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- Why It’s Important to Know Your Numbers - November 27, 2020
- How the Laws of Human Nature Relate to Investing - November 27, 2020
Do you know your numbers?
We’re not talking about your numbers like how much you have in your checking account, or age and weight (which we shouldn’t be asking about anyway!). By “numbers,” we mean the three numbers that can help you ride out any big unexpected life change that comes your way (we’re thinking of you 2020).
We’re talking about:
- How much money you really need to make
- Your emergency fund number
- Your BULB threshold
Let’s talk about calculating those three numbers and how you can actually reach them.
Calculating Your Income Need and Emergency Fund
What’s your true income need? As in… how much income do you need? To find that first number, look at an average month from the past six months. Look at your expenses; see what you spent on your mortgage or rent, groceries, utilities, and so on.
Use your favorite budgeting app or tool (or good ol’ paper and pen!) to calculate what you spent on your needs. Not your wants, but your needs. Everyone is different and we’re not about judging other people’s lifestyles, but see what extra expenses you can actually live without, like ordering takeout or shopping online.
Now that you have your income need number, you can figure out how much to set aside in your emergency fund.
Example: Let’s say your income need was $4,000. Your emergency fund should be, at minimum, 3 to 6 times that number. So, you should have $12,000 to $24,000 set aside in an easily accessible account.
Working Toward BULB Status
As a quick refresher, BULB stands for “backup life bank.” It’s a number that, once achieved, you can switch to a work-optional lifestyle if you want. That magical number is about 25 times your minimum income requirement.
And that minimum income requirement is everything you need to live the way you want, so you should include stuff like Netflix and your dream car and taking care of ten adopted pets. Your income need that we discussed in the previous section covers the basics and essentials. This number includes your needs and wants.
Example: So, let’s say you need $60,000 a year to live life the way you want. Your BULB number would about 25 times that, or about $1.5 million. Yes, it sounds like a lot, but there are ways you can make your money work for you to reach that number. You just have to map it out to get started.
Why These Numbers Matter Right Now
After 2020, it’s more clear than ever that we really need to get clear on our money. Whether you’ve lost your job, been assigned furlough days, or missed out on opportunities to build up your savings before the coronavirus shut everything down, you need to assess where you are on a regular basis.
Back when we wrote this blog, about 26 million Americans have applied for unemployment benefits — including contractors and gig workers. That number has probably increased even more while you’re reading this.
However, knowing your numbers is important even when there isn’t a global pandemic running rampant. Life can throw you a curveball at any time, as we’ve seen with recent events. So you should always be prepared.
In times of international or personal crises, you need to know your numbers in order to feel financially secure. You should know how much income you need to keep you and your family going. You also need to know how much to have in your emergency fund so you can continue to survive.
We’re Here to Help You Get to Know Your Numbers
We know how important it is to keep your pulse on your numbers. That’s why we created a FREE challenge that helps you do just that. We’ll deliver these exercises right to your email so you know your numbers without a ton of overwhelming math, and you’ll know exactly what you can do today to feel more comfortable with the money you’ve got.
If that floats your boat, sign up for the Know Your Numbers Challenge now!