$2 Million, $7 Million — We Don’t Have a Goal
Yes this is blasphemy, but I have not calculated how much money I would need to retire, live independently, etc… yet. This does not mean that I plan to spend every penny I make and expect to live off of Uncle Sam in the golden years. It just means I rather focus on other things at this time.
The problem I have is that I know that my life 10 years from now will be vastly different than it is now. Without any accurate or reasonable estimate of what my expenses will be 10, 20 years down the road I don’t want to make an estimate of my savings based on an estimate of my expenses.
It would be very easy to pick an arbitrary large number like 7million. I realize that the interest earned on this amount could easily be triple my current salary and would allow me to “retire” almost regardless of what the future would bring.
To make this blog more personal and to keep my goals lofty yet attainable I want to calculate my savings goal based upon what my family spends, what we will likely spend in retirement, plus a fudge factor for the unexpected. What will I focus on while I wait for my expenses to peak, which in theory will occur in my late 40′s?
I like to focus on the habits and actions that will have a positive effect on my life.
We all have the same basic needs which need to be met. After meeting our basic needs our expenses are merely lifestyle choices. In light of this we will focus our efforts in 2007 on developing good financial habits and learning to taper our lifestyle choices no matter what our peer group is.
Here is how we decided to handle some of our biggest expenses and the choices we have made to help us get on tract to financial freedom.
- Housing- easily the largest expense for most Americans today with families spending anywhere for 20-50% of their income on housing. For us, the choice was to squeeze into a studio apartment and save about $100-200/month compared to a one bedroom. Other benefits of the squeeze include a lot of double and triple thinking before any household purchases.
- Transportation- likely the second largest expense for most people. After much debate, once we were married we decided to become a single car family. It can be an inconvenience at times and requires some sacrifices but has already been our greatest cost saving move for 2007. With this decision we said goodbye to monthly payments, and hello to lower gas, insurance and maintenance costs. This has saved us for us over $700/month
- you can almost predict pretty reliably what your biggest expenses will be in the future. Everyone will need to pay for housing, transportation, food and for some, education for their children. Eventually as we age medical-care costs will become a very large expense as well.
This will remain our focus for the time being. Until we begin to plateau into a more normal period of life it will be expense management for us. The elephant in the room that we have yet to address is the fact that our portfolio is not balanced or managed. This has been on our to do list since January but it keeps getting bumped. Eventually we will have to sit down and figure out our expenses and balance.
