The formula equivalent of EBITDA for personal finance?
This should not be taken to be financial advice or guidance. My opinions are my own and do not represent professional advice or consultation on my part or that my employer. Now that we have that clear... Your idea is a very good one.  I'm not sure about the benefits of a EBITDA for personal financial planning (or for financial analysis, for that matter, but we will that matter to the side). If you have a moderate (>$40,000) income, then taxes should be one the largest, if not the largest chunk of your paycheck out the door.  I personally track my cash flow on a day-by-day basis. That is to say, I break out the actual cash payments (paychecks) that I receive and break them apart into the 14 day increments (paycheck/14). I then take my expenses and do the same. If you organize your expenses into categories, you will receive some meaningful numbers about your daily liquidity (i.e: cash flow before taxes, after taxes, cash flow after house expenses, ect) This serves two purposes. One, you will understand how much you can actually spend on a day-to-day basis. Second, once you realize your flexibility on a day-to-day basis, it is easy to plan and forecast your expenses.
There are all sorts of topics in finance that take a lot of time to learn.  You have valuation (time value of money, capital asset pricing model, dividend discount model, etc.), financial statement analysis (ratio analysis, free cash flow &amp; discounted cash flow, etc.) , capital structure analysis(Modgliani &amp; Miller theories of capital structure, weighted average cost of capital, more CAPM, the likes), and portfolio management (asset allocation, security selection, integrates financial statement analysis + other fields like derivatives, fixed income, forex, and commodity markets) and all sorts.   My opinion of Investopedia is that there is a lot of wheat with the chaff.  I think articles/entries are just user-submitted and there are good gems in Investopedia but a lot of it only covers very basic concepts.  And you often don't know what you don't know, so you might come out with a weak understanding of something.    To begin, you need to understand TVM and why it works.  Time value of money is a critical concept of finance that I feel many people don't truly grasp and just understand you need some 'rate' to use for this formula.  Also, as a prereq, you should understand basics of accrual accounting (debits &amp; credits) and how the accounting system works.  Don't need to know things like asset retirement obligations, or anything fancy, just how accounting works and how things affect certain financial statements.  After that, I'd jump into CAPM and cost of capital.  Cost of capital is also a very misunderstood concept since schools often just give students the 'cost of capital' for math problems when in reality, it's not just an explicit number but more of a 'general feeling' in the environment.  Calculating cost of capital is actually often very tricky (market risk premium) and subjective, sometimes it's not (LIBOR based).    After that, you can build up on those basic concepts and start to do things like dividend discount models (basic theory underlying asset pricing models) and capital asset pricing models, which builds on the idea of cost of capital.    Then go into valuation.  Learn how to price equities, bonds, derivatives, etc.  For example, you have the dividend discount model with typical equities and perpetuities.  Fixed income has things like duration &amp; convexity to measure risk and analyze yield curves.  Derivatives, you have the Black-Scholes model and other 'derivatives' (heh) of that formula for calculating prices of options, futures, CDOs, etc.  Valuation is essentially taking the idea of TVM to the next logical step.  Then you can start delving into financial modelling.  Free cash flows, discounted cash flows, ratio analysis, pro forma projections.  Start small, use a structured problem that gives you some inputs and just do calculations.  Bonuses* would be ideas of capital structure (really not necessary for entry level positions) like the M&amp;M theorems on capital structure (debt vs equity), portfolio management (risk management, asset allocation, hedging, investment strategies like straddles, inverse floaters, etc), and knowledge of financial institutions and banking regulations (Basel accords, depository regulations, the Fed, etc.).    Once you gain an understanding of how this works, pick something out there and do a report on it.  Then you'll be left with a single 'word problem' that gives you nothing except a problem and tells you to find an answer.  You'll have to find all the inputs and give reasons why these inputs are sound and reasonable inputs for this analysis.    A big part that people don't understand about projections and analysis is that **inputs don't exist in plain sight**.  You have to make a lot of judgment calls when making these assumptions and it takes a lot of technical understanding to make a reasonable assumption--of which the results of your report highly depend on.  As a finance student, you get a taste for all of this.  I'm gonna say it's going to be hard to learn a lot of substantial info in 2 months, but I'm not exactly sure what big business expects out of their grunts.  You'll mostly be doing practical work like desk jockey business, data entry, and other labor-based jobs.  If you know what you're talking about, you can probably work up to something more specialized like underwriting or risk management or something else.   Source:  Finance degree but currently working towards starting a (finance related) company to draw on my programming background as well. The example from the following website: Investopedia - Calculating The Present And Future Value Of Annuities  specifically the section 'Calculating the Present Value of an Annuity Due' shows how the calculation is made.  