Financial Model Breakdown

The Financial Model That Keeps Me (and My Sister) Sane

In a few of my posts, I’ve mentioned the financial model I built many years ago. I still use it today — religiously — and I’ve even made a “lite” version for friends and family. Whether they actually use it is another story entirely.

For the past few years, I’ve held an annual financial review with my sister and her partner. It’s been helpful for two reasons:

1. They finally see what’s really going on.
   Most people either get whiplash from daily market headlines or panic after one bad day looking at their portfolio. This model forces you to zoom out and see actual year-over-year growth (or decline) — not emotional turbulence.
2. They can see their debt move (or not move).
   The annual snapshot helps visualize mortgage paydown — always nice to see that equity grow. It also exposes the sneaky stuff, like when you swear you’ve been paying off your credit card diligently, yet your total debt somehow hasn’t budged. Think of it as your own personal version of the U.S. National Debt vs. Deficit problem.

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🧩 The Three Pillars of My Framework

1. Financial Model of Growth
2. Projected Retirement Withdrawal Income
3. Annual Financial Checkup

Simple. Practical. Slightly nerdy. But effective.

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Financial Model of Growth

This is where I simulate the future — three versions of it, in fact:

Scenario	Growth Rate (CAGR)	+5 yrs	+10 yrs	+15 yrs	+20 yrs
A	5%	$12,834	$16,470	$21,137	$27,126
B	9%	$15,657	$24,514	$38,380	$60,092
C	12%	$18,167	$33,004	$59,958	$108,926

Let’s say you’re 30 with $10,000 saved. Twenty years later, that could become:

• A “meh” $27k if you play it safe, or
• A sports-car-worthy $109k if you crush it with higher returns.

(Yes, cash for a car, not the Lambo. We’re not there yet.)

The formulas I use in Excel are basic FV functions — nothing fancy. But here’s the key: always use $B$2 format, not B2, so you can drag and drop formulas without chaos. Future you will thank you. See Reference Below

Pro tip: Try adding a monthly contribution ($100, $500, whatever). Replace “10000” in the formula with “10000 + 100” and see how that compounds. Small moves, big difference.

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Projected Retirement Withdrawal Income

Now that you’ve seen how your money might grow, it’s time for the reality check:
“How much monthly income does that actually buy me in retirement?”

Using the 4% Rule, here’s what your monthly income might look like:

Years Out	Scenario A	Scenario B	Scenario C
5 years	$43	$52	$61
10 years	$55	$82	$110
15 years	$70	$128	$200
20 years	$90	$200	$363

Now you’re probably thinking:

“Wait… twenty years, and all I get is $90 a month?!”

Exactly. Most people never see this math until it’s too late. Unless you don’t think you will live very long (incurable disease, high risk lifestyles involving drugs and crime, etc), you will likely be around close to the US Average Life Expectancy of around 80 years give or take a few with mortgage payments/rent, car payments, groceries and Netflix.

Yes, you could spend the full $27k–$109k on business class flights, a fancy espresso machine, or that midlife crisis convertible. But unless you’re banking on a trust fund or believe in the immortality of Social Security, you’ll want your nest egg to be a whole lot bigger.

The moral: grow that base number. Aim for a million-plus and keep expenses low. Early freedom beats late luxury.

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Annual Financial Checkup

This is my favorite part. Think of it as your yearly health exam — except instead of blood sugar, we’re checking your financial arteries.

I picked up this habit from years in tech:

“You can’t improve what you don’t measure.”

So, pick your “financial reflection month.”

• April: great if you’re already in tax mode.
• September: my choice — bonuses hit, vacations end, and the market wakes up from its summer nap.

Then, pull all your numbers: assets, debts, investments, mortgages, etc. Here’s an example:

Item	Year-2	Year-1	Current
Property (Home)	$500,000	$520,000	$530,000
Liquid Assets (Investments)	$50,000	$60,000	$70,000
└── Stock	$25,000	$30,000	$40,000
└── Cash	$10,000	$10,000	$10,000
Debt – Mortgage	$400,000	$380,000	$360,000
Debt – Credit Card	$40,000	$35,000	$45,000
Liquid Total	$45,000	$65,000	$75,000
CAGR	N/A	44%	15%

I usually track my home and mortgage for reference but don’t obsess over them — they’re vanity metrics. What matters is liquidity: the stuff you can actually move or invest.

When the numbers go up, my friend Ian likes to say “I am like Smaug the dragon, perched proudly on my hoard of gold”. When they go down (hello 2022’s -20%), it’s a gut check — maybe skip the new Rolex and double the monthly contributions instead.

But don’t forget to live life as well, especially for the years where you feel like you have reached key milestones or multiple Smaug levels of wealth. It’s ok to go buy a few toys like your holy grail watch (A. Lange & Sohne Grand Lange 1) or your dream speakers (B&W 802D3s).

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Final Thoughts

This isn’t some Wall Street-grade model — it’s just discipline with a spreadsheet and a sense of humor.

It helps me:

• See my real financial trajectory.
• Catch bad habits before they grow.
• Remind myself that even if I am Smaug, I’m a Smaug who tracks CAGR.

Whether you’re a DIY investor or spreadsheet rookie, the takeaway is simple:
Build your model, run your numbers, and check in every year.
Your future self — and your sister’s financial sanity — will thank you.

For #ELF#

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Reference

Scenario	Growth Rate (CAGR)	+5 yrs	+10 yrs	+15 yrs	+20 yrs
A	5%	$12,834	$16,470	$21,137	$27,126
B	9%	$15,657	$24,514	$38,380	$60,092
C	12%	$18,167	$33,004	$59,958	$108,926

I assume your tool uses the concept of cells, i.e. A1 in this case is Scenario, A3 is B, D2 is $16,470 and so on. Other than the cells which are text, try to keep the other cells as numbers or percentages or currency.

C2 = -FV($B$2/12,60,,10000)
D2 = -FV($B$2/12,120,,10000)
E2 = -FV($B$2/12,180,,10000)
F2 = -FV($B$2/12,240,,10000)

C3 = -FV($B$3/12,60,,10000)
D3 = -FV($B$3/12,120,,10000)
E3 = -FV($B$3/12,180,,10000)
F3 = -FV($B$3/12,240,,10000)

C4 = -FV($B$4/12,60,,10000)
D4 = -FV($B$4/12,120,,10000)
E4 = -FV($B$4/12,180,,10000)
F4 = -FV($B$4/12,240,,10000)

As I mentioned earlier, I used $B$4 instead of B4. This is because I am taking advantage of Excel/Sheet’s ability to drag and drop the formulas (or copy and paste) more efficiently this way.