How much do you really need?

2013-02-14 17.05.10My soon-to-be-nephew is having his wedding at our house; he’s an event organizer (amongst other things) so this is his opportunity to create his (and my niece’s) ideal wedding …

… we were, of course, delighted to be able to lend our house.

As he was supervising the erection of the marquee over our tennis court and false flooring over the pool, we were chatting about wealth.

During the course of discussion, the subject came up of how much do you really … and, ideally … need?

What is the Perfect Number?

If you’ve been following my blog for a while, you will know that I’ve said that you need as much passive income as you need to live your Life’s Purpose.

Even without knowing your Life’s Purpose, though, I can still tell you roughly what your Perfect Number should be:

You should aim to live no better than your closest group of friends.

Let me explain with a personal example …

We have a long-standing group of friends.

We eat often eat together. We party together. We travel together.

Not always. Not only. But, often enough.

Now, how would you feel if you travel coach, most of your other friends travel coach, but one of your friends is always at the front of the plane?

How would you feel if you like to eat out at a mid-priced restaurant once every couple of weeks with your friends, but one of your friends is always trying to arrange 5-star dining? And, 5-star hotel’ing?

I think your friend would eventually price herself out of your group of friends.

Well, I am in danger of becoming that friend.

Our friends are all quite well-off, because they are all professionals (both husbands and wives) drawing great incomes for many years. All of our children privately school together, and vacations are now flying coach (with kids) or business class (without kids), staying at international 4-star resorts at least once, and probably twice, most years.

But, our house is clearly the best in the group. Our cars are the best (and, could be better, but I’m starting to realize that I should hold back a little). And, we could be flying business class (sometimes even international first class), and easily stay in 5-star hotels.

In short, we have to be careful not to make the difference obvious.

That’s why I told my nephew (to be) – as I am telling you now: aim to live no better (but, no worse) than your closest group of friends, assuming that you wish them to remain your friends.

I can add a little more:

– Aim to be towards the top of your circle in terms of sustainable annual income.

– Aim to have a buffer, so that you can maintain that standard even if something goes wrong.

[AJC: This is not the same as an emergency fund: this means, for example living on the same $50k p.a. as your friends, but actually earning $70k p.a.]

– Aim to be able to maintain that standard of living (with buffer) when you begin to live Life After Work.

– Make sure that your Life After Work (i.e. very early retirement) makes you still ‘look’ busy

[AJC: Sitting on a beach all day while your friends still 9-to-5 it 50 weeks a year will just as quickly put you in the ‘former friend’ category as flashing your cash]

So, how much money do you really need?

Step 1: Take what your friends are earning and add 20% buffer

Step 2: Multiply that by 20

Step 3: Add the amount remaining on your mortgage (or, what your mortgage would be if you bought one of the better houses owned by your friends)

Step 4: Add any additional ‘crazy money’ that you need for some of your ‘keep busy’ Life’s Purpose activities.

Step 5: Double your final total for every 20 years until you expect to be able to accumulate that amount of money (or, add 50% for every 10 years), to account for inflation.

That should give you a very practical Number … you might even say your Perfect Number 😉

Now, you just need to go out and get it.

A new year’s resolution …

2 doorsThe New Year brings new choices … think of each choice or decision as two doors, and you have to choose one to step through.

Choose the wrong door and it seems you have changed the course of your life forever … but, will it change for the better or worse?

My son has finished high school and now has to choose from his top two college / course choices. What decision will he make?

Will it even matter?

I’m not stressed for him, even though he may be – facing such seemingly life-altering choices – because I remember that I made a few – and, really important – ‘wrong’ choices in my Life’s Journey, yet here I am today.

You see, I now believe that I would have arrived at roughly this point, no matter (within reason) what choices I would have made – or, decisions I would have taken – along the way …

… and, if you implement just one key change in your life, you will come to see that, too.

First, you need to understand that when you choose to go through Door A or Door B, as my son is now, that’s not the end!

There’s always another two doors behind Door A, and yet another two doors behind Door B

Door A

What are the correct choices to make, when presented with these two new doors? How will you know for sure?

