When financially planning out your life time, the question to answer is a very simple one. How much money will I need to last the rest of my lifetime. The question itself is simple but it is very difficult to answer. The reason for this is that there are so many different variables involved in you life that will affect your finances. A lot will be in your control such as choosing where you want to live, what kind of car you want to buy, or deciding to take out loans to finance an education. Some variables will be outside of your control such as inflation, stock values, and natural disasters.
Just like a transmission, there are several moving parts. If any part gets damaged or needs repair, the whole component can get disabled or destroyed. A financial plan is the same way. The economic meltdown of 2008 set baby boomers several years back when it comes to retirement.
In a perfect world, we would have perfect information. We would know how much money we needed to make. Once we acquired it, we would never have to worry about personal finance again. However, this isn't a perfect world and perfect information doesn't exist. Despite this, it is important to make financial plans. It is important to revise financial plans. After all, it is far better to have an idea of where you are going then to wander aimlessly.
So, where does a man start in planning his personal financial plan? The first thing a man needs to do is to estimate his lifespan. Obviously, I say estimate because no one can be for sure when it is they will die.
Answering the question of how much money you need for the rest of your life is an impossible question to answer accurately because step number one is based on an assumption. But accuracy isn't what you are going for. You are going for an idea. You are trying to get a reasonable estimate.
It is important to get an idea of how long you expect to live for the reason that a longer life span will require more money to sustain. Conversely, a shorter lifespan will require less money. Of course, realize that if you were to die in a car accident at the age of 37, the concept of financial planning will be completely moot. An estimate of your lifespan makes the assumption that you will not die due to an accident or assassination.
To get the best idea of your estimated lifespan, you want to look at at least two key factors.
1. What is the average life expectancy in your country?
2. How long did your parents and grandparents live?
Here in America, the average life expectancy is 80 years. 80 years doesn't seem like a long lifespan but take into consideration that 80 years is the average life expectancy. You will have the healthy and unhealthy Americans grouped together. The last time I checked, there are a lot of unhealthy Americans out there. Obesity is very common and the leading cause of death is heart disease.
If you have a healthy body weight, then you are already doing better than the average American. If you have a healthy body weight, don't drink, and don't smoke then you are doing much better than the average American. If you meet all of those qualification above and exercise regularly, then it would be reasonable for you to make it to the age of 90 and further.
You really want to take a look at your family tree to see how long your parents and grandparents lived. The reason for this is that your relatives will likely share the same characteristics as you so they will be a better gauge than the average American. You also want to look into your family history to see if there are any diseases that may run in the family that you might be more likely to get. This would include different cancers or high blood pressure.
I estimated my own life span based on a few factors.
My grandfather lived to 85. I have a BMI of 23.6 which is normal body weight. I don't smoke. I do enjoy to drink an average of one beer a week. I can bench press 270 pounds. I can run 3 miles in about 30 or 32 minutes. I have a poor diet as I eat more fast food then I should and not enough vegetables and fiber.
Based on these factors, I estimate my lifespan to be 88 years. I might be able to make it to 90 if I'm lucky.
After you have your estimated lifespan, you subtract your current age, and you have your estimated years left to life. If I was 32 today, I would have 56 years left to live. So in that case, I need to figure out how much money I would need for the next 56 years.
If you wanted to have a very crude idea, you could estimate an annual cost of living and multiply it by the number of years. If I estimated an annual cost of living of $25,000 per year, I would need a total of $1.4 million dollars in order to sustain the rest of my life.
The second step to planning out a life is to figure out your financial position as of today. I'll write about that later though.
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