At the end of the day, the aim of the game is to buy your own life back
How much do you need to replace your income? Let’s crunch the numbers on it.
Ok, so say the average household income is $80K a year. That’s a decent mark to aim for. You can get by on that.
Let’s also assume that you’ve got a portfolio of properties yielding 5% a year. That’s also modest. You do hear of people settling for 2% in Sydney and Melbourne these days, but across the country, I think 5% is realistic.
So let’s back it out. How much do need at that kind of return. Well, to replace $80K you need 20 times that much: $1.6 million.
Could you ever save that much?
No way. Even if you saved 50% of your pre-tax income (a massive amount) it would still take an average household 40 years to save that much money!
But thankfully we don’t live in a universe where we have to live off savings alone. We can invest, leverage our money, and use our wealth to grow more wealth.
But even still, building a $1.6m portfolio takes time and patience. For some people it’s a life’s work. Sadly, some people are only ready to retire when they are almost ready to retire.
Such a tragedy.
But let’s think about that 5% number for a second there. Some people might look at that and think it’s ambitious in the current interest rate environment.
I look at that and think it’s piss-weak.
I can tell you that my portfolio is easily returning double-digits. Not every deal and not every property gets north of the 10% line, but some of them are well north of that mark, and on average, I’m into double digits easy.
Now, partly that is about being at a stage in my wealth journey where I’m able to access a different class of deal. I get invited to the high-roller table on a regular basis. And because I’m tipping in more capital, the returns tend to be higher.
Wealth creates more wealth.
But it’s also about being smart with the deals I do go in for. And I would say to anyone starting out in property investment, no matter where you’re coming from, that 7-10% isn’t an unrealistic target to aim for. With the right skills and the right knowledge, any one can hit that mark.
So let’s look at our numbers again.
Let’s assume that instead of getting 5%, we’re now getting 10%… does that change the game much?
You bet it does!
Now instead of needing $1.6m, we need half that much, just $800,000.
Or think about our world where savings are the only way to grow wealth. We’ve just saved ourselves 20 years!
Even in the real world, that has just saved us a tonne of time. Like what? Maybe a decade.
Who wouldn’t like a decade of free time?
The central point is, what’s going to be easier? Saving and amassing another $800,000, or investing in your skills and education, and getting better returns on the deals that you’re doing?
(yes that’s a rhetorical question)
And I’m not talking huge bucks. $10,000 would well and truly cover it.
Would you pay $10K for a decade of free time?
Seriously. A decade off. A decade without work, without deadlines, without the boss telling you what to do.
A decade to put energy into the things that matter. Your relationships, your passions, your I’ve-never-done-spear-fishing,-might-give-that-a-go’s.
A decade that is entirely yours.
Seriously think about it. Imagine, in my hand I have the ticket to the next ten years of your life. I can make them completely yours. The price tag? Just $10K.
That’s a bargain isn’t it?
This is the power of education.
It’s the power to buy back your life.