Finance Expert Shares How To Calculate Your ‘FU Number’ To Determine The Exact Amount Of Money You Need To Live The Life Of Your Dreams
What does your dream life look like?
King Designz, Dean Drobot | Shutterstock.com While daydreaming about your ideal life can be rewarding, to actually achieve all you desire — from a new house to a comfortable lifestyle and even a family — you must make a plan.
“You don’t get to have a happily ever after. You don't get to ride off into the sunset if you don’t have a plan and know how to get there,” financial expert Vivian Tu said on the “Working Hard Podcast.” “The easiest way to do this, I say, is to calculate your ‘FU number.’”
The financial expert explained how to calculate your ‘FU number’ — the exact amount of money you need to live your dream life.
While daydreaming alone won't get you your dream life, it is a good place to start. “Sit in a room and think about ‘What does my perfect life look like for one year?’” Tu advised.
From the city you live in to your dream home to your perfect car — imagine it all, down to the last detail.
Then, get realistic — how much would it cost to have all of those things for a single year?
“[Map] out what roughly that would cost,” Tu said, and think about things like the cost of your car, the maintenance of a pet, and the price of raising a family. Add up all of your costs.
Once you have that number, divide it by 0.04 to uncover the amount of money you’d need to invest to live your dream life without working.
“You would have to have that bigger number invested, earning you 4%, and that would essentially throw off enough investment routines so that you could live that exactly perfect life you want without ever working again,” Tu, who is a former Wall Streeter, explained.
Of course, that kind of money doesn’t appear overnight. However, by creating healthy money habits and perspectives in your daily routine, you can set yourself on the right path.
According to a recent survey by Bankrate, that number, the number the average person feels they need to earn each year to feel comfortable, is around $186K. Divide that by .04 and you get $4,650,000. Unfortunately, most of us don't have that much to invest.
Tu recommends using the acronym S.T.R.I.P. to change your relationship with money for the better.
This acronym, which helps you to organize your money and set yourself up for success, starts with the letter “S” for “savings.” You need some kind of emergency fund, so your money progress doesn't revert back to 0 because of an unexpected expense or accident.
"I always encourage people to have 3 to 6 months of living expenses set aside in a high-yield savings account," Tu added.
After that, the acronym accounts for the following: total debt, retirement, investing, and of course, the most important, planning — which is where your FU number comes into play.
Zayda Slabbekoorn is a News & Entertainment Writer at YourTango who focuses on health & wellness, social policy, and human interest stories