• 10:47:53 am on October 16, 2008 | 5
    Tags: , , , , ,

    Reviewing Your Number …

    We’ve calculated our Number before, but this is the first time that we are ‘open-booking’ this exercise with our 7 Millionaires … In Training! so if you are still working on your Number – or reviewing it – here’s how to go about it:


    Debbie sent me her spreadsheet (click on the above link for a .pdf file) for comment, so I thought that I should share it with all of you as I’m sure that you have similar questions.

    I put some comments on Debbie’s sheet in RED; see what you think … but, I think that she already has most of it.

    Once she verifies the numbers that I suggest (again, in RED) that she review, Debbie should do the following … and, so should you (!):

    1. Take the recurring expenses (don’t forget to inflation adjust i.e. double every 20 years) and multiply those by 20

    2. Take your ‘one off’ expenses (don’t forget to discount by selling down other assets that you no longer need e.g. you old house, THEM inflation adjust) and ADD them to 1.

    3. Take your semi-recurring expenses (e.g. cars) and decide whether you will treat them as one off or better still, annualize the cost (e.g. for a car you intend to replace every 5 years, take one-fifth of the purchase price as the estimated annual expense) and multiply the annual cost by 20.

    That’s it!

    Your Number is simply 1. + 2. + 3.

    Here are the three most common questions:

    Q: How do I decide my lifestyle expenses in retirement?

    A: Well the wrong way is to base it on how much you earn now (or even on how much you expect to earn just before retirement … here’s why); the right way is to start here (and, be sure to check out all of the links).

    Q: How do you account for inflation AFTER retirement?

    A: You don’t need to, multiplying 1. (and, 3. where applicable) by 20 does that for you!

    Q: How do you account for an increase in lifestyle before retirement?

    A: Easy, put what you think you NEED into the spreadsheet in the columns applicable to the time-frame that you think you NEED them in, and we will budget to see what you can actually afford, later.

    So, what are your questions?

    Feel free to share them in the comments, here …



  • Diane 4:34 pm on October 17, 2008 | #

    I worked my number up again last night. It’s a bit more critical now. As Adrian already knows, yesterday I resigned from my job and now I am preparing for the move to NC. The house is rented – unofficially so far – and I have to do the legal work associated with setting that up now. It’s all new to me. So I had to read the numbers again.

    If I am getting this part of the exercise, it is to make us take a hard look at our “wanta” haves and look at see what we will say mid-stream when we get offered alternatives. Do we take Door Nr 3, or do we keep the $3M we’ve already got?

    I skinnied down the list to pretty much “today” plus what I really really really REALLY want to do before I die. It shaved $3M off my number and left me with between $5.3M and $5.5M, in 5-6 years.

    I know that I need to get scared about this; being without a job and living off the IRA/401k for my current must-pay bills will help me do that, because at a certain point – when the debt is paid off – my only way to go forward will be to have another source of income or to go back into debt. Another source of income will either be me going back to work (which I have mathematically proved last night will NOT allow me to ever retire, yet at some point I will not be working and NEED to work in order to cover living expenses still (and I expect I will live a while beyond that point of “no one will hire me”).

    I also looked at the number from a passive income perspective – if it paid out 10% or 5% and then at 7%, how much would go to taxes (assuming I’m no better at avoiding those than I am now) and how much to covering those minimal things on my list.

    This was to give me the picture of HOW MUCH would it take to sustain me later, given that I may be tempted at some point to throw in the towel in the face of aggravation, frustrations, and resistance by others in my life? The answer was a scary $5.3-5.5M.

    And I think, if I start out, making mistakes, but not sinking yet, then eventually the mistakes will be fewer apart and the victories closer together, so that when I hit that minimal number, I might be able to say “this is fun; let’s see if I can get the $8.5M I originally aimed for, rather than settling for what-was.”

    Of course, it could be that I’ve been looking at the BATNAs lately – the best alternatives to a negotiated agreement, this one being “Take the $5.3M and go” or….”Work toward $8.5M” or “Don’t bother making the $5.3M and see where that leaves you” – and where I am is not a good place, although it temporarily looks good (looked, I should say). So, I have to do something different.

    Have to.

  • AJC 9:38 pm on October 17, 2008 | #

    @ Diane – Thanks for sharing. I think it will help others to understand this exercise better …

  • Debbie 7:01 am on October 20, 2008 | #

    I’m horrible at this part, ask Adrian. I’ve sent that poor guy my spreadsheet and questions at least 4 times.

    I couldn’t use his spreadsheet. It just wasn’t working for me, the way my mind works or something!

    So I redid everything with my current debts, things I know I’ll be buying (cars, a house, kids college educations, start up money for businesses I’d like to start) and typical living expenses. I spread the “big” stuff out over 20 years and accounted for inflation and interest rates on debts etc, but I don’t want to wait until year 20 to have that “number” I came up with. So now what do I do with my totals?

  • Lee 8:10 pm on October 20, 2008 | #

    @Debbie- Don’t feel bad. I’m pretty much the same way. In the first place of don’t do spreadsheets well anyway. My mind is pretty foggy on this part of the experiment, but I did go ahead and send in some sort of spreadsheet. I’m not satisfied with it, but then I see no one elses is either.

  • What’s Going On « 2:16 am on October 25, 2008 | #

    […] told us all about her revised Number in this comment to my recent post: I worked my number up again last […]

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