I was thinking today about the concept of “Fuck You Money.” This is the value of dollars that you need as a minimum to be able to say “Fuck you” to anybody, or any situation and not sweat it.
It means you can live where you want, and do what you want without counting pennies.
Necessarily, the value of “fuck you money” will depend upon your apirations. A single man whose biggest desire is to be a beach bum, surfing, drinking beer, and eating chicken wings down in some secluded epat locale like Costa Rica will have a lower value of FYM than someone who wants to be a first class world traveller.
When I was young I simply desired a deep ocean yacht to sail around the world or whatever (though I don’t know how to sail) I did a back of the envelope calculation and decided arbitrarily I’d need 250k for the boat and another 250k for sundry expenses for the rest of my life.
This was naive.
So, clearly we need a median value for reasonable FYM. Single? Married? Want kids? Have kids want a divorce and an 18 year old Ukrainian model? Our Median value must encompass all of these things.
I’ve decided that a minimum value for FYM that encompasses all of these possibilities and anything else within reason is a sum of money which reasonably invested can provide 250k cash in hand per year after taxes with an annual adjustment for inflation.
We will need a secure investment. Somewhat arbitrarily I have chosen the American Balanced Fund:
http://www.americanfunds.com/funds/details.htm?fundGroupNumber=11&fundClassNumber=0
I see that it has been around since 1929 or so, has multiple managers for continuity, and averaged about 11% over its lifetime with a diversified portfolio.
Since I need certainty for FYM not probability I’m going to reduce that return to 8% for my expected performance. I am going to decide that taxes will reduce that return to 5%. I am going to decide that inflation will reduce that return to 2%, which is what I will be able to withdraw per annum in perpetuity.
But nobody lives forever! Fuck you. Maybe I will. If it runs out, than it’s not “Fuck You” money. It’s “Fuck me” money.
Of course, I won’t actually put all the money in one fund. I will use highly sophisticated arbitrage techiques, modern portfolio, and other economic tools to build an efficient portfolio on the capital market line and generally display due diligence and prudence. It’s just an example of the kind of return I can hopefully get.
This puts the value of “Fuck You Money” at precisely $5,000,000 in today’s dollars.
That’s how much you need to cover all your bases and relax, because you’re gonna be just fine and everybody else can just fuck off.
Anybody disagree?