Part 1 – Income/Salary
If you’re like most people, before starting your journey toward financial freedom, the first step is to calculate your daily needs says Tommy Shek. This process can be done using either an online calculator (like this one) or by creating a budget with Excel or Google Sheets and calculating it manually. It does not matter which option you choose as long as it works for you.
The easiest way to calculate daily needs is by setting a monthly salary, and multiplying it by 30. This will give us our minimum monthly income we need to survive each month so that we can take care of our expenses, interests, taxes etc. For example, if your take-home pay from your job is $3,000 per month, then multiply it by 30 and you get 90k as your minimum financial goal every year (assuming there are no bonuses involved). Of course this method does not take into account any passive sources of income or interest gained on savings/investments. After the entire only thing that matters is getting paid in cash at the end of the day!
Part 2 – Savings/Investment
You must also have savings to cover any unexpected expenses or emergencies. For this you can either create a separate bank account for saving, or you can use one of the online tools available on the internet which calculates your savings based on your expected daily needs, income etc. If personally creating your budget with Excel or Google Sheets is too much work then you can try apps like Mint that automatically calculates these numbers for you based on your credit card transactions and monthly income. Alternatively there are plenty of financial adviser services out there that might provide some value, even though I do not recommend putting all your eggs in one basket when it comes to money management!
Once you get down to it, calculating daily needs is actually quite simple explains Tommy Shek. Just keep in mind that all the numbers you enter should be highly accurate, since there is no room for guesswork here. If you are unsure about any of these figures then it’s best to overestimate them so that your budgeting works out in your favor!
Here are some additional examples of monthly income and daily needs used for different parts of the world:
EU countries have a minimum wage between 300-700 EUR per month after taxes. Most people can live comfortably on 500 EUR assuming they don’t splurge too much on luxuries. This means that they need to make at least 1k net/month after taxes, or 2k gross/month before taxes (Eurostat).
The average American makes 2.5k after taxes a month, which is around 13.5k gross before taxes. This makes their daily needs 87K a year or 8.7k a month (Ycharts).
In Hong Kong the average person makes 12k after tax/month which means that they need to make at least 360k a year as their minimum goal every month if they want to live comfortably (Numbeo). In Singapore on the other hand, people make 7-12k after tax/month and have daily spending needs of about 70-100k per year (Money Sense).
The more you make, the less you will need!
As we can see from this example, once you reach a certain income level, your daily needs also rise proportionally says Tommy Shek. This is because money becomes more plentiful and you can easily afford more luxuries or unexpected expenses which you could not have afforded earlier with your initial income. On the other hand, if you are on a tight budget then don’t shy away from showing restraint! The less income you make, the fewer living expenses you will have so it’s best to save as much as possible at this stage of life.
With that being said, let us now jump into calculating our personal daily needs using an online calculator. We will use this example for demonstration purposes:
Our person starts out with a monthly income of 8.7k after taxes and wants to save as much as possible by living on less than they make (this saves them about 5-10% per month). We also assumed that there will be no annual inflation (which most people use 3-5%). You can easily modify these numbers if you want to change the currency or interest rate, but remember – everything is relative! Don’t fixate too much on these numbers since we are only using them as an example and sometimes life works in strange ways and may not follow the rules we expect it to!