Your Survival Number: A Guide to Balancing Money and Life

Published by Evan Louise Madriñan on 30/10/202330/10/2023

by elmads

Introduction

“Wealth is the ability to fully experience life”.

—Henry David Thoreau

There was a time when Bill Perkins, an American hedge fund manager and film producer, didn’t know what to do with his life. He got his engineering degree from the University of Iowa, yet he did not like to work as an engineer.

He was lost. He even acknowledges the fact that he was an underachiever when he was a student, “a super slacker,” in his own words. He even felt that his parents don’t believe that he will achieve something when he says he will do it due to his past performance as a student.

Despite this, he pursued something that he didn’t know he wanted yet. He kept on finding what he didn’t know by looking at different things. Alas! He found it through a 1987 movie titled “Wall Street”. He decided that he wanted to become a stockbroker, and he did realise his dreams despite the hardships that he went through.

It seems like a wonderful success story, doesn’t it? But that’s not the highlight. Bill Perkins, like most 20-year-old young adults, wanted to become rich and successful, yet at such a young age, he did eventually realise something.

His priorities gradually changed when a friend of his went for several weeks on a European trip—they were still in their 20s during this time. When his friend came back, he told him a lot about his experiences during his time in Europe. Bill realised that he had missed a significant part of life and his time by not joining his friend on that trip. When it was his time to go to Europe, he did enjoy it, but not to the extent of what his friend experienced.

There are things in life that can only be experienced at their best at a certain point in time. Going skydiving at 20 or 30 years old is a way different experience than doing it at 60 years old. You get the point.

But wait! Before we can accumulate experiences and memories, we need money because most of what we do requires money.

Agreed! Thus, we need to strike a balance. How do we approach a life of saving, spending, and investing money without tipping our financial scale, which could derail our ability to fully maximise our life?

The Survival Number and Its Essence

“No, the key takeaway, I now realize, is to strike the right balance between spending on the present (and only on what you value) and saving smartly for the future.”

-Bill Perkins

The survival number is the amount of money you need to maintain a comfortable lifestyle throughout your expected remaining years.

✨You see, once you find out what that number is, you can now adjust your goal income amount, your expenses, and your monetary allocation for savings and investments.

Why do this? Well, because we all have 24 hours a day in our lives. Regardless of what our religious beliefs are, political views, culture, gender, or race, it is an absolute fact that all of us have the same number of hours every day in this world.

This just puts the phrase “you can have anything, but you can’t have everything” into the spotlight. It’s the constraints of time. As it marches forward, we have a different body, mind, and perspective than what we had months, years, or decades ago and will continue to change in the future.

Walking on the same road for years—maybe a path you take to work—has always been the same to you, but unknowingly or unconsciously, it was not entirely the same. You were maybe too busy doing something that you were not able to even notice small changes or small events that were unique to that specific day.

“No man ever steps in the same river twice, for it’s not the same river and he’s not the same man”.

—Heraclitus.

It’s the same with allocating our time.

As we step into our 20s, we often become entangled in the pursuit of money. Climbing career ladders, amassing wealth, and acquiring possessions become paramount. Our days are meticulously dedicated to the pursuit of financial prosperity.

But as the years flow on, we reach a crossroads. The body changes, and we may question the pedestal upon which we’ve placed money. We begin to ponder: “I might have spent my life pursuing money, but for what purpose?”

Or if one has accumulated a lot of money, he might have asked himself, why did I not even use most of it? Why did I not accumulate more of what life has to offer; the “Experience and Memory dividends”? Why did I allocate almost my entire life to the pursuit of money?

Some are fortunate to have discovered a different path—one driven not by money but by a deep-seated sense of purpose. They embrace their work with dedication and zeal, and financial success becomes a natural byproduct of their passion.

Yet, we should also explore other views, because there are people who thrive in the pursuit of money, and there is nothing fundamentally wrong with it. It just so happens that capitalism is well suited to some individuals and is exactly in line with who they are. The accumulation of money is what makes their world go around.

Still, it’s important to recognise that the world comprises a rich diversity of individuals. For some, the pursuit of wealth is not a wrong turn but a fulfilling journey in itself. Capitalism resonates with their being, and the accumulation of money keeps their world turning. For others, this relentless chase leaves a void. The thirst for wealth may have overshadowed a deeper sense of meaning. In these moments of reflection, we confront the question, “Why did I allocate the better part of my life to the pursuit of money?”

If time is still on our side, then one has to ask questions on how to allocate our precious resources rooted in intentionally living according to our own definition of what our life should be.

