2: Calculating the amount of money required to care for each part of your personal life now and during the 30+ years of old age, when you can no longer work, SO THAT YOU know how much power you must generate to fulfill your purpose.
Financial Purpose
“The wise store up choice food and olive oil, but fools gulp theirs down.”
Proverbs 21:20 (NIV)
It’s fairly common for people to confuse real money with…
…currency. Currency is the device we use to trade with—whether it’s dollars, crypto, or any other medium of exchange. It’s a tool, not capacity.
Money, on the other hand, is the actual capacity to care for that which matters to you.
You’ll often hear me define money the same way I define power — time, energy, creativity, and currency.
If the idea of making these calculations feels cold to you, I’d encourage you to stay with me through this, because when we get to the next tactic, it is when your purpose pops and becomes about others rather than yourself. So hang tight.
So if you are to truly have a…
…purpose, you need to know the exact amount of money required to fulfill that purpose now and maintain it for your entire life.
That means: You need to know exactly how much money you need today to live your purpose,
plus how much you need to be saving so that living a purposeful life endures the 30+ years of old age when you’re no longer able to work.
The parts of Financial Purpose:
1: Standard Of Living Must be Maintained.
Your hard work, education, or even need does not make you entitled or even deserving of that which is required for survival. These basic elements of life cost time, energy, creativity and currency.
2: Capital at Work Required to Maintain Standard of Living is Calculable.
You can quickly calculate how much money you need to fulfill your personal purposes, and it will be this very calculation you’ll need to identify and use your passion.
3: There Will Come a Time When You Can No Longer Work
Often when we look at “Retirement” statistics, they don’t tell us the entire story. They tell us at what age most people stop working, but they don’t say why they stopped.
We live in a competitive environment. And at some point, we’ll either not be able to keep up or we’ll really, really not want to have to try.
Financial Calculations Cheat Sheet
[_] Current Standard of Living
Annual Income (-) Savings = $_______ (Current Standard of living)
Take your current annual income and subtract the amount you save to calculate your “Current Standard of Living”
→ 48 Year old making $250K and Savings $50K = $200K Current Standard of living
[_] Capital at Work Required To Maintain Standard of Living
Current Standard of Living (X) 25 = $_______ (Capital at Work Required to “Maintain Standard of living”)
Multiply your current standard of living by 25 so that you can safely withdraw 4% a year when the time comes you can no longer work.
→ 48 Year old: $200K Standard of Living X 25 = $5M Capital at Work Required
[_] Adjust for Inflation
Capital at Work Required (X) Inflation Multiplier = $_______ (Adjusted Capital at Work Required to “Maintain Standard of living”)
Adjust for inflation by using the age adjustment below. So if you’re 48 years old you’d multiply the capital at work required by 1.5
→ 48 Year old: $5M Capital at Work Required X 1.5 = $7.5M Adjusted Capital at Work Required
→ 48 Year Old = Capital at Work Required X 1.5 = Adjusted Capital at Work Required
→ 38 Year Old = Capital at Work Required X 2 = Adjusted Capital at Work Required
→ 28 Year Old = Capital at Work Required X 2.75 = Adjusted Capital at Work Required
[_] Determine True Capital at Work Gap
Current Savings (-) Inflation Adjusted Capital at Work Gap =_______ (True Capital at Work Gap)
Subtract any current savings you have from the Inflation Adjusted Capital at Work Required to determine your true capital at work gap.
→ 48 Year old $7.5M Adjusted Capital at Work Required – $1M (Current Savings) = $6.5M Final Capital at Work Gap
[_] Calculate Space of Possibilities
Age 60 (-) Your Current Age =_______ (How many years you have to save)
Subtract your age from 60 to determine how many years you have to save.
→ 60 – 48 = 12 Years to Save
[_] Annual Savings Required
True Capital at Work Gap (/) Years to go =_______ (Required Annual Savings)
Divide your Capital at Work Gap by how many years you have to go before age 60.
→ 48 Year old: $6.5M Capital at Work Required / 12 years = $542K Annual Savings Required
[_] Your Financial Purpose
Current Standard of Living (+) Required Savings =_______ (Your Financial Purpose)
Now take your current income and add it to the required savings and you have your financial purpose.
→ 48 Year old: $200K Standard of Living + Annual Required Savings = $742K Financial Purpose