Recently when I was asked to do an, it got me thinking a lot about how much I want financial freedom and where I’m at so far with my own savings goals.
So I decided to try this fun game – You can try it too. Pretend you decided to stop working tomorrow and were going to live off of absolutely nothing else other than your financial assets (and good looks) for the rest of your life. Call it an early retirement. Call it what you will.
The magic question would then be: How much money would you be able to pay yourself each month?
How Much Money Would You Need?
In the past I’ve determined that my magic number to reach financial freedom was somewhere around $5,000 per month. In other words, if I had $5,000 rolling in every month from something other than my job, then I would basically consider myself financially free and could responsibly decide if it’s necessary to continue being employed.
So after going through the motions, how much would I be able to pay myself?
The answer – Around $1,445 per month.
How did I come up with that figure? Pretty easily actually. To get a round ball-park figure, I simply added up all my retirement accounts, went to this handy 72t calculator to see how much money I could safely pull from them, and then just divided the yearly figure by 12 to see what I’d get per month.
Readers – Please try this out for yourself and let me know how it goes for you in the comments below.
What I’ve Learned From How Much I Want Financial Freedom:
Obviously figuring out your finances like this is just a quick estimate. I could have taken more time to look at each individual asset (retirement accounts, dividend stocks, etc) and see how much I’d really be making. Or I could have used the traditional 4 percent withdrawal rule and ended up with a monthly figure closer to $2,000 per month.
At any rate, I learned quite a few things from this fun little exercise:
I don’t have anywhere nearly enough money to declare that I’m financially free yet!
There are no shortcuts to an early retirement. Despite how much I want financial freedom, like it or not I’ve got a long ways to go before all my savings and all my assets can truly take care of me for the rest of my life.
This puts things into perspective and brings me back down to reality.
My wife and I always joke after a long hard week of work that we’re going to quit our jobs and just live off the land.
Even though we’re not serious, the thought does start to infect your head with thoughts and ideas, and you start to really think hard about an early retirement. In fact – it can plain mess with your head!
I once shared my thoughts on how thinking too much about an early retirement can actually be harmful to your career and life in the present. Why? Because you start to believe you’re almost there and that you don’t have to put up with anymore crap from anyone. (Remember the last 3 months before high school ended how bad you had senior-its?)
That’s where doing a reality check like this get your head out of the clouds and stop you from being delusional. Simply taking 10 seconds to crunch the numbers and do a quick reality check can help you take one giant step back and show you just what a long, long ways off you are from actually pulling it off in real life.
I guess it’s back to work tomorrow …..
But it does inspire hope!
If I would have done this same exercise about 5 years ago, I probably would have calculated and found out that I only have about $200 per month to live off of.
Now somehow I’m almost 30% of the way to my financial freedom goal. Personally I find it kind of remarkable that I could hypothetically make over $1,000 appear out of nowhere each month if I had to!
It’s kind of sad, but a lot of people who actually are age 65 or older and looking to finally retire can’t even generate +$1,000 from what they’ve got.
So rather than looking at my current situation as a giant shortcoming, I’m very proud of what I’ve accomplished so far. It shows me that I’m on the right track to where I want to go and only have just a little bit further to go.
And thanks to the magic of compound interest when it comes to investing, my savings should theoretically grow a lot quicker than they did during the first 10 years.
It also inspires me to think more creatively.
So maybe ~$1500 is all my financial assets will produce right now. That makes me wonder how I can make this goal happen even sooner. This is why I’ve done so much research into how taxes affect your savings outcome and how I can create even more passive income opportunities to grow my money even faster.
What about my other money making avenues like this blog?
Say I was able to pull in another $1,000 or $2,000 per month from my advertising and niche websites efforts. If I could find a way to reliably keep that up, that means I’d only need $3,000 to $4,000 instead of $5,000 a month from my savings. Now how close would I be to declaring financial freedom?
Overall, I think it’s always important to have an understanding of where you stand financially time to time. Though you don’t have to know exactly what your investments are doing in real-time, you should get a “snapshot” of how much money you have saved up and what potential doors it could unlock for you. Some day I’m going to run this exercise and you know what I’m going to find? I’m going to learn that I have more than enough money saved up and more than enough passive income streams to support my family for the rest of my life. Though I may not be there yet, all I need to know is that I want financial freedom and can see that I’m heading in the right direction.
Readers – How far off are you from reaching your financial freedom goal? What are you doing to get there and how are you monitoring it?
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