One can ask. If I knew how much I would need in my lifetime, then maybe giving a quarter or a fifth of my entire life is not a bad decision. Giving my best for that short period of time to achieve that survival number and eventually pivoting myself on what truly matters while still enjoying every passing moment of time

Life is too short to dedicate your whole life to things you deem aren’t maximising your gifts, exploring what it has to offer with your loved ones, following your calling, and ultimately your purpose.

How to Obtain Your Survival Number

Getting our survival number is a challenging endeavour. There is no exact amount, only an estimation of the number you might need based on the specific lifestyle you possess today and your realistic projection of the lifestyle and life path you’ll have in the future.

To put it simply, your survival number encompasses your past, present, and future selves. This is a hard process to undertake because it requires introspection.

Money management is not exclusively about the numbers and making more money; it is about you and the people you hold dear.

It’s putting your life into numbers, and those numbers put your life into context.

Think of it like this: you make a story of yourself and what your good life looks like. What should your financial resources look like in order to achieve what you deem a good life to be? How would your cash flow, income, spending, and investments look from a wider perspective?

It is like painting your life on a canvas. Your imagination sets the dream, and your financial resources provide the means to turn that dream into reality. Together, they create the artwork of your life’s journey.

So, let’s go into the basics of how to arrive at our survival number.

• Income flow
• Spending. Break this down into essential and non-essential spending.
• Savings and Investments

📝NOTE: This would not be possible if your income was not sufficient to cover your essential spending. If this is the case, then increasing your income flow is your primary aim. Survival is of paramount importance, and there is a reason why physiological need is the primary step in Maslow’s hierarchy of needs.

It’s nothing grand, to be honest. It is just a cliche of the financial big three. You’ve heard this a million times—or maybe a billion times already. I know you’re fed up with it, but these three are the core.

We can’t move forward without understanding our basic cash flows of income, spending, and saving.

Master fundamentals before chasing tricks and hacks.

You can’t optimise what you don’t understand.

It’s of paramount importance to track all this as soon as you can. The earlier, the better. Use all the tracking methods that you can find that would work for you.

In my case, I have all the cash flows listed on my own spreadsheet from 2018 to today, and I will continue to record them forever.

It’s utilising the power of our own financial habits through the numbers, then weaponizing it to make decisions today in order to influence our future to our own liking.

I have written several blogs that would substantially guide you on how to approach gathering and recording your cash flows. Please see the links below.

📣 https://elmads.com/?p=1444 – Financial Mutant Level of Managing Money – Your own Income Statement
📣 https://elmads.com/?p=1483 – Financial Mutant Level of Managing Money – Your own Cash Flow
📣 https://elmads.com/?p=1472 – Financial Mutant Level of Managing Money – Your Own Net Worth

The 300 Method : Personal Finance

Combine your essential and non-essential spending to form your total spending. Your recent year’s total spending is your base year, which we will use for your computation of your survival number.

Let’s say, for example, that your 2023 total spending is worth £24,000. We can then extrapolate our possible survival number in the future by simply multiplying it by 25.

In our example, your approximate survival number would be worth £600,000 (£24,000 times 25 years).

25 is the number of years in which we will not rely on any employment income. By this time, our savings and investments would be solely responsible for our life’s expenses.

25 is not a constant number; we can use other numbers such as 30 and 35 years. It is all up to you.

If you’re looking at your monthly spending, you can use the rule of 300. Your monthly spending multiplied by 300; that number consists of 12 months times 25 years. You can change the number of years as you see fit.

For instance, your average monthly total expense is worth £2,000.

• £2,000 average monthly expenses x 12 months x 25 years = £600,000

The question here now is: how can we apply this concept to allocate our cash flows according to our lifestyle?

I’ve made an Excel spreadsheet just for this, which you can download here:

Let me guide you on how to use this to quickly get your survival number.

How to Quickly Get Your Survival Number

Step 1: Download my spreadsheet. 👇👇👇

Step 2: Locate the “300 Method” spreadsheet.

Step 3: Input the information required on the green cells, starting with “1^st box”.

Step 4: Input your required rate of return on the “2nd box”. If you’ll be investing in an equity index fund or an ETF, specifically the ones that mirror a global index, then your estimated return would be around 7–10% per year over a span of 10 years or more.

Step 5: The Excel spreadsheet will now show you the results based on your inputs. Let’s try to enter some data, shall we?

📝NOTE: All numbers I placed are based on GBP currency. Please enter your own currency.

The monthly expenses I used are near the approximate monthly average household expenditure in the UK as of 2022.

