How much do I need to make?

Do you ever wonder how much do I need to make so I can live the life I want? I get asked it all the time. In response, I always say “what do you want to do and when do you want to do it?”

Most people have never thought about it, just taking life as it comes. First, you need to figure out what is important to you. And I’m not talking about in 20/30 years time, I’m talking about right now. Do you want to move house? start a new business? send the children to private school? go ranching in the wild west? retire early or never retire at all?

Once that is established, you need to look at your assets. What sources of income have you got now and in the future. If you are a business owner, does your business have a value? If not, what do you have to do to create a value for it? Anything else? Would you downsize to a smaller home when the kids move out? Of the assets that you have, are they liquid or illiquid? Remember, you can’t use a property to pay for your holidays, you can only use the net monthly income that you receive.

Now, the tricky bit. Matching the inflows with the outflows. What assets do you have at your disposal and when. Do you need to divert funds you have available now to spend it in the future?

Don’t be surprised to see gaps in your lifelong cashflows, there usually is. Filling them in is the hardest part. Are you willing to make changes to your life now so that you have the life you want in the future? It all depends how much you want it.

Life doesn’t go in a straight line, your priorities and dreams will change over the years, as will your income streams. That is why it is important to tweak your cashflows to reflect these changes.

And that, is what financial planning is all about.