The answer lies in knowing your overarching goal: if you know your Life’s Purpose, then you will have a compass that will guide you back to the right course, even if you choose Door A, when perhaps you later realize that you should have chosen Door B.

Door B

Life is really just a series of decisions and choices that we need to make – or, doors that we need to go through. Our choices can sometimes be difficult … as a result, our decisions can seem random or less than optimal. Sometimes, we make the out and out wrong choice.

But, when you have the compass that is your Life’s Purpose, then it will guide you back to the correct path through later and later choices.

With your Life’s Purpose to guide you, no matter whether you choose Door A or Door B, you can end up living your Life’s Purpose; your choices along the way may affect exactly how you get there and what you will be doing when you finally get there …

… but, it will be close enough.

For example, I now know that no matter what path I would have taken, I would ultimately be sitting here and writing this blog post for you.

How do I know this?

Simple. Because I would not have stopped choosing doors until I got here!

So, I’m not sweating my son’s choices … neither should he.

And, neither should you sweat the choices that you make this year.

May it be a good one!




A personal finance hieroglyph …

Screen Shot 2012-12-10 at 7.05.04 PMIf you left a review on Amazon for my new book, then your personal, signed copy is on it’s way!

[There’s still time: if you downloaded the Kindle version, please leave an honest review at Amazon and I will send you a personally signed, printed version as my way of saying ‘thanks’]

Inside the front cover, along with my ‘AJC’ signature, you will find a scribbly hieroglyph much like the one above …

… hopefully, it’s not too difficult to translate; it simply means:

Your Money is not your Life!

Too many of us live our lives as though money was its sole purpose: we work more than 1/3 of our life away; we constantly argue with our spouses about it; and, we spend much of the remaining time simply worrying about it.

I haven’t been immune; this was me until a critical date in 1998, when I discovered my life’s true purpose. Without getting all New Age’y on you, I’ll give you a hint: it had nothing to do with money.

My Life’s Purpose was all about how I really wanted to live.

But, I quickly discovered that money does come into it …

… but, only as a means to an end.

My first book (co-written with Debbie Dragon) shows you how to separate your money from your life; but, it doesn’t shy away from the subject of money. Because, as I discovered, money is the key enabler of a fulfilling life for many of us – not all – but, certainly for me.

Probably, for you, too.

So, the real purpose of my book is to help you find out how much money you need in order to be happy. Simple!

If you want to understand a little more about my journey and how I think about money and its real (subordinate) place in life, check out my video interview; it’s with Jaime Tardy at Eventual Millionaire:

Screen Shot 2012-12-14 at 3.41.21 PM

And, if you can, leave a comment to share how you think about your Life … and, your Money!


Rich Dad. Rich Kid?

theaddamsfamily-011Let’s not mince words: by most measures The AJC Family is Rich!

But, does that mean that our children are rich? Does it mean that Mom and Pop will buy them cars, vacations, etc.?

The inspiration for this post comes from a comment (on a post by Diane about her car), where Debbie says:

I think most 16 year old’s get cars these days.

I had one before I turned 17, although I had to pay for it with my own money and get my own insurance (but I think the trend is now parents buying their kids first vehicles and insurance from what I’ve been seeing and in fact- I wrote a post about how teenagers are in the perfect position to put aside some money during their high school years on and do you know the comments I got?!

Parents saying that the idea was ridiculous, kids shouldn’t be expected to save the money they earn on jobs nor would they do it if they understood the value of compound interest and how much those first few thousands would be when they were ready to retire; if kids work during the summer how will they take trips to Europe and attend soccer or music camp, etc. I am still in shock!)

I must admit that I am in ‘shock’ as well …

… but, this brings me to an interesting point: how do ‘rich parents’ bring up their kids?

After all, when you all reach your Number, maybe you need some guidance as to how YOU should face these same issues?

All I can tell you is what we do:

We are in one of the highest socio-economic levels, yet our children (11 and 14 years old) already know that if they want cars, they will need to buy their own. We will contribute (prob. up to 50%) … but, they will need to save up their portion and fund the running costs.

I’m guessing that most of you reading this blog had to do it the same way (?) … at least we had to, so why shouldn’t they?

