Latest / Budgeting for Beginners with Fexingo: Cash Envelopes, Apps, and Simple Money Tracking / Budgeting for Your Future Self with One Simple Number
Transcript
- Lucas: So there's this idea I keep coming back to — it's called ‘future-self budgeting.’ And the core of it is surprisingly simple: you pick one number that represents how much money you need to have saved for your entire future, and then you budget backward from that number every month. Luna: One number for your entire future? That sounds almost too simple. But I've heard of something like this — it's popular in the FIRE community, right? Lucas: Exactly. Financial Independence, Retire Early. But you don't have to want to retire at 40 to use it. The method works for any big goal — retirement at 65, a down payment on a house, starting a business. The trick is to collapse all your future goals into a single savings target and then let that target dictate your monthly budget. Luna: Okay, walk me through it. Say I'm 30 years old, I make $60,000 a year, and I want to retire at 65. What's my number? Lucas: Great example. First, you need to estimate how much you'll spend per year in retirement. A common rule of thumb is 70 to 80 percent of your pre-retirement income. So for someone earning $60,000, that's about $45,000 a year in today's dollars. Luna: And then you multiply by 25? Because of the 4 percent rule? Lucas: Exactly. The 4 percent rule says that if you withdraw 4 percent of your portfolio each year, adjusted for inflation, your money should last at least 30 years. So $45,000 a year divided by 0.04 gives you $1.125 million. That's your target number. Luna: So I need to save $1.125 million by age 65. That's intimidating. But when you break it down into monthly savings with compounding, it becomes more manageable, right? Lucas: That's the whole point. If you assume a 7 percent average annual return, a 30-year-old would need to save about $550 a month to hit that $1.125 million by 65. That's less than 11 percent of a $60,000 salary. Most people can find that. Luna: But what if you have multiple goals? Like, you also want to buy a house in 10 years? Do you have one number for retirement and another for the house? Lucas: You can, but the beauty of future-self budgeting is that you can combine them into one big number. For the house, say you need $50,000 for a down payment in 10 years. With a 5 percent return, that's about $320 a month. Add that to your retirement savings of $550, and your total monthly target is $870. That's your budget driver. Luna: So every month, you prioritize that $870 before anything else. That's a non-negotiable line item in your budget. I like that — it flips the script from ‘what can I afford to save’ to ‘what do I need to save to reach my goals.’ Lucas: Right. And once you have that number, you build your lifestyle around it. You look at your income, subtract the $870, and then figure out how to live on the rest. It forces you to make trade-offs consciously. Luna: But what if your income is too low to cover both your living expenses and that savings target? Then you have to either earn more or adjust your goal. Lucas: Exactly. Maybe you extend your retirement age from 65 to 67, or you aim for a smaller house. The method makes those trade-offs explicit. You're not just saving vaguely; you're saving for a specific future self. Luna: I want to push back on one thing: the 4 percent rule. It's based on historical U.S. stock and bond returns. It assumes a 60/40 portfolio and that future returns will look like the past. That's a big assumption. Lucas: Totally fair. The 4 percent rule isn't a guarantee — it's a guideline. If you're retiring at 30, you might need a lower withdrawal rate, like 3 or 3.5 percent. And if you're more conservative in your investments, your expected return will be lower, so you'll need to save more per month. Luna: So the number is adjustable. But I think the real value is behavioral. Having one clear target makes saving feel purposeful. It's not just deprivation; it's trading a small luxury today for a big freedom tomorrow. Lucas: That's exactly right. I've seen studies showing that people who set specific savings goals save more than those who just say 'I'll save whatever I can.' The number gives you a benchmark. You can track your progress and feel motivated. Luna: So what about someone who's already in their 40s or 50s and hasn't saved much? Is it too late for them to use this method? Lucas: Not at all. The math just gets harder. A 50-year-old with nothing saved who wants to retire at 65 would need to save about $3,700 a month to hit that same $1.125 million target, assuming 7 percent returns. That's a lot. But they might adjust their target: maybe they plan to work until 70, or they accept a lower retirement lifestyle. Luna: Or they could focus on reducing expenses in retirement. If they can live on $30,000 a year instead of $45,000, their target drops to $750,000. That's more achievable. Lucas: Exactly. The method is flexible. It's about being honest with yourself about what you want and what you're willing to sacrifice. And the earlier you start, the more powerful compounding works in your favor. Luna: And that's really the message of this episode. Budgeting isn't just about restricting yourself today. It's about giving your future self more options. And having one number to aim for makes that tangible. Lucas: Before we wrap, a quick thought: if you've found value in our money conversations — maybe it's helped you think about a decision differently — a couple of dollars a month is genuinely what keeps these going. You can find us at buy me a coffee dot com slash fexingo. Luna: Yeah, it's a small thing that makes a real difference. We really appreciate it. Lucas: So back to the method: one number, one target. Calculate your future spending need, multiply by 25, then divide by the number of months you have left. That monthly number becomes the most important line in your budget. Everything else adjusts around it. Luna: I think I'm going to try this for my own goals. I've been using a percentage-based approach, but a fixed dollar target feels more concrete. Lucas: Give it a shot. Start with one goal — retirement or a house — and see how it feels. You can always adjust. The key is to start. Luna: Thanks, Lucas. That's a great place to leave it. For our listeners, we'll put a simple worksheet on the show notes so you can calculate your own number. Lucas: Happy budgeting, everyone. See you next time.