Question 1

The snowball mechanic: how income compounds

Accepted Answer

Each year the model follows a specific sequence to grow your passive income: Calculate income: Current portfolio value × dividend yield = gross annual income. Apply tax: If using a "Taxable" wrapper, UK dividend tax is deducted (after the £500 allowance) to find your net income. Reinvest & Grow: Your net dividend income + fresh contributions are added to the portfolio, increasing the base that generates income for the following year. This creates the "snowball" effect: your passive income starts small but accelerates as the reinvested capital compounds.

Question 2

Why everything is shown in today's money

Accepted Answer

Figures are nominal, but the model does not hold everything flat. Your capital base grows at the share price growth rate, dividends per share grow at the dividend growth rate, and your expenses target rises at its own inflation rate, so the crossover year compares a growing income against a growing target rather than against a frozen one. Because dividend growth and price growth are set separately, the yield on market value drifts by the gap between them: set them equal for a flat yield, which is the realistic assumption for a broad index fund. Read the crossover year as an approximate timeframe, not a precise date.

Question 3

Reading the chart and results

Accepted Answer

Blue bars: Annual dividend income for each year — still building toward your target. Green bars: Years where your dividend income equals or exceeds your target — financial independence achieved. Dashed line: Your living expenses target, rising each year at your expenses inflation rate. Progress bar: Shows your final-year income as a percentage of your final-year target. 100%+ means your dividends have covered your life.

Question 4

Assumptions and limitations

Accepted Answer

This model is a simplified projection for educational purposes. Smooth growth: dividends grow at a steady rate every year with no cuts, suspensions or lumpy special payments, and share prices climb in a straight line with no volatility or sequence-of-returns risk. Real dividend income is far bumpier, and dividends are cut hardest in exactly the downturns when you would most want to rely on them. Frictionless reinvestment: every net dividend is reinvested in full, immediately, at no dealing cost and with no fractional-share rounding. Yield ceiling: if dividend growth outruns share price growth for long enough the yield on market value is capped at 15%, and the tool tells you when that cap binds; a projection leaning on the cap is telling you the growth assumptions are unrealistic, not that the income is achievable. Tax drag: for a taxable (GIA) wrapper the model applies the 2026/27 UK dividend regime: a £500 tax-free allowance, then 10.75% (basic), 35.75% (higher) or 39.35% (additional), held constant for the whole projection. The allowance and bands assume a standalone position: if you have other dividend income pushing you into a higher band, your real tax will be higher. The tool is best used to understand magnitudes and timeframes, rather than as a precise financial forecast.

When do your dividends pay your bills?

Annual passive income

How the forecaster works

Track the snowball as it actually rolls.