Using their figures, if five payments of $1000 are made over five years and depreciation (inflation) is 5%, the present value is $4545.95  There is also a formula for this summation, (ref. finance formulas) ​​​​​You're not missing anything. Excess cash is somewhat of a nebulous concept. To different people it means different things. The answer is that excess cash varies for each company depending on their business. For instance, some companies need very high amounts of working capital. A company may be increasing their inventories and therefore will require more cash on their balance sheet to fund growth. If a company always needs this extra cash, some investors prefer to leave that cash out of a valuation because the company cannot run profitably without it. Think about what happens to your calculation of Enterprise Value if you subtract excess cash as opposed to cash. Excess cash is always less than cash. Therefore by subtracting excess cash you increase EV. Since one common valuation metric is EV/EBITDA, a higher numerator will make the stock seem more expensive - that is the EV/EBITDA ratio will seem higher when using excess cash as opposed to cash. So using excess cash in your valuation methodology is basically a conservative concept. Depending on the business 20% of revenues seem way too high as a reserve for excess cash. 2% is a much better rule of thumb. I use the following method. For each stock I hold long term, I have an individual table which records dates, purchases, sales, returns of cash, dividends, and way at the bottom, current value of the holding. Since I am not taking the income, and reinvesting across the portfolio, and XIRR won't take that into account, I build an additional column where I 'gross up' the future value up to today() of that dividend by the portfolio average yield at the date the dividend is received. The grossing up formula is divi*(1+portfolio average return%)^((today-dividend date-suitable delay to reinvest)/365.25) This is equivalent to a complex XMIRR computation but much simpler, and produces very accurate views of return.  The 'weighted combined' XIRR calculated across all holdings then agrees very nearly with the overall portfolio XIRR. I have done this for very along time.  TR1933 Yes, 1933 is my year of birth and still re investing divis! "I think your very long list of possible assumptions makes a tacit point of your own:  to state ""15%"" as a general value is bogus.  I think, in most cases, the ""15%"" is merely a popular meme.   To give any fixed number or percentage of income saved is insufficient without expanding things in the way you show.  Therefore, a formula, in which at least a handful of variables can be plugged into it, seems like the right approach.  (And this is what is being discussed here with the Monte Carlo method)." "I think we'd need to look at actual numbers to see where you're running into trouble. I'm also a little confused by your use of the term ""unexpected expenses"". You seem to be using that to describe expenses that are quite regular, that occur every X months, and so are totally expected. But assuming this is just some clumsy wording ... Here's the thing: Start out by taking the amount of each expense, divided by the number of months between occurrences. This is the monthly cost of each expense. Add all these up. This is the amount that you should be setting aside every month for these expenses, once you get a ""base amount"" set up. So to take a simple example: Say you have to pay property taxes of $1200 twice a year. So that's $1200 every 6 months = $200 per month. Also say you have to pay a water bill once every 3 months that's typically $90. So $90 divided by 3 = $30. Assuming that was it, in the long term you'd need to put aside $230 per month to stay even. I say ""in the long term"" because when you're just starting, you need to put aside an amount sufficient that your balance won't fall below zero. The easiest way to do this is to just set up a chart where you start from zero and add (in this example) $230 each month, and then subtract the amount of the bills when they will hit. Do this for some reasonable time in the future, say one year. Find the biggest negative balance. If you can add this amount to get started, you'll be safe. If not, add this amount divided by the number of months from now until it occurs and make that a temporary addition to your deposits. Check if you now are safely always positive. If not, repeat the process for the next biggest negative. For example, let's say the property tax bills are April and October and the water bills are February, May, August, and November. Then your chart would look like this: The biggest negative is -370 in April. So you have to add $370 in the first 4 months, or $92.50 per month. Let's say $93. That would give: Now you stay at least barely above water for the whole year. You could extend the chart our further, but odds are the exact numbers will change next year and you'll have to recalculate anyway. The more irregular the expenses, the more you  will build up just before the big expense hits. But that's the whole point of saving for these, right? If a $1200 bill is coming next week and you don't have close to $1200 saved up in the account, where is the money coming from? If you have enough spare cash that you can just take the $1200 out of what you would have spent on lunch tomorrow, then you don't need this sort of account." It's better to use the accounting equation concept: Asset + Expenses = Capital + Liabilities + Income If you purchase an asset: Suppose you purchased a laptop of $ 500, then its journal will be: If you sell the same Laptop for $ 500, then its entry will be: Yes that is the case for the public company approach, but I was referring to the transaction approach:   Firm A and Firm B both have $100 in EBITDA. Firm A has $50 in cash, Firm B has $100 in cash.  Firm A sells for $500, Firm B sells for $600.  If we didn't subtract cash before calculating the multiple: Firm A: 5x Firm B: 6x  If we DO subtract cash before calculating the multiple: Firm A: 4.5x Firm B: 5x  So yea, subtracting cash does skew the multiple.