Simple math day today, folks.
I’ve used this equation MANY times. It gives me a goal to reach for and makes me extremely happy every day I get closer to it.
Here’s the premise behind all the numbers, okay?
It’s called the 4% rule.
This rule has been used as a “rule of thumb” by financial advisors for decades.
It basically means this.
1) Pick a number (let’s say $1,000,000 as an example).
2) You can take 4% of that number EVERY YEAR as your SALARY, FOREVER (until you die).
So, in this example, you could take 4% of $1,000,000 or $40,000 every year, forever, as your salary.
The best part of this???
The 4% rule is an INTEREST ONLY calculation.
So basically it means that you could spend $40,000 a year (in the above example) and NEVER TOUCH THE $1,000,000.
So, your kids would get a nice inheritance. Or you can buy a yaht when you turn 90.
Whatever floats your boat (get it?)
I realize there are caveats to all of this.
And yes you actually have to INVEST your money to get a RETURN so that you can retire.
But we can talk about all that later.
Let’s just say this, if your investments don’t earn you 4% every year on average you are doing something VERY WRONG.
I’m up way more than 50% this year and there was COVID, so…
NOW TO THE FUN PART.
Let’s set your retirement goal!
I don’t care if you are 20 years old reading this.
Or 99.
It’s the same.
1) Step 1 - Calculate how much money you want to spend every month in retirement.
This number can vary widely.
Some people want to “ball out” and live luxurious high spend lifestyles.
Some people just want to sit inside and play chess all day.
Because I’ve been BOTH of those people at different times in my life… here’s what I’ll say…
If you aren’t working, you will PROBABLY spend more money, because you will be bored.
You’ll also have more time to do FUN things and fun things sometimes cost money.
WHO KNOWS who you will be in 10 years… so probably better to overestimate.
Okay, do you have your number?
I’m going to pick $10,000 a month as my number. Seems like you could live a pretty good life on $10,000 a month.
2) Do some easy math
Okay, remember the equation?
Now we just gotta work backwards.
Honestly there’s probably an easier way to do this.
But I’m not a mathematician and I like to see the numbers work in this direction because it makes more sense to me.
Let’s start with a million bucks and see what happens.
Take $1,000,000 x .04 and then divide that by 12.
So, I could spend $3,333 per month forever if I have a million bucks and invest it right.
Pretty good, but not the $10,000 I want.
Let’s try $3,000,000.
Take $3,000,000 x .04 and then divide that by 12.
BOOM.
10k per month, forever, and I get to give my kids $3,000,000 when I die.
Pretty cool huh?
Now, for all the haters out there.
I realize I didn’t account for inflation. The reason I didn’t do that is because inflation is NOT 2% like your business professor says. It’s much more than that. Read my other articles on bitcoin.
I realize that you don’t HAVE to leave all the $3,000,000 or whatever your goal number is, to your kids. You can draw on it and spend even more than just whatever the interest is.
For those of you that get what I’m trying to do here.
This is about SETTING GOALS and VISUALIZING your HAPPINESS.
I know they say that money can’t buy happiness.
But it can buy trips to bora bora with your wife.
And it can buy you TIME to spend with your dad and mom as they get older…
Just saying.
Figuring out what YOUR number is FREES you to GET TO WORK.
Now, your goal isn’t to “get rich”.
That goal sucks.
Because the goalposts keep moving and who you compare yourself with keeps changing.
That’s how you end up as a fat bald guy stressed out in a red BMW.
If you want REAL happiness and FREEDOM, try out this math, and get to work on your business.
I promise, having my NUMBER makes getting up everyday WAY MORE FUN.
It’s kind of like a video game.
Except if you win, you literally never have to work again…
Until tomorrow for subscribers and next week for you goofballs who aren’t subscribed…
Kale
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