The Tim Ferriss Financial Plan

This blog is courtesy of Russ Thornton of Wealthcare for Women.

For those of you who aren’t familiar with him, Tim Ferriss is an author, speaker, podcaster and more.

He burst onto the scene back in April 2007, with his first book, The 4-Hour Workweek.

He’s since written other “4-hour” books including The 4-Hour Chef and The 4-Hour Body.

And while his latest book, Tools of Titans, breaks away from his signature “4-hour” theme, you might think an article with the title “The Tim Ferriss Financial Plan” would involve some sort of 4-hour prescription.

But that’s not what I want to write about today.

Instead, I’d like to focus on a concept Ferriss introduced in his first book over 10 years ago.

He refers to it as lifestyle costing, dreamlining or lifestyle design.

As he explains here, rather than thinking of your annual income and then trying to squeeze as many of your needs, wants and wishes from it each year, think instead in terms of your monthly cash flow.

In other words, how much does your ideal lifestyle cost each month?

Before we dig into this concept further, I think we should first pause and consider your ideal lifestyle.

For this exercise to be valuable to you, you must first determine, in as much detail as possible, what a truly ideal lifestyle is for you.

I would encourage you to adopt the Ferriss “lifestyle design” model and think of your ideal lifestyle in terms of what you want to have, who you want to be and what you want to do.

If you’re married or have a significant other, this is a great conversation to have with them.

And if you’re on your own, as many of my clients are, then you can go through this exercise on your own and bounce it off a friend or trusted advisor to get some feedback.

Much like I do in my financial planning work with clients when we explore their ideal goals, this is an opportunity to really have some fun and think “what if.”

There’s no right or wrong here.

It’s your life.

Once you’ve spent some time thinking about and writing down the specifics of your very own ideal lifestyle, then it’s time to figure out how to make the money work.

We now need to figure out how much your ideal lifestyle costs each month.

To do that, I’ll again refer to what Ferriss calls “TMI” or “Target Monthly Income.”

(not to be confused with MDI, which I’ve written about before)

Let’s say your ideal lifestyle corresponds with a TMI of $6,000.

The next step, in order to break this figure into a more manageable number, is to divide your TMI by 30 to come up with your TDI. Yep, you guessed it. TDI is your target daily income.

$6,000 divided by 30 = $200 per day.

Of course, your ideal lifestyle and your TMI and TDI will vary.

Remember, there’s no right or wrong here.

But once you have your TDI, I think it can fuel some interesting ideas.

In the example of above, with a TDI of $200, it may be worthwhile exploring the different ways you could earn this amount.

$200 TDI equals an 8 hour work day at $25 per hour.

Or a 4 hour work day at $50 per hour.

Or a 2 hour work day at $100 per hour.

But it also could also be you starting a business and selling goods or services to hit your $200 TDI.

Maybe the best way to pursue your ideal lifestyle is in your current work situation. But maybe it’s not.

Maybe the best way to pursue your ideal lifestyle is where you live now. Then again . . .

Do you need to go back to school to pursue your ideal lifestyle? It’s possible.

Perhaps you can move closer to your ideal lifestyle by removing some things and expenses from your current day-to-day lifestyle.

Think about the concept of time in the context of your ideal lifestyle. Perhaps you can meet your TDI while only working 5 hours a day. Or maybe it takes 8 hours a day, but only 3 days a week.

What would you do with all that extra time?

In my opinion, the true value in this exercise comes from asking yourself questions and exploring what your life could really be like.

All too often, I meet people who don’t have a plan, financial or otherwise.

They make good money, but don’t think in terms of their TMI or TDI.

It seems to me like they’re mostly winging it and hoping for the best in the future. And as I’ve written before, hope isn’t a good strategy.

You don’t need to wait until you’re in your 60s and retired to start living your ideal life. Why not start now, regardless of your age?

If you could create your ideal lifestyle today, maybe you won’t want to retire in the future. Or at least not in the traditional sense of retirement.

So here’s a little homework . . .

Think about your ideal lifestyle. Get specific. Ask yourself what if and see where the answers take you.

Then apply the concept of TMI and TDI to your detailed ideal lifestyle. You may be surprised by how much or how little TDI you need to really live life on your terms. But either way, knowing the TDI for your ideal lifestyle is an important data point.

Finally, challenge yourself and your thinking. If you’re not currently living your ideal lifestyle, why not? When will you start? What has to happen first? What are you waiting for?

Remember, you only get one shot at life. It’s up to you to make the best of it.

And I think the “Tim Ferriss Financial Plan” offers an interesting perspective on helping you do just that.

Note: the figures above ignore taxes, and while the tax implications are beyond the scope of this article, be sure that you consider what you need to earn pre-tax in order to reach your TMI and TDI, which are after-tax figures.


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