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Comment by POiNTx | Hacker News Reader

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POiNTx·

Can you breakdown this calculation? I'm familiar with FIRE and SWR but how do you get to the $150,000 number?

[EDIT] Thanks got it!

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6000/0.04 = 150 000

Essentially, those 6K a year is the equivalent of a 150K portfolio

I want to push back against this a little. He gets $500/month now, there is no guarantee he will keep receiving that number when he stops maintaining and improving his app. I would assume the number will go up if he keeps improving it, but if he stops it will eventually become 0$/month.

There's no guarantee $150k invested will have 4% returns either.

No, but if I had to bet on one over the other, I'm going with 4% returns.

To be fair: It will probably be easier for him to go from $500/mo to $1000/mo much easier than it will be to go from 4% APY to 8% APY.

Doesn't time value of money decrease this effect? Assuming a fixed revenue over time, future revenue is much less relevant, so is its loss.

That's what the 4% is. A perpetuity that pays out $6000 a year is valued at $150,000 assuming a 4% discount rate. Without a discount rate, the value of any perpetuity would be infinity.

No it’s not it’s the equivalent of a $6,000 a year part time job.

$150k in 20 years is still exactly $150k and produces returns.

A 20 year old mobile application has no value whatsoever.

Difference is apples and hand grenades.

$6,000 / 0.04 = $150,000. in other words, if OP had saved $150,000 and was withdrawing 4% per year, they would have the same $6,000 as what the app is generating.

the analogy is imperfect, because presumably the OP is spending some time to generate that app income; it's not totally passive.

4% of $150k is $6k, which is $500 * 12.

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