In the personal finance world, there is a concept called financial independence. It is when all of your passive income from your investments ,real estate, stock market and interest income, replaces your annual expense. So, how does one get to this magical number? You multiply your annual expenses by twenty five.
So, if you need:
$40,000 per year it would be $1,000,000
$50,000 per year it would be $1,250,000
$60,000 per year it would be $1,500,000
$80,000 per year it would be $2,000,000
$100,000 per year it would be $2,500,000
$1,000,000 per year it would be $25,000,000If you withdraw 4% from your investments, it would allow you to draw your annual expenses and last for your lifetime. This withdrawal rate allows you to keep up with cost of living and have enough room for your investments to grow.
Most would be in a great position with any of these; especially the last one. Rewarding you with the most important commodity: TIME. It would give you the flexibility to spend your time as you see fit. You can wake up at odd hours of the day. Take naps whenever, travel to wherever and sleep better at night. But, would you be satisfied with just the basic expenses covered or would you want a buffer.
How much buffer is enough? Is chasing this buffer worth the extra time and effort you put into it?
Book recommendations:
Your life cannot be stagnant. It will change it might grow or downsize. You would have to find a dollar value you are comfortable with and decide on “enough”.
If time is what you are trying to buy, find more creative ways to achieve that. You can work a part-time job, find a profitable hobby, become a consultant, live in a cheaper location, try the van or tiny house life. The lists are endless.
A critical question to ask yourself when you are trying to decide on ENOUGH.
Will I regret working one more day if I dropped dead today?