For the age of planned retirement, I used the UK’s current retirement age and the eligibility age to receive the national pension..

The average life expectancy today is around 80 years old. Thus, this is what I used for the expected life expectancy.

Then I used 7% for the investment yearly return green cell.

Step 6: Interpret the information.

Based on our provided information above, our estimated survival number amounts to £360,000. To achieve this target, our goal would be to invest approximately £217 per month or £2,604 per year, starting at the age of 30. This investment plan assumes an annual return of 7% until we reach 65 years of age. Upon reaching our survival number, we would be able to sustain an annual expenditure of £24,000 from our retirement fund, which is projected to be £360,000, lasting until we turn 80.

Step 7: Check the graph provided below the spreadsheet. The graph is a visual representation of the provided information.

Step 8: Fill up the “Income” green cell. The expenses portion is based on the expenses green cell in “Box 1” above, while the savings and investments are also computed based on your inputs in the previous green cells.

Step 9: Play around with the numbers and see what works for you. It’s prudent to do a worst-case, base-case, and best-case scenario survival number.

Step 10: Adjust your income flow allocation based on your survival number.

And that is it!

Nonetheless, there is one fundamental disadvantage to using the 300 method.

The amount of money we spend on certain goods and services will eventually get expensive over time. Your monthly household groceries today will be worth much more than their current value after 20 years.

This is due to inflation, and this is not yet taken into account with this method. We have to consider the fact that when we reach our target retirement age, our expenses will certainly increase over time.

This is the reason why I call the 300 method the “quick way to obtain our survival number”, where the complexities of computation are taken out.

📝 I’ve discussed the 300 method in detail in my blog titled “Retirement Planning – The Rule of 300”.

This is where my self-made “Inflation Adjusted Calculator” comes into the picture as an answer to the lacking factor of inflation in the 300 method.

The Inflation Adjusted Calculator Method — Finding Your Survival Number

“Every dollar you spend… or save… is a vote you cast for the world you want.”

— L.N. Smith

The fatal flaw of the 300 method is considering our current expenses as a constant amount in the future.

Your, let’s say, $25,000 a year of household expenditures will likely double in amount after 2-3 decades.

This is the reason why I made my own spreadsheet calculator to tackle its shortfall.

It is setting a financial path by knowing where you are currently and where you want to go.

I’ve written about it in details on how to use the spreadsheet and how to fill up each section, explaining each cell’s significance.👇👇👇

📣 https://elmads.com/?p=3873 — Part 1 – The Inflation Adjusted Retirement Calculator
📣 https://elmads.com/?p=3905 — Part 2 – The Inflation Adjusted Retirement Calculator

Getting Your Survival Number via The Inflation Adjusted Calculator

Step 1: Download my spreadsheet. 👇👇👇

Step 2: Locate the “Inflation Adjusted Calculator” spreadsheet.

Step 3: Input the information required on the green cells, starting with “1^st box”.

Step 4: Input the information required on the green cells, starting with “2nd box”. I’ve explained in detail what does the withdrawal rate mean and its importance in my blog 📣 https://elmads.com/?p=3873 — Part 1 – The Inflation Adjusted Retirement Calculator

Step 5: Input your required rate of return on the “3rd box”. If you’ll be investing in an equity index fund or an ETF, specifically the ones that mirror a global index, then your estimated return would be around 7–10% per year over a span of 10 years or more.

Step 6: Once you’ve placed all the required information in the green cells, the spreadsheet will then show you the results based on your inputs. Let’s try to enter some data.

📝NOTE: All numbers I placed are based on GBP currency. Please enter your own currency.

The monthly expenses I used are near the approximate monthly average household expenditure in the UK as of 2022.

For the age of planned retirement, I used 65, which is the average retirement age across the world and where individuals are eligible to receive their national pension.

The average life expectancy today is around 80 years old. Thus, this is what I used for the expected life expectancy.

Then I used 7% for the investment yearly return green cell.

Step 7: Interpret the information.

Based on our provided information above, our estimated survival number amounts to £1,688,317. To achieve this target, our goal would be to invest approximately £1,018 per month or £12,213 per year, starting at the age of 30. This investment plan assumes an annual return of 7% until we reach 65 years of age. Upon reaching our survival number, we would be able to sustain an annual expenditure of £67,533 from our retirement fund, which is projected to be £1,688,317, lasting for 25 years after we retire at age 65.

According to the information above, at 30 years of age, our expenditure is worth £24,000. This amount would reach £67,533 at the age of 65, assuming a 3% year-on-year projected inflation rate within that period of time.

