Have you ever thought about what you need in the long run to live a good life? How much of your time are you willing to exchange to secure more financial stability? It would be easiest to avoid thinking about the future and assume that things will somehow work out. Succumbing to the thought of “we never know what the future holds” is a convenient way to avoid taking responsibility for trying to prepare for different situations.

How much of a financial cushion do I need for basic living?

For the past couple of years, I’ve been trying to tackle this challenge of “how to live fully now and prepare for the future” by being honest with myself about how far I am from financial freedom. I started by considering what is the minimum amount I would need each month to live reasonably well even when it’s time to leave the workforce and retire.

My monthly budget calculation looks like this:

  • I need a debt-free home.
  • Housing expenses (maintenance fees, internet, electricity, water, insurance, renovations) 700 €
  • Food 400 €
  • Phone (device + plan) 50 €
  • Services (public transportation, healthcare, cleaning) 320 €
  • Savings for unexpected expenses such as appliance purchases and others 200 €

The total amount is 1,670 € per month.

This calculation assumes that everything continues somewhat as it is now, and there are no unexpected changes to my health, which could incur additional costs. The calculation does not include any hobby expenses, travel expenses, or experiences, only the costs of everyday life.

My own budget revealed stark numbers

Next, I looked at how much future retirement pension I would receive. By the age of 50, I have accumulated a future retirement pension of 1,745 euros per month. An estimate calculator shows that if my work continues at the current salary level, my pension at the age of 66 could be 2,937 euros per month. However, I don’t quite believe this calculation. Firstly, a lot can change in the 16 years of my working life, and my salary could decrease. And secondly, there may be many cuts to the pension system in the coming years. Therefore, I’m using a slightly more cautious figure in my calculation, somewhere between the earned pension and the promises of the calculator. So let’s assume that from the age of 66 onwards, I will receive a pension of 2,100 euros per month.

Does this mean that the pension comfortably covers the basic living costs? Not quite! There is a 28% tax on the pension, so after taxes, I’m left with 1,512 euros per month.

Basic expenses – 1,670 €
Pension + 1,512 €
Balance -158 € / month

The average life expectancy for women in my age group is 85 years. Let’s be optimistic and assume I live until 87. I’ll retire at 66, so I’ll have 21 years of retirement. To cover basic expenses during these years, I need a financial buffer of 21 x 12 x 158 € = 39,816 €. And also, that debt-free home.

What about living now?

Of course, like many others, I dream of financial freedom. So, I made additional calculations to figure out how much money I would need to live without regular income even before retirement age. I would need savings in the hundreds of thousands. This realization might either paralyze or empower.

Then I realized that life shouldn’t be viewed as a straight line with a point somewhere beyond which “living freely” begins. Rather, I can reflect on my current savings in relation to the overall goal and see what percentage of the whole I’ve already achieved. If, for instance, I’ve saved up 20% of the goal, it means I can live one-fifth of my days as if I were financially free. That could mean transitioning to a four-day workweek or taking a week off every couple of months.

In my own life, I implement this mindset by listing destinations, hobbies, and other experiences I want to have. Or items I’m saving up to buy. And I aim to accomplish one of these each month. And these things don’t always have to be something expensive. For me, such actions earlier this year included buying theater tickets for myself and a friend, getting a gym membership for myself and my kids, and participating in a weekend songwriting camp. The crucial thing is that I recognize these instances of spending as part of my “living now” plan. This way, I can appreciate them and make choices that feel right.

How do your calculations look like and are you trying to eat and save the cake?