• 03:36:42 am on July 23, 2008 | 5
    Tags: , , , ,

    The best way to give up your ‘day job’ is to watch my Live Show this Thursday @ 8pm CST (9pm EST / 6pm PST) at http://ajcfeed.com ….

    __________________________

    The Number!

    For a journey to begin, it has to have an end

    Who first said that? Me, I think?!

    But, the point is this: until you have a clear, new destination, you are just going to trundle along the same road that you always have.

    But, I am betting that your new destination – Your Life’s Purpose (found as a result of one month of very hard mental/emotional ‘work’) – will also enter a new destination into your personal financial GPS and it will even find the shortest/quickest route for you!

    And, for those 7 Millionaires … In Training! I’ll be one of the little voices inside that says “left turn ahead” … and, you’ll have a lot of the other members of the 7m7y Community doing the same (comments will be encouraged)!

    … and, we won’t even get mad if you’re too busy doing something really important (like changing the channel on the radio) and miss the next financial turn-off (after all, you ARE the one driving!) … but, you might just get the dreaded “at the first opportunity … make a legal u-turn” 😉

    So, yesterday, you possibly either came up with:

    1. A Big Spending Vision and scared yourself sh*tless in the process, or

    2. An inflation-adjusted view of your current spending.

    If 2. … congratulations, you have reached your destination: it’s a financial destination that a job at Starbucks and 20 years or so of 15% savings into your 401k and bit of debt reduction can give you. Thanks for visiting!

    If 1. … commiserations: your life just got incredibly difficult … at least for a while. Then, incredibly fulfilling!

    Let’s see what to make of things:

    Firstly, check the table that you came up with yesterday and notice when your salary (and/or business income) stops … assuming that you go ‘cold-turkey’ (if you go part-time that’s fine, too).

    BTW: did I mention yesterday that we’re looking at Household income and expenditure? Hmmm … better go back and rework if you didn’t pick that one up. You are on a financial journey with your family! Not married (or no kids) yet? Better use your imagination …

    Also, it’s best on the income side, to use gross (pre-tax) and make some allowance for tax (in other words, don’t spend more than 2/3 of your gross income!). For higher income amounts, you may need to allow more.

    Next take a look at your expenditure … it may jump up, while you’re still working, but it had better flatten off (naturally, it can still increase in line with inflation) when you DO stop working – it’s just not reasonable to think that you can free up time AND spend more all at the same time.

    Finally, take a look at how much you need to spend per year when you do stop working …. that’s how much you need to be earning in Passive Income when you do stop working.

    If you are earning some income, just subtract this to come up with a lower passive income figure … but, are you SURE that you want to commit yourself to having to work – even part-time – for the rest of your big-spending life?

    Since the experts say that you can withdraw 5% from your portfolio ‘safely’ each year (assumes 8% – 9% return on your investments and 3% – 4% inflation) you simply multiply this Passive Income figure by 20 …

    that’s how much you need in the bank on the day that you retire … presumably, at 35 years old 😉

    Two other points:

    i) I am real conservative, so I multiply by 40 instead of 20 (why? I’ll eventually post at http://7million7years.com on that) … but, when I did this exercise for myself in 1998 I only multiplied by 20, and

    ii) You need to add any major house/car/vacations purchases to that number that you still want to acquire and haven’t saved up for, yet … you can’t ‘safely withdraw’ 5% of these to live off every year!

    Now you should have The Number for you … and, a date.

    Scary?

    Great!

    Welcome to my $7 million 7 year journey … it sure scared me into massive action, hopefully it will do the same for you 😉

     

Comments

  • Josh 7:38 am on July 23, 2008 | #

    I guess thats what really seperates the successful from the not so successful, there ability to actually take massive action, and not just dream, but to dream and do.

  • Di Eats the Elephant 8:01 am on July 23, 2008 | #

    AJ,
    I got most of my numbers in yesterday, but the difference I saw was between what was a yearly cost and what was a total cost.

    For example, for real estate/home and car, I put in the purchase price (total) rather than a monthly “allowance” against a loan. I also had not added in taxes yet or salon services.

    I’ve been basing it on HOW I want to spend per month*12 so that I am looking at the “destiny” vice today’s current ability, yet in today’s prices.

    Today I am planning to go back and revisit this so that I can make those adjustments. Your post today gives me some new ideas on how to adjust it further.

    Since we’re the same age, I’m sticking with 20 as the multiplier, and it looks like my ROM estimate is pretty close to what I need.

    I noticed you said somewhere that your goal was for 5 years and it took 7. Not meaning to jump the gun, but I am wondering how much your two businesses at that time played as a “launch pad” for both removing the debt and increasing your wealth. I have the debt, but not that launch pad and am still looking at where I might focus my studies during this gearing-up time (besides keeping up with your posts, which is a given). Thanks!

  • AJC 9:57 am on July 23, 2008 | #

    @ Josh – “dream and do” … I like it! Think I’ll rip it for a post …

    @ Di – Seems like you understand where this exercise – and your finances – would LIKE to go. That’s enough for now … we’ll get into the HOW later (although, no doubt you will need some kind of ‘launch pad’ as well, as you put it, IF your Number is big).

    Just to clarify, you are on the right track, and for everybody’s benefit: we want annual expenses for annual stuff (living, vacations, etc.) and capital amounts for big purchases (houses, cars, etc.).

    You should keep them separate: use the annual expenses * inflation factor * 20 to calculate the first part of your number then ADD the capital purchase/s * inflation factor/s to come up with your final Number. If you intend to make more capital purchases and/or increase your standard of living after ‘retirement’, then use the larger Number in your calcs (not sure how anybody would achieve this, anyway, if they have stopped working?!). An alternate strategy is to pretend you will rent/lease these houses/cars, but in the examples that I will provide over the next few days I will explain why I don’t like this approach.

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