People often tell me that life would be good, if only they had more money. By more money, they mean excessive amounts of money. Everyone wants to be rich and they believe that money is the solution to all of their problems.
But my question is; how much money do you really need?
If you break it down, essentially there is very little in life you actually do need. You need to pay your bills, your regular expenses, maintain your health and enjoy your family and friends.
We may believe we need more, but actually we don’t. The rest is clutter and clouds our judgement of money and what it truly should be used for.
So what is money for?
I’ve realised that what people actually want is to be comfortable. They want enough money to be comfortable in their day to day lives; not on the edge and scattered, worried about their money and how they are going to stay above water.
People want to afford their bills, expenses and lifestyle. They don’t want to be over committed to the point of experiencing extreme sacrifice.
What most people don’t realise about money
Is that you do not need to be rich in order to achieve this. Extreme wealth has very little to do with achieving a comfortable lifestyle design; it simply enables it in some instances or covers for the fact that you might be financially over committed if you are struggling.
It costs very little to design your ideal lifestyle, you just need to calculate the monthly cost you must earn as a minimum and then add the extra money you would see as useful to helping achieve your additional lifestyle.
Once you know this extra amount of money, which I refer to as the ‘ideal lifestyle cost’ your next goal is to work like crazy to achieve it. Let no one stop you or hinder you.
It’s time to stop chasing a made up figure of ‘rich’. It’s time to start chasing the exact amount of the extra piece of the puzzle that will give you comfort.
How much money do I actually need?
Let me give you an example using my own lifestyle design and how I arrived at my ideal lifestyle cost.
Mortgage payments. We need $2,300 per month to repay the mortgage. This only covers the interest portion of my mortgage, but this is the bare minimum I would require.
Health insurance. We need $270 per month to cover private health insurance for my wife, myself and my son. I value peace of mind and this affords it for me.
Phone and internet. I need $100 per month to cover mobile, home phone and internet costs. After all, how could I run this blog without?
Gym membership. $100 per month for multiple gym memberships. Unlike many, we use our memberships regularly as we need to focus on losing weight.
Groceries and petrol. $1,100 is what we need a month to cover all food, drinks and petrol. May sound like a lot (or little to some) but it covers roughly $200 a week in groceries and $50 a week in petrol.
Car loan. We need a safe car and we pay $590 per month for the privilege. I often question this expense but I write it off as safety.
Discretionary money. We have around $500 to put towards everyday living, buying small things and just general spending.
Total cost: $4,960
At this point in my life, my small family and I simply need $5,000 per month to get by. What I want to do however is calculate the extra amount of money I would like to earn that would enable me to live a comfortable lifestyle. This will be known as the lifestyle cost gap.
This will give me how much money I need to be comfortable and a tangible figure to chase.
Now what would make me comfortable?
Now I want to think about some of the things that make me uncomfortable. The things that keep me slightly stressed about money and figure out what it would cost to alleviate these stresses in my life.
Buying shares more regularly. By nature I am a planner and a dreamer. I want to buy shares on a regular basis and build a portfolio of shares that one day might supplement my income, meaning I don’t have to work (or as hard).
Monthly cost: $250 (this will achieve $3,000 worth of shares per year)
Saving for my childrens education. I would like to offer my children the best education that I can afford. While my kids are still many years away from high school, the costs in today’s dollars can be upwards of $65,000 for years 7 to 12. I want to start saving now so future me can relax and have some savings to utilise towards any fees.
Monthly cost: $500 (this will achieve roughly $6,000 a year for 12 years, making a total of $72,000 before interest).
Having discretionary money each month. I would like to have money that is not assigned to any one task, strategy or savings goal. I want cash in my account knowing full well it can be spent on anything I please.
Monthly cost: $400 (I imagine $400 would cover going out with friends for drinks a few times, perhaps the movies for two and even a bit of cash should I feel like buying some clothes or a movie)
Dining out more. I am sick of not going out for dinner because I cannot afford it. I would like to have money each month that was for nothing more than the occasional dinner date at a place of my choosing.
