11/15/2023 0 Comments 6 months living expenses calculatorI call this stage “building your runway.”ġ) Saving a year’s worth of cash to meet all your expenses for your current lifestyle.Ģ) Saving money with the purpose of buying time and freedom to work on something you’ve always wanted to do.ģ) Saving money to seamlessly transition between sources of income. Most of us think financial freedom is unattainable because we have confused it with being “independently wealthy” or having enough money so we never need to work again.īut the financial freedom I’m describing is very attainable. There are different levels of financial freedom. If that sounds like a lot, consider this: I believe financial independence is defined by how many years or months you can continue to live your current lifestyle without income. Today, my emergency fund can cover me for 6 years. Knowing that number can be more liberating than getting a small annual bump in your salary. Hands down, it was the most valuable piece of information I got from my MBA. If you should find yourself in the unfortunate position of losing all your income at once, you’ll have even more time to find the best work opportunity for you. Increasing your emergency fund (or as I now like to call it my “life fund”) to one year’s worth of expenses from the conventional wisdom of 3 months will give you more work options and greater confidence. It doesn’t take a million dollars to feel financially independent. Here’s the point my professor wanted to make: You will experience a sense of financial freedom like never before when you have a year’s worth of cash behind you. Keep this in mind, however, that during the Great Recession millions of Americans were out of work for a year or more! Yikes! Then he encouraged us to save one year’s worth of cash based on how we currently lived.Īt some point in your life, you’ve probably heard about creating an emergency fund to cover your living expenses for at least 3 months in case you lose your job. Not what we thought we spent, but what we actually spent. He advised us to calculate how much money we spent over the last year. I had a professor in business school who started off one of our classes by calmly telling us we needed “f**k you money.” The F-bomb definitely got the attention of the entire classroom. I was able to do it within a couple of years after leaving business school, and it was one of the most empowering actions I’ve ever taken. If you are thinking about lifestyle design because you want to work on your own terms or become self-employed, I believe you need to create an emergency fund to cover a full year of all your current living expenses. Once you know the cost of your lifestyle you can more accurately estimate how much money you need to save to create an emergency fund or, as one of my professors in business school called it, “your f**k you money.” You most likely know your annual salary figure or your take-home pay, but the number you really need to know is the cost of your current lifestyle. Know the answer to any the above questions? If you do, where did you come up with that number? How much money do you think you need to achieve financial freedom? How much money do you think you need to live your ideal lifestyle? How much money do you think you need to last a month if you were laid off today?ĭo you know how much money you spent in the last year? As your cash runs out, you’ll become more desperate in your job search and take anything just to have income again. It doesn’t leave you much time to find the best work opportunity for you. Conventional wisdom tells people to save between 3 and 6 months of cash for their emergency fund in case they lose their job.
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