount. This is a 'what-if' feature and will help you see if now the tool says that there is better probability to reach your goals. This will tell you that you need to try and aim to save and invest at least the figure which you entered in the yearly savings box.
Pro Tip: Do not check your Net Worth every day!
Give this a try and share your feedback in the comments. Do you have any tips or quick tricks to plan for future expenses?
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