Model Purpose

What FInsight Does

FInsight is an educational personal finance modeling tool. It converts a user’s financial profile into present value estimates, stress-tests assumptions, applies a goal-specific model, and generates a directional recommendation. The model is designed for finance modeling coursework, not professional financial advice.

Core Model

The core model estimates net position using present value logic for income, expenses, debt, and assets.

Goal Model

The selected goal triggers a second model layer with unique calculations, score drivers, scenario cases, and margin of safety.

Risk Model

Sensitivity analysis and Monte Carlo simulation test whether the result holds up when assumptions change.

Core Formulas

Core Financial Model

The base model estimates financial readiness before applying the user’s selected goal. This creates a consistent foundation across all goals.

Core Net Position

Net Position = Income PV + Current Assets - Debt PV - Expense PV

This is the main financial position estimate. Future income and expenses are discounted into present value, then combined with current assets and liabilities.

Income Present Value

Income PV = Σ Projected Income_t / (1 + discount rate)^t

Future income is projected forward using income growth assumptions and then discounted back to today.

Debt Present Value

Debt PV = Payment x [1 - (1 + r)^(-n)] / r

Recurring debt payments are valued using an annuity present value formula so debt can be compared against assets and income.

Expense Present Value

Expense PV = Σ Projected Expenses_t / (1 + discount rate)^t

Monthly expenses are annualized, adjusted by city type, grown over time, and discounted back into today’s dollars.

Financial Readiness Score

Score = Liquid Safety + Debt Health + Asset Strength + Goal Fit

The final score is a 100-point measure. Liquid Safety is based on combined savings and emergency fund, while Debt Health, Asset Strength, and Goal Fit measure broader readiness.

Goal Fit Conversion

Goal Fit Score = Goal Model Score / 4

Each goal model produces a 0-100 score. That score is converted into the 25-point Goal Fit section of the final readiness score.

Goal Layer

Goal-Specific Model Layer

After the core model is calculated, FInsight applies a goal-specific model. This goal layer changes the dashboard tab, Goal Fit score, final recommendation, score drivers, conservative/base/optimistic scenarios, and margin of safety.

Buy House

The housing affordability model evaluates down payment strength, monthly housing cost, housing cost divided by income, debt-to-income ratio, home price divided by income, and margin of safety against the 30% housing-cost threshold.

Required Down Payment = Target House Price x Down Payment %
Monthly Housing Cost = Mortgage Payment + Property Tax + Maintenance
Housing Cost / Income = Monthly Housing Cost / Monthly Income
Debt-to-Income = (Housing Cost + Debt Payments) / Monthly Income
Housing Margin of Safety = 30% - Housing Cost / Income

Rent vs Buy

The rent-versus-buy model compares the present value cost of renting against the present value cost of buying over the selected holding period.

Rent PV = Present value of rent payments over holding period
Buy PV = Present value of ownership costs over holding period
NPV Difference = Rent PV - Buy PV
Margin of Safety = Absolute NPV Difference / Annual Income

Retirement

The retirement model estimates whether projected assets at retirement are enough to cover a retirement need based on future expenses.

Projected Assets = Current Assets grown by expected return + annual surplus contributions
Projected Annual Expenses = Current Annual Expenses grown by expense growth
Retirement Need = Projected Annual Expenses x 25
Retirement Gap = Projected Assets - Retirement Need
Coverage Ratio = Projected Assets / Retirement Need

Invest Assets

The investing model checks whether the user is actually ready to invest by testing liquidity, high-interest debt, monthly surplus, investable assets, risk tolerance, and time horizon.

Investable Assets = Savings + Stocks + Bonds
Liquid Safety Gap = 3 Months of Expenses - (Savings + Emergency Fund)
Monthly Surplus = Monthly Income - Monthly Expenses - Debt Payments
Liquidity Margin of Safety = (Savings + Emergency Fund) / Monthly Expenses

Scholarship ROI

The scholarship model treats education as an investment decision by comparing net education cost against the present value of expected income benefits.

Scholarship Value = Education Cost x Scholarship %
Net Education Cost = Education Cost - Scholarship Value
Annual Income Benefit = Current Income x Expected Income Increase %
Education NPV = PV of Income Benefit - Net Education Cost
Payback Period = Net Education Cost / Annual Income Benefit
Margin of Safety = PV Income Benefit / Net Education Cost

Scenario Logic

Conservative / Base / Optimistic Cases

Each goal model includes three cases. The base case uses the user’s inputs, the conservative case stresses the most important assumptions in a negative direction, and the optimistic case improves the main assumptions. This shows whether the decision is stable or fragile.

Conservative Case

Stress test that makes the selected goal harder to justify. For example, higher mortgage rates, lower investment returns, higher expenses, or weaker income benefits.

Base Case

The model result using the user’s current inputs and selected assumptions.

Optimistic Case

Upside case that slightly improves the most important assumptions, such as lower mortgage rates, higher investment returns, or stronger income benefits.

Risk Testing

Sensitivity Analysis and Monte Carlo

FInsight separates deterministic scenario analysis from randomized simulation. Sensitivity analysis shows how net position changes across selected assumption combinations. Monte Carlo simulation randomizes assumptions across many trials.

Sensitivity Analysis

Sensitivity analysis varies discount rate and income growth assumptions to show how much the final net position changes when core assumptions move.

Monte Carlo Simulation

Monte Carlo simulation randomizes income growth, discount rate, investment return, and expense growth. It reports probability of positive net position, 10th percentile, median, 90th percentile, average, worst case, and best case.

Assumptions

Key Assumptions

These assumptions keep the model transparent and understandable.

Default discount rate: 5%, adjustable by the user.
Default base income growth: 2%, adjustable by the user.
Default expense growth / inflation rate: 2.5%, adjustable by the user.
Default expected investment return: 6%, adjustable by the user.
Default Monte Carlo simulation count: 1,000 trials, adjustable by the user.
Liquid safety cushion target: combined savings and emergency fund should cover at least 3 months of expenses.
High-interest credit card debt threshold: 15% APR.
Mortgage term used for housing calculations: 30 years.
Retirement need uses a 25x projected annual expense multiple.
Scholarship ROI uses a 10-year present value window for income benefits.
City type adjustment: city users have higher projected expenses, suburban users use the baseline, and rural users have lower projected expenses.
Bond value and real estate value are entered as current market values, not original cost, face value, or NPV.

Limitations

Model Limitations

These limitations should be disclosed whenever the model is presented.

The model is educational and directional, not predictive.
The model does not include taxes.
The model does not use live market, mortgage, inflation, or tuition data.
The model does not include state-specific cost-of-living rules.
The model uses simplified assumptions so the calculations are understandable for a finance modeling project.
The model does not provide legal, tax, investment, or financial advice.
The model does not replace a certified financial planner or professional advisor.