Okay, it’s true. There’s a magic number that can help you achieve financial independence, and even quit your job to retire early. But it’s not what you think.
You’ll sometimes see numbers thrown around of how much you need to retire comfortably. A million. Two million. Three, just to be sure. Wanting to retire early? Better make it four million, so that you don’t ever run out. Sure, why not?
Except I’m not an Auckland home. I’m just not worth that much, and I don’t know if I ever will be. Am I going to let that stop me working towards financial independence? No.
Because all of those goal numbers are irrelevant. They’re not the magic number that will actually help us.
What’s important is not a dollar figure that we can pretend applies to everyone. One size does not fit all when it comes to money. Instead, what we want is a plan snugly fitted to you and your life, goals and values. Something that gives you what you need, what makes you happy, and doesn’t waste your time on anything more.
READ: Financial Strategist Hannah McQueen On How To Save Money The Smart Way
So if you want financial independence, the first thing you need to think about is what you want in life. Then you need to do just the smallest, simplest bit of maths.
How much does it cost you to keep a roof over your head? What are the things in your life that make you truly content, and how much does it cost to keep them in your life? Most importantly, what do these things cost you in a year?
This is the magic number — your own magic number, unique to you. Then just a little bit of maths. You multiply that yearly number by 25.
If you have a nest egg that size, invested into the right mix of shares and bonds, you should be able to live off it for decades.
You can take out four per cent of the nest egg each year, which gives you the yearly figure you added up before.
That 4 per cent of spending is the other magic number that makes everything work for you. Because your investments are still growing and working for you, you can pay for everything you need and want in a year, but you shouldn’t run out of money for decades; if ever.
It sounds absurdly simple, doesn’t it? Except the problem is, that 25x figure might look enormous. You might have quickly added up some numbers and decided that I’m …….