I seem to be popular in Finland these days, with my blogging friend over at Kohti taloudellista riippumattomuutta still sending me the most new visitors daily [AJC: reciprocating may be a little hard as I am guessing that more of his readers are fluent in English, than my readers are in Finnish].
I also receive referrals from my other Finnish blogging friend Tarkan markan blogi, who asks (thanks to Google Translate) Million Not Enough For Any:
And, The Economist does raise a valid point:
How much money do you need to count as wealthy in the first place? Merrill Lynch’s wealth-management report starts counting at $1m in “investible assets”. That excludes people’s main homes, which may seem reasonable. But it means that a Londoner who sells his home and decides to rent can suddenly find himself “rich”.
After all, a portfolio of $1m these days would generate an income of only $30,000 if invested in Treasury bonds, which does not leave much scope for the playboy lifestyle.
I’m not sure what amount that you need to be ‘rich’ – I define it in terms of having enough to live your Life’s Purpose – but, I certainly agree that $1 mill. (even if it doesn’t include your own home) simply doesn’t cut the mustard 🙂
$1 Million just isn’t what it used to be… but because of compound interest it is a great stepping stone to millions more!
@ Rick – if you subtract inflation, exactly how many millions do you get doing what by when? 😉
It seems that Google translator didn’t do a very good job for your quote. Here is my translation from finnish to english:
“Saving guides tell that savings should always have some goal. Young people save money for a moped or for a first car, families with children for a vacation trip.
What if savings goal is some specific sum of money? How much is enough? On television at the moment advertisements promote lottery eventough the jackpot is only a million euros (“Stupid!”). Some people’s goal is to become a million before thirty.
However according to the Economist magazine one million euros isn’t enough for anything.”
Yes, we finnish people are usually quite fluent with english as they teach us english 6 years in elementary school. Usually after that 3 more years in high school and some years more when you study your profession.
Anyway back to your post. I’ve done some calculations and for me 500ke is enough. If stocks gain approx 10% each year that means I can realize 50ke from investments each year and the value declines only depending of the inflation. But I can manage with less. For me 200ke is the lowest limit for a financially independent life in Finland.
Oh yeah, we have free medical care etc. here so don’t need to worry about such things.
Kohti: “For me 200ke is the lowest limit for a financially independent life in Finland.”
I think this is a ridiculously low estimate. I live in Finland, which is a very expensive country by the way, and just my stock portfolio is worth about 250ke (net worth is higher as my cash + home equity + undeveloped land + possessions > mortgage). I have never even contemplated leaving my day job and trying to live with the meager amount of cash these assets generate. My stocks are not selected for income generation anyway, as I don’t need the cash right now. I could *survive* for a decade or so without going to work if I’d live like a monk. But retiring too early would just make it harder to achieve my Number. I’m sure you will see this when your net worth reaches same levels as mine 🙂 And funny thing is that my Number seems to grow larger as my net worth increases, maybe I’m applying Adrian’s methodology incorrectly?
I think lowest limit of financial independence is around 1000ke, which generates annual 40ke as dividends quite easily without risking the principal. Also your 10% per annum assumption of stock market performance is too high to be after-inflation, after-tax figure, especially given Finland’s tax rates!
@ Kohti – thanks for the translation! You have more chance of writing your blog (also) in English than I have in Finnish …
BTW: can you convert Ke (Kroner?) to USD? I thought that Finland used the Markkaa?
@ Juha – If your Life’s Purpose changes, maybe your Number will, too? Otherwise, it’s just human nature: either greed, or lack of planning your living costs better, up front?
It is not lack of planning my living costs better, that I’m sure of. I guess I just like picking stocks so much I will continue doing it forever, not retiring from investing at all. Just like Warren Buffett has his Number infinite and Date forever.
Finland uses euro. It used to be Markka before 2002. ke = k€ = 1 kilo-EUR = 1000 EUR. I thought the abbr. was in common use but I guess not. Sweden, Denmark and Norway have each of their own kroner (kr).
@ Juha – Warren IS living his Life’s Purpose … perhaps you are too? Sorry, Ke not in much use where I’m from … we tend to use EUR, AUD, and USD, but I’ll have to learn the terminology, if I hope to keep a Finnish audience interested 🙂
@Juha – I have to disagree with you. To me it seems like you have fallen into a lifestyle inflation.
Yes the 200.000 euros (approx 270.000 USD) is the lowest limit that I’ve calculated that I could live on with. If stock’s return in the long run is 10% then it means you can realize the yearly 20.000 euros out of it. That is 1666 euros per month.
You need to be a debt free naturally (I have only mortgage left). Depending how long you have invested the tax varies. Let’s estimate that 15% of this monthly 1666 is goes to taxes which in turn leaves you with 1416 euros of monthly net income.
Now, looking my current net income this is not much less. Paying just electricity etc. should still leave me with about 1000 euros monthly which is way more than needed. I currently come by with about 1000 euros monthly and invest the rest of the money (mortgage payment included in this 1000 euros).
Conclusion: 200.000 euros is enough for me.
This is why living with low expenses gives you also a lower Number.
“This is why living with low expenses gives you also a lower Number”
@ Kohti – Agree; in fact, the Number is really about recurring living expenses, for a required level of lifestyle … mine happens to translate to $7 mill.; yours to $270k; and, Juha somewhere in between. Let’s just hope that we all (a) make it, and (b) guessed right! 🙂
@Kohti – I could live with 1416 euros per month. In fact I’m currently consuming less than that in order to invest more heavily in stocks. Problem with low Number is that there is no margin of safety: what if a flood or a pipe leak destroys your ranch and insurance company refuses your claim? Can you find a temporary rental apartment and finance the necessary repairs without losing some of your $270k nest egg (that you absolutely can’t loose in order to generate 1400€/month passive income forever)?
My idea of sufficient Margin of Safety is to have excess liquidity well over the replacement cost of my primary residence, and this naturally increases my Number. Perhaps 1.5-2 times of house value in cash would be sufficient for emergencies, reducing the chance I need to sell something from my main portfolio at wrong time.
@Adrian – I’d quit working and start investing full-time with $1.5 mill., and my current Number – it might increase – is somewhere around $3m – $5m range.
@Juha – In my opinion people should always have emergency fund for at least small disasters in life. That should give the buffer. Of course if something big happens like what you describe it affects more. Like I said the 200.000 euros is the smallest Number that I’ve calculated that is enough for me. Still, I’m aiming for 500.000 euros as then I don’t need to worry about inflation and can spend more.
Anyway if there ever comes a lack of money while you´re living on your investments – there’s always an option to fix that: work 🙂