We feel that just because your parents are ‘rich’ doesn’t mean that YOU are … at least these are the conversations that we have with our children 😉


We feel that the best FINANCIAL gifts that we can give our children are:

a) Teaching them to take sole responsibility for their own financial situation, and

b) Teaching them how to become rich on their own

… we hope, leading them to the type of confidence and independence that only self-sufficiency can provide.

Think about the second one: what an advantage is it to have parents who have gone from $30k in debt to $7million in the bank? It’s got to be better than reading a blog, or having an occassional mentor … of course, the disadvantage is the child’s natural inclination to rebel from their parents, so, we add a couple of extra advantages:

c) We pay for their formal education. 100% … no “if’s” and “but’s”, for any course, in any reasonable location (we’re not sending them to Switzerland to go to Finishing School!) as helps them achieve their academic goals … but, only their first ‘real’ degree. If they want to sacrifice current earning potential for future by earning Masters, PHD’s, and/or MBA’s, that’s their financial trade-off to make, and

d) [AJC: This is the secret advantage that we do NOT tell them about up front] They will never starve … if all else fails, we are their Safety Net. But, they will not be able to “mooch off the folks” … this is simply an ‘insurance policy’ against disaster.

To that, we add all the ‘normal’ non-financial parenting, PLUS the luxuries of private schooling; after-school activities; bedrooms with private bathrooms, robes and studies (equipped with MacBooks, of course!) for each; as well as the swimming pool, tennis court, travel, etc. lifestyle that living in a ‘rich household’ provides …

What do you do (or plan on doing) with your children?

A little perspective …


For a bit of fun, I typed in an annual income of $220,000 into this handy little online calculator, and it shows that I’m the 107,565th richest person in the world … whoohoo!

Now, if I typed in my real annual income, I think that I could jump myself higher up that list … and, if I factored in that I get that money mainly passively, well ….

Reminds me of an interview that I saw with Guy Laliberté, founder of Cirque Du Soleil, who went from street performer (read homeless hustler) to sharing the same level of wealth as Oprah.

Now, that’s not the bit that blew me away; what did was that they were sharing something like 160th place on Forbes’ list of the richest people in the world: Oprah … Cirque Du Soleil Man … and, they ONLY get to be joint 160th (approx.) on the list??!!

Who are these other dudes between them and Bill Gates?!

So, it’s really good to be able to put things in perspective and realize that if you are earning almost ANY regular salary, you are in the Top 10% of the richest people on the planet:

The Global Rich List calculations are based on figures from the World Bank Development Research Group. To calculate the most accurate position for each individual we assume that the world’s total population is 6 billion¹ and the average worldwide annual income is $5,000².

Below is the yearly income in percentage for different income groups according to the World Bank’s figures³.

Percentage of world population Percentage of world income Yearly individual income Daily individual income
Bottom 10 percent 0.8 $400 $1,10
Bottom 20 percent 2.0 $500 $1,37
Bottom 50 percent 8.5 $850 $2,33
Bottom 75 percent 22.3 $1,487 $4,07
Bottom 85 percent 37.1 $2,182 $5,98
Top 10 percent 50.8 $25,400 $69,59
Top 5 percent 33.7 $33,700 $92,33
Top 1 percent 9.5 $47,500 $130,14

The world’s distribution of money can also be displayed as the chart below.

¹ 2003 world population Data Sheet of the Population Reference Bureau.
² Steven Mosher, president of the population research institute, CNN, October 13, 1999.
³ Milanovic, Branco. “True World Income Distribution, 1988 and 1993: First calculations based on household surveys alone”, World Bank Development Research Group, November 2000, page 30.

So, realize that UNLESS YOU ARE PLANNING TO DEVOTE SERIOUS SLABS OF YOUR TIME AND MONEY TO WORTHY CAUSES this blog and everything we are doing here is about as useful as a blog on whittling … and, probably a darn site less so, because there’s nothing inherently of artistic merit in even the best-crafted bank account.

The perfect way to allocate your spending?

I saw this on Get Rich Slowly and wonder what you think of it?

Since I didn’t allocate my own spending this way ‘on the way up’, I can’t comment either way … but, maybe some of you can?

