How much money do we need to reach our financial goal? The answer

In the previous blog posts we have introduced a simple ("ordinary") model to understand how much money we would need to reach any financial goal, then we populated it with the key numbers - desired cash flows, expected return on investments and inflation.


Just to repeat the numbers:

  • We want to have a cash flow of 2,650 Euro / month (adjusted over time per inflation, see last point below)
  • We expect a nominal return on investment of 6% for the long term
  • We expect an inflation rate of 1.85%

Following the equation we discussed, it is quite simple to get to the capital we need: 766,265 Euro


Now, you might think - wow, this is a lot of money, or maybe you think this is not that bad! To judge this properly, we need to go back to your personal goal and introduce the variable of time. When would you like to have this capital available so that you can receive your cash flows?


As I mentioned before, my time frame is around 15 years. I am 35 now, so I would be 50. Assuming the same average return and inflation, I would need to save around 2,840 Euro a month for 15 years. 

  • In terms of capital, I would have 545K Euro - easy to calculate: 2,840 Euro x 12 months x 15 years
  • In terms of interests (adjusted by inflation), I would have matured 222K Euro - more difficult to calculate but you can check out the excel file linked below

The sum of the two is approximately the 766K Euro we defined at the beginning. 


Now, you can basically calculate the same using the Excel file linked here (still work in progress, but it should offer a solid base to play around with numbers).


Before leaving, there are some VERY important disclaimers here to be done:

  • This does not consider taxes, investments fees, pension or even if you have already some invested capital. All these items can be added (and maybe will be added in the future) but for now I just have the stripped-down model
  • The market WILL not return a perfect 6% (or whatever number you have in mind) every year - and the same account for inflation. This has potentially HUGE effects on the outcome. We will discuss them in a later blog post - but please always remember this: we are using a model that simplifies reality!

You can read more about how this relates to the popular idea of "Safe Withdrawal Rate" here.

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