Stuart Zadel talks about the three levels of wealth. And he’s discussing the second one: financial independence.
Now, we’re going to go on the second point of call.
We’re going to call this, “independence.”
FINANCIAL INDEPENDENCE
Financial independence means enough income coming in to replace your current income. So, how much does it cost you to live for an entire year? How much money do you spend a year? Just take a guess. If you don’t know, multiply your first figure by 10 and that’s 10 months and you can work with that. Just put a zero on it.
Or you can add a couple of extra months to get to 12 months. So, roughly, how much money do you spend a year? 30 grand? 50 grand? 100 grand?
Alright. So, this is your yearly burn right now. It’s what it costs you to live in your current lifestyle. Everyone got that? Who’s got it? Cool. Anyone not got it? I’ll take those not putting their hands up shy or something?
Now, I want you to multiply it by 20. So, if your cost is 50,000, you multiply it by 20. How do you do that? First one is you put a zero in the end and then you double it. That’s how I do math. So, multiply it by 20.
Who knows why I’m suggesting now to multiply it by 20? It’s a 5% rate of return. 5% rate of return is an average and achievable rate of return. Now, you’re not going to get that in bank interest anymore. It’s below 2% now isn’t it, in general?
IN PROPERTY
But in property, you can still get it. You can argue with me like, “Stuart, in Sydney you can’t. It’s 2% to 3% return in properties.” Yes, I get that. But then, we don’t invest in Sydney to get that rate of return do we? Unless you’re going to bring capital growth into it as well. Now, that’s a different thing.
But for this working definition, we’re suggesting that it is achievable to get a 5% rate of return. Now, that yearly figure times it by 20, that is how much money you need invested at a 5% rate of return to replace your income so that you could leave work today.
Cool? Who’s got that figure? Who’s worked out that figure? Okay, good. There’s a figure there. Who’s slightly stunned by that figure? No one? Cool.
Now, let me ask you another question. Who has already achieved that figure in their life? And who has not yet achieved that figure in their life?
Cool.
But I’m not certain you guys are here just to achieve financial independence, are you?
No. You want more than that, don’t you?
Read The Levels of Wealth Series.
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