• 02:44:39 am on July 22, 2008 | 17
    Tags: , , , ,

    Accumulating ‘stuff’ …

    OK, by now you have a reasonable feel for where your life is going … with luck, you have even found a reasonable facsimile of Your Life’s Purpose.

    It’s OK – it’s your life – you get to change this whenever you want!

    But, we are human beings, living in a material world, so let’s talk about …

    … stuff!

    Let’s examine this for a moment:

    Last week I told you that my Life’s Purpose (at least, as I wrote it 10 years ago and it still seems to ‘ring true’ for me) is:

    To travel physically, mentally and spiritually.

    And I said that this seemingly simple, meaningless statement has given me “so far, everything” …

    How so?

    Well, it’s all about traveling … and, what does traveling take if not TIME and MONEY?!

    At least, the physical traveling bit takes both. Mental ‘traveling’ implies experimentation … do you think that might take time and perhaps some money, as well? At least spiritual ‘traveling’ is free (assuming my Guru doesn’t live in the mountains of Tibet)!

    But, you get my point: TIME means that I cannot be working – at least not in a regimented manner, and travel (especially at my Hilton-hopping age) means MONEY and lots of it.

    So my financial plan then centered around:

    1. WHEN did I want to be in a position to chuck in my work/business responsibilities for the life of a ‘traveller’? The answer was 5 years (it took me 7 … damn)!

    2. HOW much income would I need? I figured about $250,000 1998 dollars per year for living, travel, capital for ‘experiments’, etc. This would need to grow in line with inflation.

    3. Since the only source of my income would then be investments, how much would I need in my ‘nest egg’ when I finally sold up. $5,000,000 ($250k x 20).

    Considering that I was effectively $30k in debt at the time …. yikes!

    But, the how to get from one to the other is not today’s worry – today, let’s just try and peg the end-post into the ground.

    So, today I want you to think about Your Life’s Purpose, the Rear Deck Speech that you wrote, and your Do Want In Your Life list and use those to determine what things you will have in your life to support you on your journey to – and through – Your Life’s Purpose.

    It may be a lot (like it turned out to be for me) or you may be lucky enough to discover that it’s only a little (if so, YOU will be the lucky one) …

    Create a spreadsheet or table that mimics the following and have a go at filling it in … we’re looking for amounts that you will be spending per year at that point in your life (or during that period, if it is houses, cars, and other ‘big purchases’):

    Now 1 Year 5 Years 10 Years 20 Years
    Annual Income:
    From Job/s
    From business/es
    House/s:
    Purchase Value
    Car/s:
    Purchase Value
    Other Major Purchases:
    (list them here)
    Travel:
    (list trips here)
    Living Expenses:
    Total (or list here)

    What we are trying to get to here is a picture of what your ‘financial life’ will look like.

    Hint: for future expenses, imagine IF you lived that lifestyle today, how much would it cost today (you should be able to use Zillow, for example, to see how much the types of houses in the types of neighborhoods that you want to live in will cost TODAY)?

    Then to estimate the cost of that same item:

    5 years out, simply add 25% to the current cost.

    10 years out, simply add 50% to the current cost.

    20 years out, simply double the current cost.

    This approximates (very roughly) 4% inflation … in fact, you can do the same thing to your salary, if you think that it will just track inflation (let’s hope not!).

    Notice one thing: at some point, your income from jobs or businesses will stop … more on this tomorrow!

     

Comments

  • Ryan 2:36 pm on July 22, 2008 | #

    About 6 months ago I did a similar exercise to determine how much I would need to “retire” and live the kind of life I wanted to (travel, philanthropy, golf, bigger house,activities, etc.). Although it seemed like a stretch to even write down, I settled on $10 million in 10 years. After watching a show on cnbc, in particular this clip, http://www.cnbc.com/id/15840232?video=768292103 , I think it’s time to revise my estimate!!! And to think that a couple of years ago I thought if you had a million dollars you could do anything you wanted.

  • Di Eats the Elephant 3:02 pm on July 22, 2008 | #

    Good exercise!

  • AJC 9:04 pm on July 22, 2008 | #

    @ Ryan – That’s why it’s important to couch your Number in terms of required living expenses (hence passive income) to support your Life’s Purpose – no more, no less – rather than some nebulous lump sum.

    @ Diane – I hope so! But, not just a ‘good exercise’ … this is THE exercise! 🙂

  • Jeff 5:59 am on July 23, 2008 | #

    AJ – I’m a couple exercises behind the power curve right now, but will catch up over the weekend.

    Just so I understand correctly…I think the NOW column for expenses should reflect the amounts that my LIFE PURPOSE life (plus my materialistic greed) requires in today’s dollars. Is that correct?

    In terms of income, I think the NOW column reflects my actual earned income as of today. Is that correct?

    Thanks
    -Jeff
    I’m Minding My Own Business, are you minding yours?

  • AJC 9:47 am on July 23, 2008 | #

    @ Jeff – If you are behind, don’t rush it to catch up (the only people on any sort of ‘deadline’ are the Final 15 … and even then it would be a mistake to rush things). When you DO have a clear (or, at least working) vision of your Life’s Purpose THEN you can sit down and try and fill in the table with what you currently spend NOW and expect to be spending 1 5 10 20 years down the track … somewhere in there spending will either kick up or kick down (and your income will probably kick down) as you gear up for your Life’s Purpose (plus the materialistic stuff that us human beings seem to want so much … hell, I bought a Maserati)!

  • Scott 11:10 am on July 24, 2008 | #

    After doing this exercise as well as all the previous one’s we’ve done so far, my Number has definitely increased out of fear….I started in the past thinking 5 million would be sufficient and now I agree with Ryan, it’s more like double that amount when you think about really FEELING wealthy, having the lifestyle, travel, houses, cars, etc.. while not working and staying ahead of inflation…

  • AJC 1:14 pm on July 24, 2008 | #

    @ Scott – The point of the two exercises over the last couple of days is to be able to put down what you feel you need (to support your journey to and through your Life’s Purpose) … then, after you do the associated calc’s the Number (for you) is what it is 😉

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