Sunday, January 08, 2006

What's Your "Number"?

What's Your "Number"?

Lee Eisenberg's new book, "The Number," is about the number we carry about in our heads for the amount of money we think we want or need.

I've thought about my number a lot over the years. When I first started working, it was all about financial security. During the heady days of the dot com boom, I would argue with my co-founder Thomas about how much was enough; the consensus was that $100 million was a nice round figure. Now that I have a family, things have changed once again.

The way I think about the number is simple: What is the amount of wealth that, when invested in an absolutely safe investment (inflation-indexed treasuries or TIPS) will yield enough income to support a comfortable lifestyle.

In practice, I think I need about $100,000 per year, post-tax, to live a relatively luxurious existence. Tack on $50,000 per year for seed money to start new companies, and I end up with a total of $150,000 per year.

Since TIPS currently yield about 2% per year, but are taxable, the actual after-tax, after-inflation yield is around 1%. That means to achieve a risk-free income of $150,000 per year, I would need a principal of $15,000,000. Tack on $2,000,000 for a house (I do live in Palo Alto, after all), and my current number is $17 million.

Boy, I'd better get to work!

1 comment:

Justin K said...

It would be interesting to ask Jerry Yang or Sergei and Larry if they had a "number" before they even came up with the idea for their startups.