Good morning beautiful people!
As promised, here is the deep dive on how much money you really need to live.
Because once you figure this out and hit the number, you are free. This is “F*** you money!”
The “Enough” Calculation
Here’s the simple version:
- Step 1: Calculate your annual expenses (be honest)
- Step 2: Multiply by 25
- Step 3: That’s your number
Wait, why 25? This comes from the Trinity Study, which found you can safely withdraw 4% of your investment portfolio each year without running out of money over a 30-year retirement (here’s the original study). 1/25 is 4%.
The “Dream” Calculation
- Step 1: Calculate your dream annual expenses
- Step 2: Multiply by 25
- Step 3: That’s your number
Step 1: Annual Expenses
I went through my bank statements (painful) and calculated what I actually spend per year. Not what I think I spend. What I actually spend.
For me, living in NYC, it’s roughly $80,000/year. That includes:
- Rent
- Food (groceries + eating out)
- Health insurance
- Transportation
- Subscriptions
- Random life stuff
Caveat: Your number will be wildly different based on where you live. Someone in a rural town might need $40k. Someone fancy living in San Francisco might need $200k.
Step 2: The Multiplier
$80,000 × 25 = $2,000,000
That’s my “enough” number. If I had $2.0M invested, I could theoretically withdraw $80k/year (adjusted for inflation) and not run out of money.
The Key Insight
Importantly, this is if I want to spend $80k and live in NYC forever.
If I want to spend $20k a year, ~$2k/month, I could have “F*** you money” at $500k Or (my current aspirations), if I want to live a crazy life and spend $1M a year (at least for a little, I just watched Wolf of Wallstreet), I would need ~$25M dollars. Now, amazingly, because I think I could live at some place between $20-80k/year, thanks to YouTube and you all, I already have “F*** You Money.” I am free!
Ok, but how do we build up to this?
The leverage on the expense side is insane. Every $100/month you cut from your spending is $30,000 less you need to save for retirement. (This Mr. Money Mustache article breaks this down better than I can.)
But, the more impressive leverage, which I saw first-hand in my life, is the extra money you earn from side hustles rapidly accelerates you to your “F*** you money number.”
The investment piece I wrote about in last week’s newsletter here, if you are curious where I would put my money after I earn it.
The Bottom Line
Knowing this number is so important, if you haven’t sat down with a pen and paper and calculator and really figured it out, I can’t recommend anything more that could change your life.
1. Seriously calculate how much money you spend every month
2. Multiple that by 12
3. Multiple that by 1.5 (Safety/variance calculation)
4. Write this number down
Having the ability to be truly free, FREE, is so amazing. You operate at such a better mental state when you are pursuing what you want to pursue on your own (not what someone else wants you to pursue).
Have a fantastic week,
Zach
P.S. — Do you like this money content? I find myself thinking about it more and more as time goes on. Let me know if you want more of this or if you’d rather I stick to productivity/study stuff. Just reply to this email — I read everything.