Target Number

Setting A Target Number Part 1: Analysis Paralysis

I can’t help myself. Ever since realizing financial freedom was actually attainable and within reach for us well before the traditional retirement age, I’ve been fanatical with defining our target number. I run and rerun numbers ALL the time.

I run numbers in my head during spin class. I run numbers on my iphone when I’m on a plane. I run numbers on sticky notes during meetings. Given the dozens upon dozens of excel spreadsheets saved all over my computer, you would think I was an accountant!

“What If” Scenarios

I’m obsessed with running numbers, analyzing the impact of different “what if” scenarios…

  • What if we increase our annual savings?
  • What if we earn a higher return on our investments?
  • What if we earn a lower return?
  • What if we work one more year? What if we quit one year earlier?
  • What if we never earn another penny after quitting our corp jobs?
  • What if E keeps working his corp job while I build my own business?

All of this number crunching to figure out exactly what level of financial security – our target number – is required before we quit the rat race and commit to making our time our own.

Key Factor: Earn Income After Corp Careers?

Obviously there are a number of factors to consider to ensure our target number allows us to maintain our current lifestyle without running out of money. But the one area I spend the most time analyzing (and likely has the largest impact to where we ultimately land with our target number), is how much money we will earn after we quit working our corp jobs.

During the past 20 years I’ve enjoyed a successful career climbing the corporate ladder. (I’m incredibly grateful because advancing my corp career is one of the primary reason why financial freedom will soon be within reach.) And even though I’m ready to say goodbye to my corp career, I actually want to continue working – but in a way where I choose when, where and what I work on. For example, writing my blog while enjoying wine at a café in Paris on a Tuesday afternoon (yes, I’m a dreamer!).

So, as a result of my work, I expect to earn some level of income as an independent professional. But to be clear, I do not want to feel like I have to earn an income, at least not as much as I make today. I expect E will also earn some money working part time, but again, because he wants to, not because he has to.

Target Number Options

With this in mind, below are the 3 options that we’re considering for our target number

  • Option #1 – Target Number = 2 x Current Net Worth + Zero Debt
    Continue working our corp jobs until we have achieved complete financial security. In other words, we have enough money to maintain our current lifestyle for the rest of our days without earning another cent. Our target number for this scenario means we would likely need to keep working 5 more years (2022).
  • Option #2 – Target Number = 2.5 x Current Net Worth + Zero Debt
    Continue working our corp jobs until we have achieved complete financial security AND are able to afford a mountain retreat. I know, now I’m getting greedy. But my dream is to split our time between our home base and the mountains. Our target number for this scenario means we would likely need to keep working 7-8 more years (2025).
  • Option #3 – Target Number = 1.2 x Current Net Worth + Zero Debt
    Continue working my corp job until we have enough of a financial cushion to pay off our mortgage and maintain our current lifestyle while earning a fraction of our current annual income. In this scenario, E continues working his corp job while I build up my business and earnings. Our target number for this scenario means I would likely need to work for one more year (2018) and E for another 5 years (2022). 

Committing to Target Number

Once I think we’ve committed to one of these 3 options, I wake up the next day and re-evaluate. The truth is, I’ve never been very good at committing (other than my marriage to E of course!!). I always like to keep a door open in case a new opportunity comes along. I love possibilities.

So I’ll keep the door open a few more days… In next week’s post I’ll share where we landed on our target number and why. Stay tuned!

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