Monthly cost: $500 (roughly five dinners at $100 each, could be less)
Getting ahead on the mortgage. I would like to pay more than just interest on my loan. In fact, I would like to pay the principal and some each month.
Monthly cost: $1200 (include principal and an extra lump sum)
Going on regular trips and adventures. I want to have a pool of money that affords my wife and I and our son to go away on holidays, adventures and days out that inevitably will cost money. I’d like to treat them to a trip to Cairns, or perhaps a week in Byron Bay a few times a year. Life is short and it would be valuable family time.
Monthly cost: $625 (this will achieve $7,500 a year to put towards this stuff)
Total cost: $3,475
This means that my current lifestyle costs around $5,000 a month and an extra $3,500 would help me run my ideal lifestyle. So for me, I would be very comfortable if I could find a way to make $9,000 cash per month in total (slightly above what I need but a nice round figure).
Breaking that down, I would need (after tax) $48,000 per year to achieve an extra $4,000 a month, which works out to be $131.50 a day.
Now my goal is to find ways to make an extra $131.50 per day. This is a very real number that makes a lot of sense. No longer am I just chasing a lofty concept of ‘rich’, I am actively going after a figure that I do believe is much more achievable than becoming the next creator of Facebook.
Not sure how to earn the extra money to fund your lifestyle cost?
Here are some ideas to kick start what I like to call your ‘hustle’. That is how you are going to hustle some more money into your life with cunning proactiveness and a little entrepreneurism.
Have a frank discussion with your employer. Tell them what you bring to the job, how you do it better and the strategy you have in place to make them even more money (or in some cases, save more money) and ask for a pay rise. Keep excellent notes on your performance and always remind your employer of what it is you bring that to work that is unique.
Always look to sell your benefits. Stop underselling yourself. Stop doing things you are good at for free; sell your benefits and put a price on your time. You cannot be everyones best friend and always willing to help without helping yourself. If you have a talent, such as building websites, you should charge, not make them for free.
Obtain further education. People can debate it all they want, but the more qualified you are, the greater your chances of obtaining a higher paid job. Look to educate yourself at all times; whether it be small courses to make you better at your job to attending events to help you create your own business. Never stop learning.
Start a side business doing something you are great at. Find something you are passionate about and start a business doing it well. I love blogging and helping people save money, so I started this blog (Savings Guide). Use your side business to promote yourself as an expert in your field and offer value to your customers in return for earning money.
Go minimalist. Try to live with less. Enjoy having less clutter. Aim to declutter your home, sell excess stuff and use the funds to put towards the things that matter, aka your ideal lifestyle cost. The more stuff we have, the bigger the home we need, the bigger the upkeep we face – live with less, spend less and save more.
Live off one income. If you are in a relationship, attempt to cover all bills and expenses with one income only. This is what many new families have to do anyways, so simply start to achieve this today so that you can save and delegate the second salary to shaping your ideal lifestyle costs as soon as possible. I only wish someone got me doing this a few years before having kids!
Grab a higher paying second job. Sometimes I doubt whether a second job is worth it. It often puts a strain on family time and returns very little cash for the hours put in. In saying that however, you ‘gotta do what you gotta do’. My word of advice is to look for jobs that offer tips; for instance working in cafes on weekends, bars at night or my personal favourite – delivering pizzas. All pay great tips on top of the base wage which really makes it worth while in most cases.
Some may gasp and say I am extravagant. Others may think I need to aim for more. The point I am trying to make here however has nothing to do with me, it has everything to do with ‘being rich’ and ‘that’ as a goal is not good enough. You need to have an exact figure, goal and path to aim for.
I cannot say it enough; stop wanting to be rich. Instead aim to fill the gap between your current earnings and your ideal lifestyle cost. Do everything in your power to make the money you need to be comfortable; become a money hustler.
Note that some people simply want money to have ‘things’ that simply cost them more. Remember that life is about experiences not purchases; money is just the enabler that lets us have the freedom to pursue fun and sleep well at night knowing we aren’t going under. Money isn’t the answer to your problems.
So ask yourself, how much money do I really need? It’s probably not as far off as you would have previously thought.