Imagine the life you want to live.
Consider your goals and your aspirations.
Think about what you love to do.
Reflect on what truly matters to you.
When you think about these things, what comes to mind?
- Do you want to retire early and travel the world?
- Are you interested in opening your own business?
- Would you like to take some time off from work to pursue an interest or spend time with your family?
- Do you have a wonderful novel in you, but no time to write it?
Whatever you desire, your ability to pursue your interests is fueled or hindered by your financial situation.
I’m not saying money is everything. It isn’t. However, it sure comes in handy.
Take a few minutes to answer 6 money questions. Use your answer to put yourself into a position to live the life you want to live:
1. What is your number?
In his book, The Number, Lee Eisenberg asks readers to think about the lives they want to live and the amount of money needed to sustain themselves. If you decide to go without a pay check, either in retirement or somewhere else in your life, you need to know how much money you need to sustain yourself. One way to think about it is that if you need $40,000 (USD) per year, then you need to have $1 million working for you, assuming it is generating a 4% return.
2. What should you be saving?
If you answered the first question saying you need $1 million at age 62, that means you should be saving some serious money. At 30, you need to put away $14,000 per year, assuming a 5% annual return, to hit the million by 62. If you are 40, double that amount – put away $28,000 per year. Of course, you may find yourself with the ability to put away less money early on in your career and more as your career progresses. The key takeaway is to start putting money away as soon as possible, and make saving a habit.
Keep in mind that inflation is going to play a significant role in the future value of your savings. $1 million may sound like a lot of money to you, but inflation will prove otherwise. If you are 30 years old today, you might be surprised how far $1 million won’t take you when you are 62.
3. What’s your relationship with money?
Are you the type of person who has the first dollar you ever made or does money fly out of your bank account the moment it arrives? Some of us learned our spending habits during our upbringing, others seem to be pre-wired to save or spend. Whatever your relationship with money, you need to consider if the current relationship will serve you well in the short- and long-run. If not, consider revisiting it.
4. What are you spending your money on?
Take a look at how you spend your money. Do you have an emergency fund? Are you paying down debt and saving for retirement? Your answer to question #3 (above) will suggest how you see your relationship with money; but, your answers to these spending questions will allow you to see the ramifications of that relationship.
5. What is your budget?
There are a number of ways to determine your budget, but they all come down to putting numbers on paper. Take a look at your last couple of months of spending. What was your income? What did you spend and where did it go? Did you cover just the basics or did you eat out, buy new toys, etc.? Was there anything left over at the end of the month? If you don’t have a budget, start small – build a budget for yourself for the next month, try to live within that budget, assess how it went and adjust going forward. Make it both realistic and challenging.
6. What should you prepare for that you can’t control?
Lots of things can happen that can knock you off of your plan. You can become ill, end up in a car accident, lose a job, etc. Be proactive and plan accordingly. Get a will, buy some life insurance (ideally term), and have a plan in the event of medical costs. Make sure you have the right amount of car and home owner’s insurance. Don’t spend and save wisely for years only to have a significant event knock you off of your feet.
Admittedly, I’m not a financial planner. I simply pose these questions to get you thinking.
I encourage you to own your finances and live the life you want to live!
Patrick Leddin, PhD is a sought after writer, speaker, and global leadership consultant. Patrick is an Associate Professor at Vanderbilt University with a thriving leadership blog and podcast, and 25-years of leadership experience. He offers an unparalleled mix of academic rigor and real-world experience.