How Much Do You Need???

One day, while chatting with a friend after lunch, he shared with me on how he was dissatisfied with the current corporate management. He is about my age. So I suggested him to quit his job. Yet, he replied, "I am not like you.  I will do so soon after I pay off my housing loan." When I further asked him if he knew how much he needed to be "himself", he suddenly speechless.

From another point of view, even if a person has no debt, how much can he/she enjoy financial freedom? This depends on an individual's own consumption condition. Normally, people think that as long as an individual is having one million dollar, he can sit back and relax.  Really? As long as a person becomes a "millionaire", he can be worry free? Is one million dollar really enough?

Just think carefully what is the present situation of life.  One million dollars today is unlike a million dollars 30 years ago. Inflation alone has been overwhelming. Dealing with daily expenses is tough enough, don’t even talk about a million dollar deposit. To put it bluntly, there will be a situation with too little income accompanies with too much spending.

Speaking of increasing income, a person has only 24 hours a day. Minus 8 hours of sleeping time, one could only work up to 16 hours. This may increase one's income, but, perhaps, it is still difficult to cope with escalating living expenses. Also, since majority of time is used for work, what is the value of one’s life?

Another effective way is to control your expenses. This is relatively simpler than income creation. What you need to do is to analyse your expenses and classify them into "needs" and "wants". How to differentiate?  Very simple. "Needs" are those can’t live without, such as clothing, food, medicine, education, and other basic needs. As for "wants" which are those that you could live without. However, needs and wants could be just a line of difference. For example, for "clothing", you may just need a few dollars for an ordinary T-shirt to keep warm, or a few hundred dollars of branded clothing to complete the same purpose? Says "food". You could go to the wet market to buy food and go home cooking which is certainly more economical than dining out.

Perhaps many people will say that they can’t do much.  They have to spend money to buy branded clothes to express their identity; no time to go to the wet market to buy foods for cooking; need a "good" car to for better impression. These concepts have make you to buy a lot of things beyond our basic needs. In this case, your earning is forever not enough against what you spend. So, a good analysis of your expenses is the only way. I start drafting my budget in November each year. Because I have been tracking my expenses, I am able to predict what cost will be incurred and by when. Of course, I would also set an emergency fund to meet the need for contingencies. I'll follow my budget or else it is hard to save money.

In addition, effective cost control can also effectively reduce the requirements of your retirement fund requirement. For example, you spend $3,000 on the month before any adjustment. Then the cost of a year is $36,000. Assuming your investment rate of return is 5%.   You will only need $720,000. However, this calculation has not yet to consider inflation. To continue with this example, assuming that your personal inflation rate is less than 5%, the situation is not too bad. If the inflation rate is more than 5%, $720,000 will be running out very soon. Of course, the key is how to find your personal inflation rate. In my English title, "Freedom", I share how to calculate one’s pensions effectively. Do grab your copy now.