Budget Monte Carlo
This project is a Monte Carlo simulation for personal financial planning. It allows users to explore the long-term financial implications of different housing and investment scenarios. By running numerous simulations with stochastic variables, the tool provides a probabilistic view of potential financial futures, helping to inform decisions around renting versus buying, and other investment strategies.
Core Functionality
The simulation projects net worth over time based on a set of configurable parameters. It models income, expenses, investments, and housing scenarios. The key variables, such as investment returns and housing appreciation, are stochastic, allowing the simulation to generate a distribution of possible outcomes.
Scenarios
The simulation compares the following scenarios:
- Renting: A scenario where the user rents for the entire simulation period.
- Buying: A scenario where the user buys a house after a specified number of years of renting.
- Buy-Sell-Buy: A scenario where the user buys a house, sells it after a number of years, and then buys another house.
Key Parameters
The simulation is driven by a set of configurable parameters, including:
- Simulation duration (years)
- Initial capital
- Down payment
- Mortgage rate
- Rent per month
- House prices (for buying scenarios)
- Property tax rate
- Homeowners insurance rate
- Base monthly expenses and standard deviation
- Expense inflation rate
- Mean and standard deviation of annual investment returns
- Mean and standard deviation of annual house appreciation
- Salary information (base salary, annual raise, salary cap)
The results are visualized as plots showing the mean and $1\sigma$ confidence intervals for net worth over time for each scenario.