This is part 2 of an 8 part segment.
- Its never going to be enough
- Magic Calculator and the calculator itself can be downloaded from here
- Making Money 101
- The 4 step Plan
- Making Money 201
- Making Money 301
- Advice for your Business
- BONUS: Should I rent or Should I buy
Today I want to talk about the formula to finding your magic number. At the end of the article you will find a downloadable Calculator that will do all the back end calculations for you. The important lesson from yesterdays article is that we need to have a better road map. Saying that we want this house, or that car, or those “things” and then trying to figure out how much we need to get there is what creates the situation of never having enough. As soon we make a little extra money we tend to go and increase our expenses by that amount. For example, if I have an extra $500 a month that is not being paid to anything currently I will be going and buying a new boat. Then when I get my next $300 – $500 unclaimed income Ill be off to the dealership looking for a new car. This cycle would continue, so as my income increases my monthly “extra” money never gets any larger. I just find ways to spend that as quickly as I get it!
So, back to the road map……. the scenario above I would compare to us jumping in a car and start driving. No real destination, as we come to an intersection we go whichever way feels “right”. While this may be “fun”, it really wont get us any long term destination other than around the block. We need to pick a destination first, then how we get there is a lot easier to plan. This is where the MAGIC NUMBER CALCULATOR comes in. By entering what it is we dream about, it will spit out the destination for us. That then becomes our target.
An important note here: In helping people fill out this form I have been getting a common “theme” in the thought process. When I ask what your “dream home” costs, they all seem to say, “well, I would like 10 million. But I will NEVER get that, so put in $500,000”. When we are planning our vacation we don’t say “I would love to go to Fiji, but I think going to Vancouver Canada is cheaper”. NO! we figure out what it takes to get ourselves to Fiji. So, if your Magic Number Calculator is being sent to Vancouver, that is where you will end up, if you point yourself to Fiji you will get there!
The calculations are very simple. I will break them down here:
Pretend that you are already living the life of your dreams; think about what that means:
– What kind of house will you be living in?
– What kind of cars will you be driving?
– How often and where will you travel?
– What will be your other living expenses?
How much salary would you need if you had to pay for this lifestyle TODAY?
Now decide when you would like to be earning that salary (5 years? 10 Years? 20 years? When?)
For each 5-year period that you came up with in Step 2, add 25% to your required salary to allow for inflation. This will give you your new salary. For example: if you need $100,000 a year, but you need it in 10 years, add another $50,000.
Multiply your new salary from Step 3 by 22. Its important to note that older versions had you only multiplying by 20. This number does not reflect accurately what you should be aiming for any more.
That’s It … you Have your MAGIC NUMBER
The Spreadsheet I created will do all these calculations for you. Just punch in the value of everything you want, and how long you want to get that, and watch it go! Remember, if you sabotage yourself at this stage by being “realistic” you will get your number, and it will be pointing you at Vancouver instead of Fiji. Use it as many times as you like to create a “route plan” if you like. By adding different way points. Here is a screen shot of what this calculator looks like
You can do it all pretty easy on your own if you have the time. I used online tools to calculate mortgage payments based on purchase prices. As well as monthly payments for your cars based on the purchase price/value. So its really as easy as just entering in the numbers.
To get this valuable tool just Subscribe to our site on the right side pane. You will be sent the password for our protected section. It Includes free ebooks and other media not made available to the general public. Joining is free, and takes only a couple seconds. And as always please like us on Facebook. And stay tuned for the next segment called money 101. There is a lot more to come.