Financial metrics

How much you have

Add together all your bank accounts, investment accounts, retirement accounts (if you can access them), estimates on the value of your house.

Then subtract any debts, mortgages and other financial obligations from that.

How much you make

Take your employers payment slip from the last year of the month. It should mention how much your employer payed you.

If you are self employed, find the amount of profit your business produced last year.

How much you spend

Keep track of every expense. Download your bank statement and sort in-comings from out-goings.

For many people this will be the hardest to nail down.

Life energy

From Your money or your life by Vicki Robin

Take your income and subtract any costs needed for making this money: travel expenses, work clothing and other representational costs, meal expenses, etc.

Then take the time you spend at work and add in the hours you are commuting to work, the time at home you spend preparing for work, the hours worked from home or by taking calls outside of working hours, etc.

Take the income after business expenses and divide it by the hours actually put in for work. That's your real hourly wage or how much money you get for expending one hour of your life's energy.

Now you can evaluate every purchase in terms of the amount of life energy you need to expend for work to be able to buy the item in question.

Burn Rate

Divide how much you have by how much you spend

This gives you the time it takes to run out of buffer when / if

• all income dries up and
• all expenses stay the same

Typical ranges are:

• 3 months of expenses
  • emergency fund
  • apply not only to money, also to food
  • bare minimum
• 10 years
  • need to keep working part time
  • good balance between security and agility
  • next 5 to 10 years are reasonably predictable due to inertia
  • after that: who knows?
• 25 years
  • See Safe Withdrawal Rate below, 4% rule
• 33 years
  • See Safe Withdrawal Rate below, 3% rule

Saving Rate

Divide how much you make by how much you spend

Typical ranges are:

• below 1
  • too many expenses, not enough income(s)
  • dangerous for too long, eats into buffer
  • ends in bankruptcy in the long run
• 1
  • a year of income covers all expenses
  • all income is spent
  • unexpected expenses can easily push you below 1
• 1.1
  • typical Western household
  • saves 10% per year
  • also spends most or all savings some time later
  • work ten years, take one year off
  • creating a 10 year buffer takes 100 years

Exceptional ranges are:

• 2
  • every year of income covers 2 years of expenses
  • work one year, take one year off
  • creating a 10 year buffer takes 10 years
• 3
  • every year of income covers 3 years of expenses
  • work one year, take two years off
  • creating a 10 year buffer takes 5 years
• 4
  • every year of income covers 4 years of expenses
  • work one year, take three years off
  • creating a 10 year buffer takes 3.3 years
• 5
  • every year of income covers 5 years of expenses
  • work one year, take four years off
  • creating a 10 year buffer takes 2.5 years

Safe Withdrawal Rate

This is the rate at which you can safely withdraw from an investment portfolio. Safe can be either in the sense that the portfolio will not deplete (run out of money) before you die, or it can be in the sense that the principal of the portfolio will be maintained, or may even increase.

• 4% rule / Trinity Study
  • when invested, historically provided sufficient return in most cases to cover living expenses over a 25 year period
• 3% rule
  • when invested, historically provided sufficient return in all cases to cover living expenses over a 25 year period

These "rules" depend on market conditions and the allocation of asset types in your portfolio. See portfoliocharts.com for many different portfolios and their historical performance.

Caveats

The underlying assumptions for investing with buffers exceeding 25 years of living expenses are probably not correct in a world with declining energy availability. In my opinion, money is in fact an abstraction over the flow of energy.

• See Our Finite World by Gail Tverberg
• See Surplus Energy Economics by Tim Morgan