Download Start - Personal Finance Coaching

www. PersonalFinanceCoaching.com
Matt Kelly – Personal Finance Coach
Email: [email protected]
Phone: 970-749-0644
A Guide to Finding Your Magic Numbers
As Tony Robins defines, in his book Money, Master the Game; there are 5 levels to
financial achievement. Take a moment to read the definitions below. Put a
checkmark next to the level you’d like to achieve. As you decide consider your
current financial situation, your aspirations, and the number of years you have to
work toward your goal.
o Financial security: You do not have to work to pay for the basics, including
housing, utilities, food, transportation, and basic insurance.
o Financial vitality: The ability to meet your financial security and half of the
cost of your small indulgences and luxuries without working.
o Financial independence: The interest from savings and return from your
investments allow you to maintain your lifestyle without working.
o Financial freedom: You have financial independence and two to three
significant luxuries.
o Absolute financial freedom: The freedom to live and give freely without
worrying about money or working.
Having selected the level you’d like to achieve let’s calculate how much money it will
take to reach your destination.
Begin by calculating the monthly cost of your basic necessities.
In a realistic budget I call these Level 1 and Level 2 expenses. Level 1 expenses are
the basic necessities; the things that keep you warm, safe, and dry. Level 2 expenses
are your obligations. The things that if you don’t pay them there will be
consequences; obligations like credit cards, car payments, HOA Fees, loan payments,
insurance, child support, and other contractual agreements you’ve made.
Remember, the fewer Level 2 expenses you have the more attainable your financial
security number will be.
Level 1 – Necessities
Rent/Mortgage
Groceries
Electricity
Natural Gas
Water
Firewood
Trash
Phone
Gasoline
Monthly Cost
Total Level 1 Expenses
Level 2 - Obligations
Car Payment
Credit Card 1
Credit Card 2
HOA Fee
Health Insurance
Monthly Cost
Total Level 2 Expenses
Note: I’ve left you blank lines to add additional expenses if needed.
Add your Level 1 and 2 expenses together.
Total Level 1 Expenses
+
Total Level 2 Expenses
Total Monthly Cost of Basic Security
Now subtract any social security, pension or annuity payments you expect from
your monthly number.
Total Monthly Cost of Basic Security
Monthly Social Security/Pension/Annuity
Adjusted Total Monthly Cost of Basic Security
Multiply your adjusted total monthly cost of basic security by 12 to get the annual
cost of basic security that will need to come from your investments.
Adjusted Total Monthly Cost of Basic Security
X 12
Annual Cost of Basic Security - Paid For By
Investments
Now let’s calculate how much money you will need to accumulate, based on a
conservative 5% Return on Investment (ROI), to provide for your financial security.
If you have reason to believe that you should expect a higher or lower ROI you can
use that number.
Annual Cost of Basic Security - Paid For By
Investments
Divided by .05
Your Financial Security Magic Number Is
Does your financial security number look to be within reach? Remember that
number can go down – way down, if you pay off all of your debt including your
mortgage!
Achieving financial security will still mean working to provide for your Level 3 and
Level 4 expenses. Level 3 expense are your less-than-monthly expenses for which
you are accumulating money so that they won’t become mini-emergencies and Level
4 are your nice to have items.
Let’s calculate these levels so that we can determine your magic number for
financial vitality and financial freedom.
Level 3 – Less-Than-Monthly
Car Repairs
New Car Tires
Clothing
Holiday - gifts
Monthly Cost
Total Level 3 Expenses
Level 4 – Nice to Have
Restaurants
Entertainment
Miscellaneous
Spending Money
Monthly Cost
Total Level 4 Expenses
Financial Vitality is calculated by adding the total of your Level 3 expenses to your
Adjusted Total Monthly Cost of Basic Security – or you can think of it as the total of
your Level 1, 2, and 3 expenses minus any expected social security payments.
Total of Level 1 + Level 2 + Level 3 minus
social security
To make it an annual total multiply by 12
X 12
Divided by .05
Your Financial Vitality Magic Number Is
Financial Independence allows you to live at your current lifestyle without having to
work. Your investments do all of the work generating your income.
To find you Financial Independence Magic Number add your Level 4 Nice to Have
expenses to your Total of Level 1 + Level 2 + Level 3 minus social security and
divide by .05.
Total of Level 1 + Level 2 + Level 3 + Level 4
minus social security
To make it an annual total multiply by 12
X 12
Divided by .05
Your Financial Independence Magic Number Is
The additional cost of achieving can be calculated two ways.
1. If you intended to pay for the additional luxuries on a monthly basis just
calculate the annual total and add it to the total of your annual Level 1, 2, 3,
and 4 expenses minus social security and divide by 5%.
2. If you intended to pay for these luxuries out right, then you can calculate
their total cost and add it your Financial Independence Magic number since
you won’t need to make recurring payments.
Absolute Financial Freedom is the total monthly income you’d need to never worry
about money.
Your Monthly Absolute Financial Freedom Number
To make it an annual total multiply by 12
X 12
Divided by .05
Your Absolute Financial Freedom Magic Number Is
I hope that by calculating each of your magic numbers you have gained some insight
into how much money you need to accumulate to reach your desired level of
financial success.
If there is anything I can do to help you further I can be reached at:
www.PersonalFinanceCoaching.com
[email protected]
970-749-0644
Matt Kelly, Personal Finance Coach