A business owner adds up receipts using a calculator and an ipad.

How much money do I really need as a business owner in Manchester?

Before I became a financial planner, I used to own a different business. Not once did I really ask that question “how much money do I really need?”.

Work was my sole focus, and I never questioned what the ultimate purpose of all this effort was. I was working weird and wonderful hours, travelling across the world and staying in unmemorable hotels eating the same buffet breakfast every single day.

At first, working away from home got to me, then I started to hate the business that I used to love.

Despite all of this, I was afraid of changing my situation due to the impact it might have on my finances.

I kept saying to myself over and over again:

“I need to keep at it because I need this business to afford my lifestyle”.

Sound familiar?

Then one day I came across a really simple way to work out the answer to my ONE overriding question: how much money do I need to continue enjoying the lifestyle I already have? And how much do I need to save to be able to do what I want, when I want?

The “how much money do I really need?” formula

Here’s the very simple formula I came up with to answer this question.

Formula = current (or desired) lifestyle cost X 25

For example, if you currently spend £40,000 per year, you are going to need 25 times that. That means you need £1 million to sustain your current lifestyle without having to work (if you choose not to work). Or if you spend £100,000 per year you are going to need £2.5 million.

So, there you have it: “your number”. That’s the answer to how much money you really need.

There are some other things to consider alongside the formula

There are some caveats for this simple calculation to work successfully. For starters, keeping your £1 million in the bank with a 0.01% interest rate is not going to cut it I am afraid.

In this scenario, one of your biggest challenges would be to beat inflation. Inflation can reduce the buying power of your savings year-on-year.

But stick with me, let’s keep it simple for now.

Now you have your number, you might be in one of three camps.

  1. You think your number is achievable and you are well on your way to achieving this in the timeframe you want. If this is the case, well done!
  2. You think there is no way you can hit your number and therefore you are going to end up running out of money.
  3. You have already hit your number or you know you are easily going to surpass it.

Camp two is certainly not ideal. This is the thing that keeps a lot of people awake at night, but your financial planner can help with that.

In my opinion, camp three is equally detrimental. It might even be worse!

If you have already hit your number, it means you may end up dying with too much money. Maybe you are not living up to the lifestyle that you can afford or not doing all the things you really want to do. 

Maybe you have your head down in work mode, adding more to the bank account but not adding more to your lifestyle account.

Whatever the reason, having too much money could result in a large tax bill and a reduced inheritance for your loved ones.

Business owners have an added layer of complexity to their formula

As a business owner, you may need to take extra steps into consideration. Your business and personal situation may be more complicated than this simple calculation. 

As lifestyle financial planners we help business owners like you work out their number using sophisticated cashflow modelling software. The software helps us to map out a unique financial strategy that takes into account all of your current and future incomes and assets and your ideal lifestyle expenses across multiple phases of their life.

When we know this, we can:

  • Work out how much the business needs to sell for to attain the lifestyle you want
  • Provide tax planning and investment ideas to accelerate getting to your number as quickly as possible
  • Illustrate different financial scenarios that could enhance your lifestyle
  • Provide a strategic roadmap that protects you from running out of money or from paying more tax than you really need to.

Get in touch

Whether you consider yourself to be in camp one, two, or three, we can help you to understand how much money you need to save to be able to retire, and can help you create a plan to get you there as fast as you would like to. Say hello to us [email protected], call us 0161 541 2826 or submit a contact form on our website.

Please note

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.