Here’s how it works:

You take your After Tax income and divide it into three categories:

1. Needs – These are you ‘must haves’ i.e. things that you can’t go without: rent/mortgage; car; electricity; basic food (the book provides a ‘rule of thumb’ for this); and, so on.

You allocate 50% of your after tax income to these needs; given that we already have the 25% Income Rule (spend no more than 25% of your after tax income on rent/mortgage) that leaves 25% on all the other ‘needs’.

2. Wants – According to the book, you should have fun – and, budget 30% of your after-tax income for it. I happen to be of the same mindset … what is money, if not for spending (except that you must do it in a way that allows you to live your Life’s Purpose by your desired Date). 

According to the book, ‘wants’ include additional food (i.e. lamb chops instead of dog food?), your cable TV and internet (these are definite needs for me, especially on my 100″ home theater screen … but, I can afford it!); trips and vacations; and, so on.

3. Savings – that leaves (or should leave) 20% of your after-tax income for your 401k investments and other savings/investment … since this is 5% to 10% more than most authors suggest, I commend it. Just remember, that even with 20% you’re not going to be able to save your way to wealth.

All in all, it seems like a pretty good savings plan to me … what improvements would you make?

Special Announcement!


I have been working on a project … call it a labor of love (when you find out what it is, you’ll decide that if this is my idea of ‘love’, I need psychiatric treatment) … and, I want you to participate!

Let me take you back to where this project had it’s genesis:

In 1998, I was struggling financially and directionally … I had my two break-even businesses, a lovely wife and two babies, but no money and no major prospects: it would take a miracle to get the businesses above break-even.

Then I came across the concept of the Number.

A simple idea: your Number is the amount of money that you need to have set aside (by whatever Date you happen to decide upon) so that you can be financially free to [insert goal of choice: retire; play golf professionally; write a book; volunteer abroad; move into the old-people’s home or Florida, which pretty much amounts to the same thing; etc.].

At the same time, I found my Life’s Purpose: to be constantly traveling mentally, physically, and spiritually …

… which means nothing to you, but meant everything to me (which is all that counts, right?).

Understanding my ‘life after work’ dream (in my case, it meant discovering my Life’s Purpose) told me that I needed $5 Million within 5 years. A major wake-up call considering that, at the time, I was $30,000 in debt!

If you’ve read my $7 Million Dollar Journey you will know that, because I found my Number, I made it.

I decided that I had to give back, by helping others to understand, find, and achieve their Numbers, as well …

… so, to help you figure out your own Number (and, Life’s Purpose … if you so desire) I have created a new web-site.

I have also created a unique home for you on the Internet, a place where you can Share Your Number with like-minded people … hopefully, you will connect with others who can help you on your way, and you may even be instrumental in helping them!

Take a look at these sites, then join up and Share Your Number … it’s easy, fun, and could be very, very rewarding for those who actively participate.

As readers of this blog, and ‘charter members’, your membership will always be free. And, tell your friends, they can be charter members, too 🙂

The only ‘catch’ is that I have not officially launched this site, yet, so you will be the ‘beta testers’ … try it out and let me know what you think using the form, below (just type then ‘submit’):

Passion before money …

I’m about to find out if you can make money online: click here to read the latest installment in my new online money-making adventure!


I talk a lot on this site (and, on about money being there to serve your Life …

… yet, we slave our lives away to the pursuit of money. Go figure!

So, when working out your Number – that ‘magic number’ that tells you if/when/how you will retire – it is my contention that you first need to start by understanding your Life’s Purpose.

It’s nice to see that somebody on the finance community agrees with me: George Kinder, author of The Seven Stages of Money Maturity!

In fact, George is a financial planner who is one of the early pioneers / practitioners of a form of financial planning called ‘Life Planning’ … where your financial plan is designed to support the life you want, not necessarily the life that you have.

I have provided some exercises to help you understand your Life’s Purpose, hence your Number; similarly, George Kinder poses three questions that he considers important in achieving a similar result (you may have seen these on Oprah):

1. “Assume you’ve got all the money you need – enough for the rest of your life. Maybe you’re not as rich as Warren Buffet, but you never have to worry about money for any reason. The question is, what would you do with it? How would you live? Feel free to let your imagination roam. What would you do with it all? Think for a moment, then write down the answer … ”

2. “You go to the doctor. The doctor discovers you have a rare illness. He says you’re going to feel perfectly fine for the rest of your life. But, he says the illness will prove fatal. The sorry outcome will occur sometime within five and ten years. It will be sudden. The question is, now that you know that your life will be over in five years, how would you live it? What would you do?”

