Lots of great comments going on with our $500 Christmas Stimulus so far – if you haven’t entered yet there’s still a few days left! Five of you sexy readers will win $100 to play with!
Today I want to pose a different question to marinate on though, and one that according to my friend Derek from Life and My Finances will tell you exactly how wealthy you are ;) No fancy calculators or formulas needed!
If I want to know if you’re wealthy, I’m not going to ask where you live or what you drive, and I won’t even ask about your job or your income. All I have to do is ask this one simple question: “If you lost your job tomorrow, how long could you survive?”
BOOM! Ever thought in terms like that before? How long do you think you could go off the top of your head before running the numbers?
A freaky exercise for sure, but a good one to take on. Especially because it hits at the heart of two main factors in finance:
- Our expenses
- Our assets (savings, investments, etc)
All the income in the world is great, but if you don’t ever KEEP any of it what does it matter? Similar to spavings, what’s important is what’s banked – not what’s earned. And in terms of a worst case catastrophe or a random blogger playing the “what if” game with you (hah), both of these areas are vital to pay attention to.
Here’s where we currently stand in each department:
- Expenses: $6,200/mo (I know I know…)
- Assets: $677,637.82 (savings + investments)
So going with this super simple calculation here and dividing the two together, it would mean we could last approximately 109 months – or 9.1 years – if we never earned another cent again.
And then if we were really being cheeky, we could max out our $55,000 credit card limits too and tack on an additional 9 months to the chaos ;) Which is another fun calculation to try one day actually – tallying up the total lines of credit you could access if the $hit really DID hit the fan! And it would have to at this point because it would mean both my blog here AND my wife’s federal government job is gone, and we all know how hard it is to get fired from that one, haha…
Of course, there are a slew of variables and implications with liquidating all your accounts/assets/credit like this, and you’d force yourself to downgrade your lifestyle as well if need be, but for the sake of simplicity we’re just going to ignore all of that since we’d never put ourselves in that position anyways, right? RIGHT???
But if that exercise wasn’t enough, Derek also came up with a measuring stick to translate exactly how this relates to wealth… And it’s very scientific ;)
It looks like I’m now Ultra-Wealthy – sweet! Haha…
Like I said, super scientific :)
In all seriousness though, knowing how long you can last in a worst case scenario is super empowering. Even if we’re simply talking about weeks here and not months, you have to be sure to count each of them as a major WIN as it’s one more week/month than the old version of you once had!
Remember – the point of money isn’t to die the richest man in the cemetery, it’s to be used while you’re very much alive and ready to live out your dreams. Whatever that may look like. For some it will mean having $5,000,000 stashed away to accomplish this, and for others “only” $500,000.
The two main variables here are expenses and assets. The wider the gap between these two the longer your money will last. Simple math.*
So today’s task is easy – tally up these two numbers of yours, and then find your own place on the wealth-o-meter chart. If you like what you see, great! If you don’t like what you see, also great! The point isn’t to see who’s “bought” the most time here (although secretly that’s going to be fun too ;)), but more so to know roughly where you stand. Not unlike the reasons we’re so obsessed with tracking our net worth here too.
So calculate away, my friends! Then come back and share your results w/ us below. Or at the very least, whisper them into your sweetheart’s ear like the sweet nothings they are, haha… After all, nothing says I Love You more than freedom! And we should all be so loved in this world :)
*We’re also ignoring cash flow from assets, taxes, pensions, debts, social security and on and on and on… Bonus points for anyone who wants to run the extra 108 calculations to ensure accuracy ;)
Jay loves talking about money, collecting coins, blasting hip-hop, and hanging out with his three beautiful boys. You can check out all of his online projects at jmoney.biz. Thanks for reading the blog!