This is probably the most IMPORTANT blog you will read this year.
It reveals how to work out YOUR NUMBER…. without it you will forever be on a perpetual treadmill.
I don’t want that for you, and I’m sure you are sick and tired of just surviving.
This here is the quick and dirty formula I promised you yesterday.
Find out how much you are spending this year on your current lifestyle. Be sure to include all the big items such as housing costs like rent or mortgage payments, insurance, clothing, food, etc. And make sure you include all other costs including occasional expenditures such as holidays, impulse purchases and emergencies.
Add to that the net annual cost of any extras that would bring you up to the lifestyle you want. For example if your car lease is currently $3000 a year for a Toyota and the Mercedes you want to drive in retirement is $10,000 of the year, add $7000 to your yearly budget.
Multiply the results by 20. THAT’S YOUR NUMBER, the amount of money you need to put away before you can quit your job and begin living off interest, dividends or portfolio income.
How does this work in real life..? Good question.
Say you’re currently spending $80,000 a year to live as you are living. Say you’ve determined you need to spend an additional $60,000 a year to be really happy. The sum of those two figures ($140,000) multiplied by 20 is $2.8 million.
Important note; the multiplier of 20 is a little bit conservative. It’s higher than the one I set for myself when I began making money and working on my number.
I’ve raised the bar a little bit, as I’m getting older and getting more conservative. The point that I’m making is that if you set a goal to achieve this financial target, you will probably have more money than what you really need…
That’s a good thing, don’t you think?
You’re probably thinking, where does the 20 come from?
The 20 is an easy way to calculate a return based on 5% per annum. Comprende?
To show you what I mean exactly, let me give you a quick example. If you had the entire $2.8 million right now you could put it in a fixed term deposit in any of the four major banks and get back a return of 8.3%… That’s an income of $232,000 per year. A lot higher than you originally projected, right?
Some people may be questioning the tax implications, if you set this up correctly you should only need to pay 15% tax, that’s it. Not really an issue, is it?
Now that’s just having the money in the bank, pretty safe and passive.
If you took that one step further, and got smart about investing your money, you could do a lot better than that.
If you simply bought a well selected share portfolio, it should grow at roughly 11.3% annually. That’s the average from the last 50-odd years, can’t argue with that.
Add to that the dividend yields of let’s say anywhere between two and five percent, your total return on your portfolio would be 14.3% (average).
So going back to our $2.8 million, if we get 14.3% that would make our income now $400,000 (that’s more like it).
Not into shares? Well, let’s have a look at property (my favourite).
This will depend on how well you buy property, how long you hold it, and how well you manage it. But I think it’s safe to say that your real estate can give you on overall return on investment closer to 20%, which might bring up your average investment yield between 12% and 18% depending on how much real estate you do.
How I came up with 18%?
Let’s assume you pick an area that has had consistent 12% growth over last 20 years, and add to that a rental yield of 6% that will give you about 18% (average).
So if you’ve got $2.8 million, multiply that by 18% and that gives us now of total of $504,000 of portfolio income (now we’re talking!)
I know what you’re thinking… It sounds all good, but how the friggin’ hell do I get $2.8 million..? Good question.
Now of course to get the 2.8 million, it’s unlikely that you’ll ever be able to save it..
The bottom-line is that you’re going to have to understand investing regardless of whether you choose real estate or shares.
My task is to get you to realise and figure out your number. Your task is to do something about it.
So what is your desired retirement lifestyle?
Let’s take a look at the following.
MODESTLY COMFORTABLE ($150,000 a year) and you’ve got all you need. You and your wife live in a modest but comfortable house, drive late-model but not too fancy cars, go out to dinner at moderately priced restaurants several times a week, and you take several week-long or ten-day vacations (economy class).
To reach this lifestyle you’ll need about $2.8 million.
QUITE COMFORTABLE ($500,000 a year) life is pretty easy. You got most of what you want. You live in an up-market area, in a nice neighbourhood, you drive a luxury car, you dine regularly at the best restaurants, golf and tennis at the club, and a few business class vacations a year.
This lifestyle will set you back about $8 million.
EXTREMELY COMFORTABLE ($1 million a year) you got all, you live in a multi-million-dollar house, drive an expensive, nice luxury car, never experience a winter: Six months in Australia, six months in Europe. You fly first class six times a year just to the fun of it. These holidays are pretty much non-stop.
Choose this luxury lifestyle and your target is $18 million.
Did that help?
Which lifestyle did you choose?
You might be saying to yourself that you would be more than happy with option one, that’s cool, it’s more than achievable now that you know what that number is.
It’s your choice what lifestyle you want and what lifestyle is going to make you happy.
You get to choose YOUR NUMBER..
I’ll say this, if you don’t have a number, you’re unlikely to ever achieve a comfortable retirement where you can live a life on your terms and perhaps far better than what you currently experiencing.
Wouldn’t that be amazing to actually live a better lifestyle in retirement then you’re living right now?
For most folks that’s almost a crazy thing to even suggest. (Especially when you talk to the “financial planners”).
Set a target now and stick with it. Work out your number and start taking action to achieve that number in the next 5-10 years.
Don’t be foolish enough to think you can do it in 12 months, sure it can happen but for most people it will take a little bit longer than that.
There’s a saying that goes like this,
“Most people OVERESTIMATE what they can achieve in 12 months and UNDERESTIMATE what they can achieve in 10 years.”
Begin now… the best way to achieve your number and a level of comfort you want when you retire is to accelerate your income as well as your wealth.
There’s no better place to learn how to do it, than some of the surprise educational wealth events that I have coming up for you in the next two months.