My wife and I used Monte Carlo to buy our second house. We were trying to sell a house, buy a new one, juggle a couple of other transactions, predict interest rates, all while trying to understand our new budget (we were newly together and hadn't lived together yet at that time).
So, there were a bunch of different variables that led to a final scenario of how big our final monthly payment would be. We were both conservative in our choices, too.
The trick with Monte Carlo is that if we had been conservative on our predictions on every single variable, I don't think we ever would have bought our house.
But by doing a Monte Carlo simulation - assuming each variable was roughly independent of the others, and picking a sane-seeming variance for each prediction - we were able to simulate 10,000 scenarios, and then pick the numbers that led to us meeting our budget in 95% of cases. They key number there was the "asking price" of the house we were looking for.
That asking price - that was safe in 95% of scenarios - was much higher than it would have been had we been conservative with every single variable.
And it worked great. The conservatism of the 95% estimate gave us some wiggle room, a couple of the other variables broke our way, and our combined monthly budget still allowed us to save more money than when we were living separately.
So, there were a bunch of different variables that led to a final scenario of how big our final monthly payment would be. We were both conservative in our choices, too.
The trick with Monte Carlo is that if we had been conservative on our predictions on every single variable, I don't think we ever would have bought our house.
But by doing a Monte Carlo simulation - assuming each variable was roughly independent of the others, and picking a sane-seeming variance for each prediction - we were able to simulate 10,000 scenarios, and then pick the numbers that led to us meeting our budget in 95% of cases. They key number there was the "asking price" of the house we were looking for.
That asking price - that was safe in 95% of scenarios - was much higher than it would have been had we been conservative with every single variable.
And it worked great. The conservatism of the 95% estimate gave us some wiggle room, a couple of the other variables broke our way, and our combined monthly budget still allowed us to save more money than when we were living separately.