Basic Needs Index

I joined up with Lydia, my stepmom, in business. The small consultancy is called Spacets IT and we have a modest profit of about R12 million p/a. Just kidding. Its a little bit smaller than that . After I gave notice at the contracting house I contemplated how much time and money I would need to survive, scrape by, enjoy life or really cream it. Then I contemplated that I should’ve contemplated this before I did the Big Jump out of corporate South Africa, but like the saying goes, one cannot test the water with both feet in the boat (more about that phase later). About the basic needs index — it is a method I devised to figure out how much one really needs to keep breathing for an indefinite period on the face of this God-given earth, somewhere between being clothed in rags and eating worms, or clothed in Armani and eating frogs. The Life Surface Area model really helps in this regard because one’s existence is already mapped out for you, all you have to do is decide what’s more important and what you can live with at what quality of life scenario. Here’s how it works:

1. Take you Life Surface Area map’s main areas, here’s a simple list of main categories if you don’t have one yet:

2. Think of your current lifestyle in terms of the above areas, then dream about what it would be like if you had more time and money to spend on any of these areas. Specifically, think of your current lifestyle, how it would be if money and time constraints were worse or worst, and finally what it would be like if it was better than what you currently experience. For example,

3. Fire up that old, trusty excuse for a database. Yes, I mean Excel. Now, for each area on your life surface, enter what you’d expect at each quality of life level, together with a Rand amount (standardise to a monthly figure where necessary). Here’s some thumb-suck figures… my current needs are unfortunately much higher, and yours will differ too… things like dogs, bikes, travel and other ‘lifestyle’ choices makes every scenario unique:

4. Create summaries for each of the Quality of Life scenarios. I made a PivotTable by selecting my table, clicking Insert > PivotTable in Excel 2007 and adding the QOL to the Row Labels area, Category ot the Column Labels and Sum of R/m in the Values area:

So what is the story this picture tellling us? First of all, one must understand that there’s basic needs that must be satisfied at every level — one must eat, sleep and travel whether you’re a bum or a billionaire. I also added a cellphone to my worst scenario — I cannot see myself getting by without one. Having said that, I know of people who had absolutely nothing to their name, yet survived on the streets – even with a baby to care for! – just fine for well under R4,000. But that’s not me. At four grand, I’ll live on beans and share a single room with someone (hopefully someone nice). I know that if it comes to a certain point, I can even forego the R30/day food budget and share a place, say, with 10 other nice people for R500. I guess you start with what you have. At this level, though, you’re just about down-and-out on the dole.

Having thought about the worst-case scenario, I then looked at what’s better than that (when that was just better than not being alive) but worse than what I have now. Which is a position many people find themselves in at the moment, I think. At this level, one can still hold on to the house but you must get creative about keeping the bond repayments up. You will rent out rooms, for example, give the dogs away, drain the pool, in short, make some drastic lifestyle changes that is in reach, but not nice at all. You’ll lay off the gardener and maid, do your own laundry for the first time in your life and there’s no DVDs and DSTV at this level. Also, you’ll get rid of all expendable expenditures such as gym memberships, clothing purchases, eating out, buying gifts and keeping vehicles that can otherwise be sold for profit. A sad picture, but not unusual to see this happening more and more as the credit crunch and recession drag their feet to blow over.

That leaves us with the current and better scenarios. If you did this diligently, your current situation’s not bad at all, is it? When starting a new business, I find my Current situation is the sweet spot to aspire to. The Better will come with profound customer satisfaction and diligent business practise, while I want to avoid the worse and worst at all costs — not for only for my own benefit, but also to spare the people around me the pain and embarrassment that these changes might bring about.

Having done this exercise, you can now decide what to do wit the leftover cash you may have at the end of the month. Using the example above, if your current lifestyle costs R18,933.33 — lets say R20k for ease), a hypothetical amount of R4,000 left over at the end of the month can be invested into securing the next month’s Current scenario, or used to bump your quality of life up by putting it away for an overseas trip instead of a local one for your next holiday. My advice is to save up three months of funds to maintain your current lifestyle before you bump up.

Interesting little exercise, isn’t it? I find this better than using a budget because one can see the effects of cash flow between multiple ‘budgets’, so to speak. If you have a current and active Life Surface Area map, you’ll also find a direct relation between the size of your areas and the financial outlay this brings to bear. In a future update I may add the element of time to this, but for now I’m going to rest a bit (sitting with a flu, hopefully not the flu — not that it should matter too much). In the mean time, consider giving this a go and let me know what you think.