I Figured This Out…
$XX,XXX per month.
That’s how much cash I will need coming in every month from investments and other income sources (without working my J.O.B.) to have financial freedom.
I like to call this number my burn rate.
This number is unique to me, and it will be unique to you. Maybe you have a mortgage. You might have a family to raise. You might have student loans. You might have debt.
The key question is:
Do you know yours?
If not, how do you know how much you are spending every month?
How do you know when you have reached your financial goals?
Do you just look at your bank account every month to make sure the balance is going up?
I didn’t know exactly what my burn rate was so last weekend I sat down and got my monthly expenses organized.
It started simply at first.
I just grabbed a piece of paper and looked up all my expenses on my cell phone. I began to write down monthly expenses I have on this piece of paper.
Then, I transferred this information into a spreadsheet.
Finally, I added anticipated budget amounts for expenses I did not exactly know the amounts to until the end of the month (for expenses like gasoline).
The total number I calculated looked reasonable to me and made me think, “Financial freedom is definitely possible.” Then, I added a little more to account for unexpected expenses each month (and to motivate myself to earn more).
45 minutes later I was done! Now I know exactly what my monthly expenses are AND I have number to work towards.
After figuring out my monthly burn rate, I reviewed how I paid for all these expenses.
Currently I employ a 2-credit card system to pay for my expenses.
One credit card is for fixed expenses – expenses I know will not change every month. Things like internet, wireless phone, car insurance, subscriptions, etc.
Another credit card I use for variable expenses – expenses that may change month to month depending on usage. Things like gas, groceries, car maintenance, etc.
Then, I double checked to make sure the credit card balance is automatically paid off every month.
Look at my spreadsheet below. It’s simple and still rough.
It’s the first draft and most likely will change at some point in the future.
But it’s a start.