Special Announcement: Who did I select as my 7 Millionaires … In Training!?
Click here to find out!
So, I was very interested when I happened upon this chart from Crown Financial Ministries, a Christian organization that helps people with their personal budgets and debt reduction strategies. This chart illustrates their concept of an ‘ideal’ personal budget allocation.
I should point out:
1. This ‘budget’ is after-tax (assume 35% tax rate)
2. Being a religious organization, it (naturally) also assumes tithing (I presume it’s 10% of gross)
3. You can be sure that it represents low-to-average salary levels – given its target audience – so you may want to combine this with other estimates (such as the ones above) for higher income levels.
For most personal finance bloggers this is a way to assess your current budget so that you can make sure that you reign in your spending and save every last dollar.
While this is wise and honorable, I provide these numbers for a totally different purpose: so that you can assess your future budget. This is the budget that you would like to have when you retire.
Use these resources to try and put together the lifestyle that you want to live when you retire – as though you were living it today.
Once you have your Required Annual Expenditure firmly in mind, you will need to account for the inflation that will occur between now and when you do stop work …
… for example, if you think that inflation will only be 4% and you intend to retire in 20 years, you will need to double the income that you anticipated (for 10 years add 50%, and so on).
How will you fund that if you have retired?
By having at least 20 times that saved up on or before the day that you stop work, is how!