Step 8: Check the graph provided below the spreadsheet. The graph is a visual representation of the provided information.

Step 9: Fill up the “Income” green cell. The expenses portion is based on the inflation adjusted expenses starting in the year of your planned retirement green cell in “Box 1” above, while the savings and investments are also computed based on your inputs in the previous green cells.

Step 10: Play around with the numbers and see what works for you. It’s prudent to do a worst-case, base-case, and best-case scenario survival number.

Step 11: Adjust your income flow allocation based on your survival number.

This approach proves more practical than the 300 method due to the adjustments made to our expenses.

However, there are two downsides.

Firstly, the necessary fields are not common knowledge for everyone. One must grasp information about inflation rates, withdrawal rates, and investment returns. Acquiring rudimentary knowledge is essential for this method to align closely with one’s survival number assumptions.

Secondly, many variables are not considered, making it challenging to make a comprehensive assumption about our survival number. Variables such as income, income growth, lifestyle inflation, one-off payments, the additional costs of having a child, the ability to save or invest based on income and expenses, remaining life expenses, medical expenses, and others are not included.

The final method I’ll share is not universally applicable. It involves a deep dive into not just our income, spending, and saving capabilities but also considers our potential future financial outcomes based on our life goals.

This method takes us almost into the territory of “leaving no stone unturned.” It prompts the question: What does my “good life” look like? And what should my finances resemble in the pursuit of my own definition of a good life?

The treasure you seek is hidden within the depths of introspection.

Your Money Allocation Evolves

What may seem like a problem or a successful pursuit now can lead to its polar opposite in the future. It is the reality of life. No good or bad lasts forever—suffering and happiness, failure and success, hardship and prosperity, life and death, yin and yang. Without darkness, there is no light, and without light, there is no darkness.

The interdependence and necessary coexistence of opposing forces that can either break us or make us.

Finding a deep meaning and purpose within the forces at play would guide us to our own survival and fulfilment.

And yet, one of the major hindrances, if not the primary cause, to our pursuit of finding that personal meaning and purpose is money. To survive this harsh and competitive environment, is to prioritise money to attain our necessities of life.

Nonetheless, even when we achieve a state of excess cash flow after covering our basic needs expenditures, we unconsciously get exposed to and worse attached to the social standards put upon us by the world. The social pressure of what society shows us ingrains in our psyche what a good life should be. Yet when you detach yourself and look at society from a larger perspective, you might realise that what they say is not even in sync with who you really are.

Don’t get me wrong; maybe your personality is just in the right place for social standards, but for some, it is a prison that detaches them from their individuality. They adapt a persona so strongly that they present someone else other than themselves. To put it simply, they are a puppet king and a prisoner of their own kingdom.

I may have strayed a bit here, but my point is that what you do today with your money has a backstory as to why you’re doing it. You have to be self-aware. This is not about changing bad or good financial habits; it’s about knowing your deep reasoning behind your income capabilities, spending, and saving habits.

By knowing who you are, you get to rectify a lot of things and control your other whims.

Or as time walks forward, your life priorities change, and so does how you allocate your cash flows.

Below are the common money allocations by income, spending, and savings.

The £26,000 in the income portion of all the images I’ve shared with you is the average yearly wage in the UK in 2022.

There are different ways people allocate their income, and this is usually reliant on their life circumstances, but most importantly, it is dependent on their own psyche, culture, upbringing, and backstory.

We can’t judge someone based on how they allocate their money because we don’t know anything about them. And we can’t tell anyone what to do with their money unless they’re willing to disclose their finances and, most importantly, their deep-seated motivation in life, which is reflected in how they generate income, spend money, and save money.

Cash flow is a reflection of our priorities in life, regardless of whether we’re knowledgeable about finances or not.

What’s more important to realise is this: every stage of our lives, from our past, present, and future. We will certainly have a capital allocation resemblance of not just one image above but several images above.

At the start, we could have been taking on debt in order to put food on our family’s table, but after a few years, we attain excess cash flow after covering our rudimentary necessities of life. Then we spend all of our excess cash on our wants; after a few more years, we learn the importance of saving and eventually invest.

Your self-awareness today and possible changes in our life circumstances in the future are two important intrapersonal skills and exercises. Your past is what made you who you are today; your future is who you want to be; and your present is you, the only person who can build the future you that you want to be.

With my fascination with finance, philosophy, mathematics, and psychology, including my current profession, I was able to form a simple spread sheet to connect these curiosities of mine.

If you can be true to yourself and be realistic about things, then this spreadsheet I’ve made for the final method of my “Finding Your Survival Number” would be a comprehensive guide for you.

