Is financial worry hardwired into you?
How Much Money Do You Really Need
“Ten million dollars” was the answer my close friend gave me who had just sold her business.
It was just sitting in her Bank of America checking account, after selling a business that she’s been running for nearly 20 years.
Now at age 44, her biggest concern? Running out of money!
That’s crazy, right? But it’s true. She felt an insecurity in her stomach that it just wasn’t enough.
Clearly, she wasn’t thinking straight, but are any of us really? I mean, even if she just let it sit there for the next 40 years, she could pay herself an annual salary of $250,000 a year!
This doesn’t even account for the paid-off house, rental properties, or the fact that the company that bought her business kept her on part-time with a 6-figure salary.
Could it be that financial worry is hardwired into us? Is it in our DNA to always be worried about being stricken with poverty and famine? Or, perhaps, is it that we can never have enough… that the need for more is in our blood.
Last year, I wrote that you can absolutely become financially free in 5 years or less. With great focus, I have no doubt that this is true, but it’s going to be important to also define what that means to you.
How will you design your life?
Let’s start with a few core questions:
- What kind of life do you want to live?
- Who makes you happy?
- What experiences make you happy?
- How much money do you need? How much do you want?
Everyone reading this obviously has many reasons to already be happy.
The fact is that you’re very wealthy in the world already, so let’s start by just being thankful.
For myself as a father, my children have never gone to sleep hungry, scared, or worried about their security. This is true for anyone reading this – my assumption is that if you have Wi-Fi and a computer, compared to many other millions of people on this planet, life is good.
You have a tremendous future wealth potential.
It’s likely that you have a strong social network, are physically safe, and live in a country where there is opportunity.
How can we accept happiness and design a life that we want to live, one that is worth living according to the answers we give above?
For questions 1, 2, and 3, those are answers you can and should write down today.
As for how much money you need and how much you want, this won’t take long at all.
Just like any budget, think about how much you truly need with a healthy buffer.
Let’s use my friend as an example, who felt like she was facing financial ruin if she didn’t keep making more money, even after achieving the decamillionaire status.
After answering the first 3 questions, she revealed that she liked seeing her family, drinking wine, coffee, and being able to read a lot. She also enjoyed a few luxury vacations and fine dining.
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So how much does this decamillionaire’s lifestyle cost?
Here was her list of annual expenses:
$12,000 a year for real estate taxes (mortgage-free)
$52,000 for food, wine, and fine dining
$4,000 for insurance
$8,000 for her leased luxury vehicle
$10,000 for utilities
$20,000 for vacations and travel
$12,000 for a miscellaneous buffer
The total: $118,000 a year to live the lifestyle that made her happy.
Keep in mind that we didn’t even discuss what she actually needed. Obviously, this budget included both needs and “wants,” with nearly half of it being dedicated to food, wine, and fine dining.
The truth was that my 44-year-old friend had 85 years of living expenses sitting in her checking account. Even if she didn’t make another penny, she was good to go until her 129th birthday!
Yet without knowing how much she needed, she felt sick to her stomach about money.
So what was her real number that she needed, not to live a bare necessity life, but to live out the rest of her days happy, having all her wants, too?
Since she’s obviously not going to just sit on cash, if she took $2,950,000 and used it to buy some rental properties, fixed income assets, and kept about 10% in cash, the money would grow, provide plenty of cash flow, and be more than enough to live off of for the rest of her life.
I got to that number by calculating her annual expenses by 25 years. She will live a lot longer, however, with rental properties and cash-flowing investments, she won’t be withdrawing $118,000 a year from her liquid net worth. I mean even a yield of 4% would keep her at breakeven without ever touching the principal (even taking into account inflation).
I’ve met with people who only need $30,000 or less than $50,000 a year, depending on where they live.
Do the math for yourself. I bet you may not need nearly as much as you think.
I would be interested in hearing what your number is. Don’t worry, I won’t share it with anyone.
Having no number will put you in the “I always need more” or “I feel the famine coming” mindset.
Discover what your number is today. Take your annual expenses, both basic and wants, and multiply by twenty-five years.
I’ve yet to meet with anyone who isn’t surprised by how much lower that number truly is compared with what they’ve been thinking.
Legal Notice: This work is based on SEC filings, current events, interviews, corporate press releases and what we’ve learned as financial journalists. It may contain errors and you shouldn’t make any investment decision based solely on what you read here. It’s your money and your responsibility. The information herein is not intended to be personal legal or investment advice and may not be appropriate or applicable for all readers. If personal advice is needed, the services of a qualified legal, investment or tax professional should be sought.
Original Article Available HERE