Welcome to the third part of the Solvable Problem™ Series. This article will focus on learning how to navigate the Certainty App & or spreadsheet to do the calculations for your Solvable Problem™.
If you missed part 1 and 2 start with these articles first:
Part 1: Equations & Variables- https://guardianacademy.io/spseries-dreamlife/
Part 2: Dream Life & Core Capital- https://guardianacademy.io/solvable-problem-series-equation-variables/
Certainty App & Spreadsheet
The Certainty App will help you to figure out whether or not the assets you are utilizing are actually helping you to get closer to what you want.
Within the App you can find the tool that is demoed in the video under Optimizer & Solvable Problem™. The video will be linked at the bottom of the article.
Matty Dubs also utilizes the Certainty App spreadsheet in this video, which was the predecessor to the App. The Certainty App will have more functions overall, but if you need a quick tool to get an overview of where you are at then the spreadsheet can work.
Define Your Variables
- What are your current monthly expenses?
- Your “Dream Life” expenses
- Monthly contributions
- Starting investment
The reason this is important is because when you can cover these monthly expenses with your investment vehicle you are now financially independent. You do not require a “job” to be able to just “live”. When you have achieved your “Dream Life” expenses being covered by your investment vehicles then you would be financially free.
How much would we need to be able to achieve financial independence over the next 5 years with current monthly expenses of $6000?
Using the 4% rule we would need 1.8 million dollars as our target Core Capital.
Over the next 5 years we need to average a 20.22% annual return in order to achieve our Solvable Problem of getting to financial independence in 5 years.
By inputting your assets with their expected annual return the spreadsheet/App will calculate whether or not you would be on track.
With the current allocation & APY of the listed assets, this would be a shortage of 0.33% per month so over the course of an entire year this would be rather substantial off of achieving the target return of 20.22% yearly.
This gives you a good idea of where to start with your portfolio. You can now either reallocate some of the resources into higher volatility asset classes or rethink your timeline/additional monthly investments, etc.
Capital Investment Needs Calculator
If you do not have any money to invest at this time, but want to see how much you need to start contributing to achieve a target balance you can use the second tab the spreadsheet “Capital Investment Needs”.
If your target balance is 1.8 million over 5 years and you are using an investment vehicle that nets you 70% APY then your estimated monthly contributions to achieve your goal is $3,619.
If this is doable for you then that means you are already on target and need no further actions besides the monthly contributions into the base case.
If you can contribute $5,000 this would now drop your rate needed to 60% APY, which means that you could potentially reduce the risk you are taking on your investment vehicles.
Let’s say you do have an upfront investment of $600,000, in this example you could technically pull out $26,606 out of your investment each month and still achieve your goals.
Or again looking to reduce risk (subjective of course) and in this case reducing the APY to 20% may be another option.
Certainty App Demo
Using the same variables we can see a 20.2% net annual rate needed to achieve the Solvable Problem™ or a 27.7% annual rate if we are doing actions that trigger a taxable event. An example could be trading back and forth multiple times with each sell registering as a taxable event. (We are not licensed CPAs and you should consult a professional with the regulations for your own taxes).
Go into the Certainty App or spreadsheet and plug in all of your numbers to see what it would take to get to your financial independence (your current monthly expenses covered) and then what it would take to get you to financial freedom (your dream life monthly expenses covered).
Share your 6WU from the Solvable Problem™ Series
Remember: Wisdom comes from multiple perspectives, help others learn from you. Weeks or months from now come back to this & see what others have added to the thread to see if you can build on your own wisdom.