… and that’s what makes it all worthwhile!
I’ve been rabbiting on about getting your arms around your Life’s Dream (or Life’s Goal) as a way to understand what your Magic Number is …
… for me, these two concepts made all the difference!
I just came across this blog post which seems to summarize it nicely …
In it Ian Ybarra says:
I’ve noticed that the more specific goals I have, the wilder the dreams I come up with, the more conscious I am of what I spend my money on. Because committing to doing what I love gives me reason for my money. Every time I’m about to waste money, I can’t help but think “I shouldn’t do this. I could use this money for something I want more.”
I agree with Ian. But, when we talk about Personal Finance, I’ve also noticed that we tend to just talk about money-related goals.
I have a different view – and it’s a view that ultimately made me rich – that money is to support your life, not the other way around!
Buckminster Fuller is generally regarded as one of the twentieth century’s greatest inventors, architects, poets, and visionaries. His theory was that your job/purpose was not to make money. It was to fulfil your life’s purpose … and the money will come (if it’s truly required)!
This neat diagram comes from a site that explains some of Buckminster Fuller’s theories.
I guess, what BF was saying is that our life’s purpose is not necessarily the same as chasing the goal (e.g. to get a promotion or a pay-rise; or to have a $1,000,000 nest egg by age 45; or whatever).
But, the way I look at it is just the opposite …. concentrate all of your efforts on finding then chasing your Life’s True Purpose, and your financial goal – if it is directly related to your life’s purpose – will come!
So, here is my simple three-step plan for totally turning the traditional way of looking at Personal Finance on it’s head:
1. Find your Life’s Purpose – or at least find what the destination is that you are aiming at and by when (retiring on a beach by 55; quitting the rat race to help the poor in Africa; reading every book in the library; whatever turns you ON).
2. Work out how much Passive Income you think that you will need to support that lifestyle in today’s dollars … then double that amount for every 25 years (prorate for shorter periods) until the date that you really have planned. If you intend to keep working, just subtract the income that you expect to be able to earn.
3. Multiply by 20: that is the amount that you will need to have in passive income-producing investments to support your’ Life’s True Purpose Lifestyle by the date that you expect. This becomes your Magic Number.
4. Where will that money come from? it’s probably a larger number (maybe, much larger) than you expected. Right? If so, it will need to come from Making Money 201 strategies … if not, Making Money 101 strategies on their own should achieve your goals.
Please let me know what you think your Magic Number is (and why you need that much/little) …
Hi AJC,
My magic number is 20 million, I would like to have 500,000 a year to live off of, although I probably won’t spend it all, so I’ll reinvest it making up for inflation.
I see on this post you said to multiply the amount you would like to have yearly by 20 and not 20-40 I’ve seen you recommend before, which is how I came up with 20,000,000. Either way I find it works best to shoot high so 20 mil is my goal.
Thanks Josh, I should have said 20 – 40 because that translates to a 5% – 2.5% ‘inflation-adjusted safe withdrawal rate’ depending upon where and how you keep you $20 mill. planned nest egg.
Wow, great post. We just had a great team workshop discussing that exact topic, almost word for word. Nice to re-focus the mind on it 2 times in one day 🙂
BTW, i’m with Josh. His number and my number are exactly the same. That is the nest egg that i’ve visualized achieving by age 55 for quite some time.
Thanks Doc … just make sure that your “why” is big enough to keep you focussed through the inevitable HUGE obstacles that will stand b/w you and the $20 Mill.
If I could live off $3M in passive money today – how much would I need in 20 years IF I retired then? Is that what the question is?
Okay, I’m no dummy, but I think you need a bit more information than what is above in order to figure out what mathematics you want us to do.
If I could live on 35k post-tax income today or say 70k today – pre-tax – but without having to go to work, then what’s the next mathematical equation? Someone told me a nest egg of $3M would allow me to have a decent income per year (nothing huge like 500K). That would be in today’s dollars.
So are you saying to multiply that x 2 for 25 years (say 20 for me now), or because I am working those next years, leave it alone? I will assume double it (or add 80% since it is 20/25 years I think)…but for simplicity’s sake, 3 becomes 6 then it x20 is 120M, right? Is that what you mean?
I haven’t read other writings that discussed this, so I may be coming in a bit naive.
Thanks for any clarification you can provide.
@ Diane – I presume that by “If I could live off $3M in passive money today” you mean living off $3M / 20 = $150k per year today?
If so, then roughly double for 20 years ($6M / $300k) IF inflation averages just a tad less than 4% for that whole time (keeping in mind, that means everything that you spend money on ALSO doubles in that time, so $150k today and $300k in 20 years are the same thing in monetary terms).
Neat post!
I’m relatively unassuming . . . I want 35k in today’s $$. I want my current level of luxery, but am assuming I will not have a mortgage anymore. My “true purpose” essentially won’t cost money, and my husband and I (and our 2 kids) live on 20k a year plus our mortgage payment and savings.
My number is 2.8M in 40 years, if I did the numbers right (I was too lazy to prorate for just 40 years instead of 50). This will be pretty easy for us to do. My plan is to be agressive and aim for True Purpose, Variation on a Theme: Retire early. Then I need less money, but I will need it sooner, I guess?
@ Ethel – Sounds like a plan … we all ‘think’ we need $20 mill., but many of us don’t … $2.8 mill. to fund $35 / annum in today’s dollars sounds about right. If you retire early, not sure if you would need less … probably same or more (money has to last you longer, so you would probably multiply by more than 20 … sorry!).
Once you confirm that you’re REAlly on-track, my only advice would be to stop wasting your time reading a blog about how to get richer … life’s too short 😉
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