Four Line Wall Chart-GR



HOW TO CREATE YOUR WALL CHART

- September 13, 2002-

Here's an approach to the wall chart that you may find useful.

(Courtesy of Gregg Raymond and Penny Yunuba.)

OVERVIEW OF LINES TO BE CREATED

For a 2-Line Wall Chart: For 4-Line Wall Chart:

1. Total Income 1. Total Income

2. Total Expenses 2. Total Expenses

3. Projected Income (after Financial Independence)

4. Projected Expenses (after Financial Independence)

Suggestions:

1. Please look at the general instructions on how to create a wall chart in YMOYL on pages 146-148.

2. You may find the information below helpful in deciding what to include in each of the lines that you are going to plot.

3. If you are going to create a 4-Line Wall Chart, you will need to complete the "Nest Egg Work Sheet" before calculating your "Projected Income".

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Total Income

Include: Salary/wages Employer's contribution to pension fund

Child Support Dividend income

Alimony Capital gains income

Social Security Interest income on savings accounts

Rental Income Money found

Pension income Repaid loans

Gifts / inheritances Interest income on investments

Income tax refunds Bonuses

Refunds Mail-in rebates (when received)

Cash Prizes Proceeds from garage sales

Gambling winnings Proceeds from sale of arts, crafts

Total Expenses

Include: Taxes

Mortgage payments (both principle and interest): See Special Cases on Page 3

Life insurance: See Special Cases on Page 3

Do not include Savings

Although it may not be clear in Your Money Or Your Life, do not treat savings as an expense. Savings are reflected in the space between the "Total Income" and the "Total Expense" lines on your wall chart.

Projected Income (You will need to estimate your "Net Nest Egg" using the "Nest Egg Work Sheet" in order to calculate your "Projected Income")

Include: Social security income

Pension income

Projected rental income

Income from investments (See directions below.)

Directions for calculating your Projected Income:

1. Choose a rate of return that you expect to get on your investments. For example, bonds 5%, stocks/mutual funds 10%. (Express 5% as .05 and 10% as .10).

2. Take the percent return that you anticipate and divide it by 12 to get the projected return per month.

3. Multiply your projected return per month by your "Net Nest Egg" and this will give you your projected investment income per month.

4. Add this income to all of the other projected sources of income to get your total "Projected Income" per month.

Projected Expenses

Include: Projected taxes

Expenses which will probably increase after you leave your paid job (health insurance, for example)

Expenses which will probably decrease after you leave your paid job (work clothes, commuting costs, for example)

Do not include: Any on-going savings

Loan payments for any assets which you will be selling to help you achieve FI.

Directions for calculating your total "Projected Expenses":

1. Non-tax portion:

a. Look through your current "Total Expenses", excluding taxes, quantifying likely increases and decreases as reflected on your "After FI" column in your monthly "Fulfillment/Alignment" questions.

b. Be sure to look at Real Hourly Wage calculations when doing this step to see that all the perks and all the expenses are considered in your "Projected Expenses".

2. Tax portion:

a. Look at your "Projected Income" (post Financial Independence) and guestimate your combined federal and state tax rate.

b. Multiply the tax rate by your "Projected Income" to get your monthly projected tax expenses.

3. To get your total monthly "Projected Expenses" add the non-tax portion to the tax portion.

SPECIAL CASES

We consider mortgage payments and life insurance policies as expenses. Some people consider their life insurance policy and their house as investments and do not want to count them as expenses. However, we consider them as expenses because they have to be paid each month whereas "pure savings" are completely discretionary.

Mortgage Payments

If you are planning to retain your house when you retire:

1. List the principle and the interest under "Total Expenses" and be sure to include ongoing payments under "Projected Expenses".

2. Do not list the value of your house as "Usable for FI" on your "Nest Egg Work Sheet".

If you are planning to sell your house and use the money to live on when you retire:

1. Include the mortgage payment (principle and interest) as an expense.

2. Under "Projected Expenses" be sure to include your best estimate of your future ongoing housing costs.

3. If you will be buying a less expensive home with some of the profit from selling your current home, list your best estimate of your down payment (or full payment) for this "new" home under "Adjustments" on page 4 of the "Nest Egg Work Sheet". Also, include any projected mortgage payments under "Projected Expenses".

4. You will need to adjust your Nest Egg calculation periodically to reflect changes in the market value of your house.

Life Insurance

If you don't plan to cash in your policy:

1. Include your premiums under your "Total Expenses".

2. Include your premiums under your "Projected Expenses."

If you are using your life insurance policy as a tax-sheltered investment and you plan to sell it to help you generate part of your investment income, you can:

1. Include your premiums under your "Total Expenses".

2. Be sure to remove it from "Projected Expenses" since you will be cashing it in and no longer paying premiums after Financial Independence.

3. Include the estimated cash value of this policy in your Nest Egg calculation each month.

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