A financial tool designed to project the future value of an individual’s assets, minus their liabilities, over a specified period. It takes into account factors such as current net worth, recurring contributions, investment returns, and inflation to provide an estimated growth trajectory. For example, an individual with a starting net worth of $50,000, contributing $1,000 monthly, with an assumed annual investment return of 7%, can use this to project their net worth in 10, 20, or 30 years.
The utilization of such a projection tool facilitates proactive financial planning and allows for informed decision-making. By visualizing potential growth scenarios, individuals can assess the adequacy of their current savings and investment strategies. Furthermore, it provides a historical perspective by illustrating the compounding effect of consistent contributions and investment performance over time. This can motivate adjustments to savings rates, investment allocations, or retirement timelines to align with desired financial goals.