Financial Algebra

A week ago I posted Two Simple Equations that Lead to Financial Success, a piece that listed the following as being the guides to financial success:

• Income – expenses = surplus

• Surplus x many years = wealth

The other day at lunch I started thinking of these two equations and how they could be combined. For instance, they two could be re-written as one as follows:

(Income – expenses) x many years = wealth

Or, even simpler:

(Income – expenses)many years = wealth

Or maybe this is better (to clearly indicate that income needs to be greater than expenses):

(Income > expenses)many years = wealth

Or if we wanted to add symbols, how about this?

($ > - )#yrs = $$$$$$

Am I missing something? Is there a better/easier way to express the equations?

And for those of you wondering, yes, I am a total nerd...

Comments

[MikeS]

(+ > - )Yrs = $$$

[wanzman]

FMF = Total Nerd

[Dignan]

Based on MS Excel Future Value formulas. WAAAAY oversimplified and does not show the integration between the sets of formulas, but fun to document and gets you thinking about how all the variables change over one's life and how each can be accelerated.

Retirement fund = (Income (Rate of income growth, career # of years, 0, starting salary,1) - Expenses (Rate of expense growth, # of years alive, 0, starting annual expenses, 1)) * Savings Growth (Rate of savings appreciation, # of years you save, annual savings amount, starting savings balance,1).

I'm always on the look out for a complex, unified formula of personal finance. Haven't found it, but FMF's is close for a simplified version.

[VK]

I like the simple version. Of course there are assumtions in here. You need your savings to produce more money (rate of return) to generate wealth.

Just had this interesting thought, just reverse the equation inside parenthesis and you get the formula for financial ruin (+ < -) Yrs.

[J in FL]

It's funny how entering in a simple mistake like (+ < -) makes such a huge difference. Gotta love math :)

[Ken Siew]

You're a nerd, but a good one =D

(I - E)(Years)= Rich!

That's my version.

[KH]

It appears that your equation is intended to be memorable and "catchy", but not necessarily an actual mathematical representation of financial planning.

So why not build your catchy around the famous E=MCsquared equation of Einstein? There's no other another equation that sounds smarter! And most people recognize this equation even if they know nothing else about physics or math.

What about E=MC^2: Easy retirement = More time multiplied by Cash left to (2) you after your expenses? And bonus: you don't have to be a genius to use this equation!

[Mike Hunt]

(Spend < Earn) ^ Many Years = Rich Bastard

-Mike

[MikeS]

Mike, I love it. Can't wait to be a rich bastard myself. :-)

[Brian Painter]

I love the formulas! Two things to think about. How to show that starting early increases wealth even more? Maybe a power or something for the many years like compounding interest. Second - If Spend is Greater than Earn then Wealth will be negative, so maybe Wealth is really future net worth or something like that. Anyways, keep it up, when you get the final version, I'm going to print it out and hang it here in my cube.

Bp

[Eugene Krabs]

Hehe, I think you're a nerd too, but that's a compliment. How about this?

Long term positive net cash flow = Wealth?

Or is that too wordy?

[Budgeting in the Fun Stuff]

Have I ever mentioned that I love FMF because of stuff like this?

My vote is for (+ > - )Yrs = $$$. Simple and to the point. :-)

[rq]

I've expanded the equation to create the term YI-YE, which means "years time income minus years times expenses.
I think YI-YO has a better ring to it. I for in O for out.

This isn't simpler, but I just wrote a computer program for getting rich.

for(int i=currentAge; i0.75*in){
out--;
}
savings+=(in-out);
}

[rq]

Okay, your software deleted some of my comment so the above code makes no sense.

[Victor]

(in - out) x years = result. if out is greater than in, result is ruin. if out is less than in, result is prosperity.