No, not your phone number. Not your social security number. Not your license plate number. Not your portfolio’s value.
I want to know how much money you need every month, on average over the coming year, to fund your lifestyle. I know mine and you should know yours. Especially if you’re in or near retirement. You should be able to recite this number on demand.
This is your number. There are many like it, but this one is yours.
Tally up EVERYTHING you’ll spend money on in the coming year. The staples like housing, groceries, gas and insurance are the easy ones. Next, add the discretionary/random items like vacation, a non-zero amount for medical expenses, eating out and spending on entertainment.
Add in the gifts you plan to give little Jimmy for his birthday and Christmas. Love a morning latte at Starbucks, every morning? Add $150 per month. Don’t forget about the dog food. Or the hot dogs at the fair. Or the drinks on the fairway the golf course. You get it – it’s everything you’ll buy or pay for. Most importantly, you have to make sure you’re not creating a list of what you’d like to spend – there’s no room for financial denial here. Finally, take the sum amount and divide by 12 – this is your number.
Your number will now be a reference point for many things. It’ll help you rein in unnecessary expenses if you happen to be closing in on your number towards the end of the month. Have a smartphone? There are many good options for budget tracking. Knowing your number will help you create a budget for retirement contributions if you’re still working or it will help you determine income needs during retirement while providing a better idea about your ability to tolerate financial risks.
(Not for the faint of heart, you can also take the Alder Cove Challenge: develop a sick obsession with lowering your number like yours truly and you’ll become a certified cheapskate)
It might be a painful process to tally up all of your expenses. You may have to carry over more zeroes than you planned, but knowing your number is the very first step to getting your finances in order. It’s all downhill from here.
So, what’s your number?