3. “This question will sound a bit like the previous question, but it’s different: It starts the same way. You go to the doctor. You’re feeling perfectly healthy. And again the doctor says you have a serious illness. But then the doctor says, ‘You only have 24 hours to live.’ So, what did you miss? Who did you not get to be? What did you not get to do?”

Of all these questions, obviously the last is the key … and it is the purpose of the Rear Deck Speech – designed to make you think past ‘things’ and to the more deep/meaningful aspects of your ideal life.

These questions, however, will help you if you’ve been struggling with the Finding Your Life’s Purpose exercises that I provided …

Your Number

Nowadays, somebody only need to write “The” and “Number” next to each other and we automatically know what it means: the amount that you need in your nest-egg so that you can finally throw off those corporate shackles and ‘retire’ …

… well, do anything other than ‘work’ for your daily crust.

The only problem is that nobody tells you how to find The Number!

I should know, I read books on the subject and they all focus on rubbish like: “multiply 75% of your pre-retirement’ salary by 13”.

Which has some obvious problems:

1. How do I know what my pre-retirement salary will be?

2. What if I spend more/less in retirement than when I was working?

3. How will I know my money will last?

The reality is that – for most people – there is (and should be) a total disconnect between how you make your fortune and how you spend it!

In other words, just because you earn $x before you retire, it doesn’t mean that you will spend 75% of $x to 125% of $x (as most financial authors assume) in retirement.

So, I came with my own method – and, it worked for me!

Here’s how:

1. Complete a simple spreadsheet of your major (non-investment) personal purchases, income, and living expenses now and over the next 1, 5, 10, and 20 years. Don’t forget to apply the Inflation Adjustment Factors!

2. To help I have listed the typical expenditures of a $100,000 a year lifestyle, a $250,000 a year lifestyle, and a $550,000 a year lifestyle. These should provide some reference points to calculate your own future living expenses.

3. Use the spreadsheet to calculate Your Number and Your Date.

That’s it!

… and, I’m betting that it won’t even resemble your expected final salary – in fact, I’m betting that the number is so damn big’n’scary that you won’t even get there just on any typical salary – even with your 401k maxed 😉

Why bother? Ric Edelman says that you already have it all …

I while ago I wrote a post gauging my own performance against the “Ric Edelman Secrets” …

I’ll leave you to go back and read the post and its comments as I think that they serve to show some of the differences between financial advice for the masses and the types of things that people who want extraordinary levels of wealth (if you’re reading this, that’s probably you!) need to consider.

In case you haven’t yet come across him or his books, Ric Edelman runs one of the country’s largest independent Financial Planning firms, so his firm has interviewed thousands of people looking for financial advice.

Ric says that when he (or one of his staff) asks the question of a new client “what are your financial goals?” the most common answers – by far – in this descending order of importance, are:

1. To buy a house

2. To save for (their kids’) college

3. To save for retirement

Now, here’s where I agree totally with Ric: these are not financial goals … they are inevitable outcomes!

Loosely paraphrasing Ric, here’s why:

1. Your house – you probably already have a house (most people do), and if you don’t, you won’t have to be prodded very much to go out and buy one – look at the sub-prime crisis to see how easy it can be to buy a house!

2. Your childrens’ college – if your children want to go to college, they will … one way or another, they will come up with the money. Sure you can improve on the situation by providing the funds to help them get into the college of their choice, but it’s a qualitative goal, not a ‘make or break’ in most cases.

3. Your retirement – you will retire … one day! Maybe not at the time, and in the manner that you would like to – but, you will retire (or die trying). It’s as simple as that!

So, why bother doing any financial planning when you already have – or will have – it all?!

Simple: it’s because these people haven’t yet developed a sense of their Life’s Purpose … to me that is the only goal worth aiming for … but, we have already discussed that subject, at length.