As my mother approaches retirement, everything I know about personal finance (not much, and a great time to remind you that I’m not a financial advisor) is being tested and realized.

The first step towards her retirement is answering a seemingly simple question;
How much does your life cost?

More specifically, how much does your life cost on an annual basis? From there, we can explore so much more, but this is where financial freedom starts. That is, with a solid grasp of your own set of numbers.

It’s a difficult exercise. It’s very easy to forget things we repeatedly or impulsively spend money on. For once, we can take solace in the fact that it’s easier to find an Amazon receipt than a medical record. Before we go any deeper, hat tip to the ChooseFI podcast, as this was inspired by episode 257 available here.

But wait, why are we doing this?

Well, according to the team at ChooseFI, a safe target for retirement is getting your annual expenses to roughly 4% of your total money saved. Said another way, you’ll need $100 saved for every $4 of annual expenses. Of course, you would also factor in any income, dividends, other investments, but like most estimates, this will undoubtedly be tweaked for each individual or family.

Ok, so I want to know my total expenses how do I start?

Perhaps it’s best to start with the essentials and we can move on from there. These can be calculated as an individual or as a family unit, that’s your call. All I ask is that you approach this exercise without judgment, as that’s a sure-fire way to stir up negative emotions and prevent you from actually doing the work.

Let’s start with Essentials

• Home (debt, taxes, utilities, insurance)

• Car (debt, lease, insurance, maintenance, gas, etc)

• Debt (credit cards, student loans, etc)

• Health care (monthly premium and estimated annual expenses)

• Schooling & child care

• Parental care

• Groceries 

Now, consider any Subscriptions

• Internet and cell service

• Shopping memberships (Amazon prime, Costco, etc)

• Financial (credit card annual fees)

• Entertainment (Netflix, HBO, etc)

• Utilities (security system, iCloud, Dropbox, etc)

• Fitness (Peloton, local gym)

• Professional and social club dues

• Recurring donations

Finish with Discretionary

• Additional homes or vehicles (cars, boats, RVs, etc)

• Vacations and travel

• Dining out (also interesting to break out alcohol as a separate line item)

• Clothing

• Tech gadgets

• Other shopping

There you have it, you’re well on your way to calculating your annual expenses. Assuming you’re not paid in cash, the best way to check your estimate is to add together the following:

• Past 12 months of bank debits and withdrawals

• Past 12 months of credit card spend

Once you factor in your income for that same period of time, you’ll have a more accurate representation of your annual expenses, but the line item breakout that you just created is going to be most helpful for reconsidering and reprioritizing your spend.

Great, now what?

Consider how and why we started:

• We’ll all likely retire one day, how long would it take for you to save $100 for every $4 of annual spending?

• The world has changed quite a bit due to COVID, how has your spending and saving changed?

• Lastly, if microeconomics was correct, we spend the most money on the things that deliver the most utility to our lives. When you look through your spending habits, is that actually the case?

🤳 Personal Updates

With the election being moments away, it’s been difficult to avoid wormholes of doom and gloom. To keep myself occupied and not glued to the news or to the markets (which feel increasingly tied to the news), I’ve been focusing on three new habits:

1. [MIND] Learning, just completed a course on real estate syndication. Syndication is an industry-term for raising money from friends, family, and other investors and being the custodian of that capital. More to come soon here, so let me know if you’d be interested in hearing about opportunities to invest alongside me.

2. [BODY] Exercise, as simple as it sounds, joining my local gym has been one of the best investments I’ve made during COVID.

3. [SOUL] Reading, specifically starting each day by reading an excerpt from my new favorite book, Tribe of Mentors by Tim Ferriss. Late to the party here, but so glad I joined.

Stay safe out there!

This newsletter is my attempt at (a) sharing learnings with friends and family (b) becoming more vulnerable through transparency and (c) improving my writing. Thanks for reading, and please reply with your thoughts.

❤️ Armand