A Different Way to View Your “Number”
May 21, 2008 – 6:30 amA lot of books these days can help you figure out how much you need to retire. One is even called The Number! I’ve been reading a lot of Larry Burkett’s books lately though, and he has an interesting idea that I think is worth sharing.
Larry recommends that you set a maximum savings (or net worth) goal rather than a minimum. I know this advise is going to sound crazy when judged against the conventional wisdom that “more is always better”.
I think there are a lot of good reasons to follow this advice, including:
- Setting a maximum allows you to know when you’re “done”. I can always find a way to justify “needing” more of something. More passive income to cover unexpected bills. More insurance to cover “what-if’s”. More of everything.
- Setting a maximum helps guard against hoarding. There is a fine line between saving for the future and hoarding, and I am currently trying to figure out where to draw that line.
- Setting a maximum leaves you open to receive God’s blessings.
- Once you reach the maximum you can feel free to give any excess as you felt led.
So how do you go about setting a maximum? Here are a few ideas to get you started:
- Determine what a stable lifestyle is for you. My wife and I have settled into a place where our housing needs are pretty stable, our budget is reasonably stable, and we see no need to dramatically increase our level of spending (except for inflation) going forward. The one caveat to this is we don’t have any kids yet.
Once we do I expect our expenses to rise, but by the time we expect to retire I expect the kiddos to be out of the house and supporting themselves. - Figure out how much of an investment portfolio you need to generate your income needs. And don’t forget to consider all sources of income: investment income, social security, pensions, part time work, pay from a hobby, the potential for an inheritance, etc. Use your best judgement in all of these categories. If you think Social Security is going to be completely bankrup by the time you’re able to receive payments, adjust your scenario accordingly.
- Don’t be too conservative, or you’ll just freak yourself out and will never be satisfied. I expect to work in some, perhaps limited fashion, even after the normal retirement age. Therefore I’ll need to take that into account.
I may not have mentioned it yet it this blog, but I do believe in the tithe and giving the first ten percent of all gains (gross pay, investment gains, etc). Likewise setting a maximum does not mean you should wait to give out of your abundance until you’ve reached your maximum. You may never reach it!
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4 Responses to “A Different Way to View Your “Number””
This is an intriguing idea. I tried to read “The Number” but didn’t finish it.
I’ve been toying with the idea of scaling down 401(k)/IRA contributions. My thinking is I have a pretty good handle on retirement savings and would prefer to spend the money now.
By
KMC (Who am I?) on May 21, 2008
Thanks for the comment. I feel the same way at times. Sometimes I can convince myself that I’m not saving nearly enough, and ten minutes later I feel like I’m missing out on blessings and on life because I’m solely focused on saving for the future.
I think for me finding a balance will be a challenge.
By
todd (Who am I?) on May 22, 2008