How much money do you need to stop working? In other words, what’s your “F-YOU” number? This is the ever-elusive amount of money you need to opt not to work again. I Googled it and got all sorts of answers and other additional questions.
Teacher Google says $80K — $110K a year. Urban Dictionary says $5M in the bank. So, what’s correct?
And does this stay the same if you are 30? 40? 50? What about if you live in San Francisco vs Vietnam? What if you have no kids or 4 kids? What if you want to live on a ranch and eat the food you grow? What if you want to travel business class around the world and stay at all the Four Seasons hotels that exist? I’m sure you know what’s coming… your number, (let’s use a different F-word to describe it and rename it FREEDOM NUMBER).
Your Freedom Number DEPENDS!! I know that’s not what you want to hear and we’d all prefer to have a magic number that we can work towards.
Building the life you want isn’t magic, it’s just math. And just like with other financial plans, you can calculate your Freedom Number. So, how do you do this math?
Step 1: Understand your goals. Do you know what you want? Are you the ranch person or is the Four Seasons life more appealing? The answer doesn’t matter, what does is that you know what matters to you and you can calculate how much it will cost you at some point in the future. How much you’ll need on a monthly basis.
Step 2: Understand your timeline. Do you want to attain financial freedom in your 40s? 50s? 60? Each timeline comes with its own set of compromises and strategies. Understanding when you want what you want is key! How much time do you have to accumulate this money?
Step 3: Do the math! Okay, it’s not that easy. With the complexities of tax, compound interest and market volatility, the math is more than addition and subtraction, but we’ve built some tools that help you get an answer that’s directionally correct and give you a goal to work towards. Most of the time, having a stick in the ground to aim for is more important than the accuracy of the stick’s position! What do you need to save today to achieve that goal in the time you have? How much can you safely accelerate this through investments?
Check out our calculators to start understanding what your goals need and the effect of compound interest.
The funny thing is, because of the ‘magic’ number mentality, most people overestimate how much you really need to stop relying on active income. When we’ve asked this question in the past, we’ve gotten answers ranging anywhere from $100K to $100M!
Let’s break this down, if you have $100M saved up, your portfolio would earn $8–10M a year and you’d need to spend $833K a month or $28K a day. Even if you bring this down to $1M, you’d need to spend $280 (or KES. 28,000) per day to finish off all of the interest you earn from your investments without ever touching the savings amount.
This is good news, it means that most people don’t need that much money to survive. If you plan to stop relying on active income when you own your home and have educated your kids, you could have a very comfortable life for $1,000 (KES. 100,000) per month or less. This means that your portfolio needs to be $120,000 (KES. 12,000,000). This is an amount that you can easily work towards with proper planning and even accelerate with a good investment strategy. Building the life you want isn’t magic, it’s just math.
At Africa’s Pocket, we are constantly building products that help you understand these things better. Our free resources including blogs, calculators, and events will help you with getting a sense of what your goals could be and what they’ll cost. Our flagship course, Your Roadmap to Wealth helps you make the financial plans that you need to reach your goals.
Are you ready to find your Freedom Number and make a plan to get there? Click here to learn more and enroll to Your Roadmap to Wealth.