Firstly, no I am not talking about your telephone number, your national insurance number or any other kind of standard number.
In the world of personal finance, numbers are everywhere – from account numbers, to valuations, number of units/holdings, charges, taxation. But over and above that there is one sacred number above all other that is actually important – ‘your number’.
‘Your number’ is amount of available capital that you need to be financially independent and self sufficient for the remainder of your lifetime given all but the most extreme of circumstances. It is the number that people should be striving for to be able to secure their financial future.
What is this number you might ask, and how do you calculate it. The answer to both of those things is actually more simple than you might expect. No complicated spreadsheets or equations needed.
‘Your number’ is simply the amount of money that you require each month x 300. So for example if you had a need of £2,500 per month then ‘your number’ would be £750,000 (£2,500 x 300 = £750,000).
To explain a bit further, when I say capital I mean a combination of savings, investments and pensions. In my opinion you definitely need to discount your home and should probably also exclude other property, but could account for this in a different way as I will explain below.
If you have sources of income that are not part of earned income (such as rental income or pensions in payment) then you can deduct those amounts from the monthly income need figure.
This figure is likely to change over time as income needs and sources of existing income change and that is absolutely normal, but being aware of it and taking intentional steps to move towards it is what is important here.
Why not write your number down somewhere that you look at regularly to act as a reminder.
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