Though I haven’t completed it yet, as it is still work in progress.

See the image below for my cluttered work in progress.

I will call this work of mine “The Survival Number Navigator,” a comprehensive guide to finding your survival number.

To Sum It Up

The essence of the survival number lies in balancing present spending with future savings. This number represents the funds required for a comfortable lifestyle throughout one’s expected remaining years.

Obtaining your survival number is a challenging process involving the estimation of future needs based on your current lifestyle and realistic projections. This figure encapsulates your past, present, and future, requiring introspection. Money management extends beyond numbers; it’s about personal priorities.

Imagine crafting a story of your ideal life, outlining financial aspects like income, spending, and investments. This process is akin to painting your life on a canvas, where imagination sets the dream and financial resources bring it to life.

To derive your survival number, focus on the financial fundamentals: income flow, essential and non-essential spending breakdown, and savings. If your income can’t cover essential spending, prioritize increasing it.

Track these elements early on, mastering the basics before exploring advanced strategies. Utilize tracking methods that suit you. The power of financial habits, recorded through numbers, empowers informed decisions, shaping a future aligned with your preferences.

There are three methods we can use to arrive from our survival number.

The 300 Method: The Quick Way To Calculate your Survival Number

Pros:

1. Simplicity and Quick Computation: The 300 method provides a straightforward and quick way to estimate your survival number without delving into complex calculations.
2. Flexibility in Timeframe: The flexibility to choose different timeframes (e.g., 25, 30, or 35 years) allows individuals to tailor the method to their preferences.
3. Easy Application: The concept is easily applicable to monthly spending, offering a tangible and accessible approach.
4. Rule of 300 for Monthly Expenses: The monthly spending rule of 300 simplifies the computation for those who prefer to look at their expenses on a monthly basis.

Cons:

1. Ignorance of Inflation: The method does not account for inflation, leading to a potential underestimation of future expenses. In reality, the cost of goods and services is likely to increase over time.
2. Overlooking Expense Changes: Changes in the cost of specific goods and services are not considered. For instance, groceries today may not reflect their future inflated prices.
3. Limited Precision: The approach sacrifices precision for simplicity, and individual financial nuances may not be fully captured.
4. Quick Estimation vs. Comprehensive Analysis: It provides a quick estimate but lacks the depth of a more comprehensive analysis that considers inflation and nuanced expense variations.

The Inflation Adjusted Calculator Method

Pros:

1. Practical Adjustments: The self-made calculator addresses the 300 method’s flaw by considering the potential increase in expenses over time, making it more practically aligned with future financial realities.
2. Customization for Individual Paths: The approach involves setting a financial path based on current circumstances and future aspirations, allowing for a more tailored and personalized strategy.
3. Incorporates Adjustments: Recognizes the impact of inflation, withdrawal rates, and investment returns, providing a more nuanced and adjusted estimation.

Cons:

1. Specialized Knowledge Requirement: Understanding inflation rates, withdrawal rates, and investment returns may be challenging for individuals without basic financial knowledge, limiting its accessibility.
2. Incomplete Variables: The method lacks consideration for several critical variables, such as income growth, lifestyle inflation, one-off payments, and various expenses, leading to an incomplete assumption about the survival number.
3. Complexity: The approach is more complex than the 300 method due to the additions of variables than are not commonly known to everyone.

The Survival Number Navigator

Pros:

1. Practical Adjustments: It considers all the shortfalls of the previous methods which are income growth, lifestyle inflation, and various expenses, leading to an incomplete assumption about the survival number
2. Customization for Individual Paths: The approach involves setting a financial path based on current circumstances and future aspirations, allowing for a more tailored and personalized strategy.

Cons:

1. Specialized Knowledge Requirement: Understanding inflation rates, withdrawal rates, and investment returns may be challenging for individuals without basic financial knowledge, limiting its accessibility.
2. Complexity: The approach introduces complexity due to its consideration of various factors, making it potentially overwhelming for those seeking a simpler calculation method.
3. Not Universally Applicable: The final method, involving deep introspection and future financial outcomes, may not be universally applicable, as it requires a level of self-awareness and goal clarity that not everyone may possess.
4. Still Work In Progress: Once I complete this I’ll be writing a blog explaining its detail and its ultimate significance to our lives and personal financial planning.

Knowledge is my Sword and Patience is my Shield,

Evan Louise Madriñan / elmads

This blog is for informational purposes only and not a Financial Recommendation. Not all information will be accurate. Consult an independent financial professional before making any major financial decisions.