A conversation between two great writers, Kurt Vonnegut and Joseph Heller, inside of a billionaire’s mansion, summed up personal finance better in one sentence than I have here in 200 posts.
Vonnegut kindly reminder his pal Heller, that the man who owned this house, made more money in a one day as a hedge fund manager, than Heller had earned over his life for writing his ultra popular book Catch 22.
Was Heller jealous? Of court not. Heller’s response was genius. He said, “Yes, but I have something he will never have . . . Enough.”
Target Monthly Income
If you have never read the book, the Four Hour Work Week by Tim Ferris, I suggest giving it a read. It really opened up my mind to many new ideas.
One concept that I really liked was developing a Target Monthly Income or TMI. The premise of TMI, is to your target should be to make “enough” money in a month to do or have what’s important to you. Anything over the TMI, is just a bonus because you already have everything that you need and want.
The best part about enough, is that it’s different for all of us. My enough might be $5,000 a month. Jacob from Extreme Early Retirement, might set his enough around $1,000. Another great blog Erica.biz, set her target monthly income at $40,000 a month.
What’s Your Enough?
To find out what’s enough for you, answer the following questions:
What would you do, day to day, if you had $10 million dollars in the bank?
- What is something that you’ve always wanted to do?
- Where would you go?
- What would you do daily?
- What would you do weekly?
- What would you do yearly?
To give you an example, my enough is to live in the city of Chicago, travel four times a year, buy quality organic food, play basketball 3-5 times a week, practice golf and yoga with top instructors, eat out with friends once in a while, max out 2 Roth IRAs each year, and have a 20% buffer for spontaneous expenses and gifts.
I don’t need to make $150,000 to do all of the above. If I break it down, it’s actually a lot less.
- Living Expenses (including utilities) – $1,800 a month
- Yearly Travel – $10,000 a year or $834 a month
- Sports & Lessons $500 a month
- Groceries and Personal Supplies $400 a month
- Eating Out – $250 a month
- Max out 2 Roth IRAs – $10,000 a year or $834 a month
My dream lifestyle, only costs $4,618 a month to live. If I give myself a 20% buffer, that’s $5,542. If I break that down to my Target Daily Income, that’s only $185 a day.
Reviewing Your TMI
Once you have defined your TMI, review last month’s expenses.
- If your TMI is below your actual income, where is the rest of it going?
- If your TMI is above your actual income, look for ways to make more.
Personally, combined my wife and I make more than our TMI. However, we’re in the process of trying to build our emergency fund to 12 months as we’re selling our house and making some career changes So any money left over, is going towards that goal for now.
For anyone who currently makes less than their TMI, it’s no secret that you’re going to have to increase your income. One of the best resources there is online today to increase your income, is the The Empire Builder Kit.
The Big Picture
I catch myself saying, “I can’t wait until I have more money so I can…” a lot. The truth is, I have all the money I need to live like a King. I have just been lazy, in spending it. Not putting my money towards, what is most important. The goal is to change this going forward.
Photo by: cliff1066