Lifestyle Driven Investing™ is Erin’s trademarked philosophy of money. This philosophy is not a specific money management technique, but rather a way of thinking about money. Lifestyle Driven Investing is about letting your lifestyle determine your investment strategy rather than allowing your investment ups and downs to define your lifestyle.
Lifestyle Driven Investing begins by categorizing your lifestyle expenses into four different categories ranging from most essential to least essential: Needs, Wants, Likes and Wishes. There is no set standard for what expenses must go in each category because this is not intended to be a budgeting tool. Rather, each category will have its own set of investment criteria.
Once you have all your expenses categorized, the next step is to fund your expenses. You start by looking at your existing sources of income: social security, pension, rental income, etc. If these sources of income are not enough to cover all your living expenses then the shortfall must be made up through investment income. Lifestyle Driven Investing is a philosophy designed to help you identify appropriate investments for the expenses in each category. Since the Needs category contains your most essential expenses, this income is the most critical for sustaining your basic lifestyle; thus, the investment criterion for this category is the most stringent. Needs should be funded with Lifestyle investments. Lifestyle investments must:
- Produce an income, either now or in the future
- The income these investments produce must either be safe, predictable or guaranteed.
- Ideally these investments should be held within some type of legal entity that provides asset protection in the event you are sued.
Hybrid investments have some but not all characteristics of Lifestyle investments. For example, these investments may produce an income but the income may not be safe, predictable or guaranteed. In other words, these tend to be higher risk investments than Lifestyle investments but also tend to produce higher percentage income.
Non-Lifestyle investments are pure growth investments. In other words, these are investments in which you are only hoping for capital appreciation because there is no income component.