So with that in mind and in anticipation of my usual Money Design update, I have decided to get to work early with the revisions to my plan.
My Money Design – Updated:
“First, have a definite, clear practical ideal; a goal, an objective. Second, have the necessary means to achieve your ends; wisdom, money, materials, and methods. Third, adjust all your means to the end.” – Aristotle.
To start, this is just a sketch. Notice there are no numbers yet. They will come later. All great designs start off as just an idea before someone starts detailing them with the hard work and numbers. Compared to last year’s illustration, I think this one will also be simpler and easier to follow than last year’s Money Design.
In this concept, I figured the easiest thing to do was to group together income sources by when they would become available first. This puts them into three main categories:
• Pre Age 59-1/2 – These are all the income sources that will be available to us before age 59-1/2 such as our normal taxable accounts.
• Post Age 59-1/2 – These are all the income sources that will be available to us after age 59-1/2 that have been tax advantaged up to this point such as our 401k, 403, IRA, etc.
• Post Age 70 – These are all the income sources that will be available to us after age 70; mostly with the addition of Social Security.
How This Will Work:
The idea here is simple – Try to strike a balance of income volume throughout all three groups based on how much income I believe we will need to sustain our lifestyle.
For example, let’s make up some numbers and start by assuming we’ll need $5,000 per month. If you start all the way towards the right in the Post Age 70 column, you’ll notice this is the area of the Money Design with the greatest number of potential income sources. If you assume that Social Security will deliver $2,000 of income, that means the other sources only need to total up to $3,000.
Knowing this, we can then move over to the left to the Post Age 59-1/2 column and see what combination of income sources will result in about $5,000 of income. The significance here is that because we don’t need as much in the third column, we can withdraw more in the second column.
This same process is repeated for the relationship between the first and second column. For example, maybe I could take divert some of our 403b into a 72T to create income within column one.
Not only does this technique even out our income sources, it will also help me to identify weak spots where I should be concentrating my efforts. For example, maybe I’ll want to save more money into my Dividend fund rather than my 401k because that will even out my income in column one.
Over my next few Money Design updates, I plan to figure all this out by adding numbers to each of these accounts and seeing just how this would (or could) all play out. It will be somewhat like trying to solve a Rubix Cube, but I think it can be achieved!
What Do the Colors Mean?
Yellow = In progress. These are accounts and income streams that I’m working on building up right now. You can read about how in my Cash Flow Update report that I posted a few weeks back.
Red = Nothing has happened yet. These are ideas I have for creating another source of income. But so far nothing has really been accomplished yet to make it happen. For example, I’m exploring buying rental property to collect rental income, but I still don’t actually have a house yet to rent.
Where is My Blog?
Ah, yes, the blog. While My Money Design has certainly started to become an excellent source of side income for me, I cannot tell you what the feasibility of it (or any Internet marketing activities) will be 5, 10, or 20 years from now. Will people still even read or write blogs? Will the face of advertising on them be much different? For example, will it be such a saturated and unreliable market that people are offering pennies on the dollar for what they offer now? Think about it – if its so easy to start a blog and make money, how long before everyone you know becomes your competition in the Internet real estate market?
So while the getting is good, I’m going to use my blog income to fund things within my Money Design like my Savings or Dividends funds. Essentially, one form of income will generate other forms of income.
This does not however rule out Saleable Products. Over the past 50 years, books, instructional videos, interactive software, speaking events, training, consulting, and other similar services have withstood the test of time. While they continue to evolve, they are still (at the heart) a service of people helping people. I do not believe this will ever go away. So part of my Money Design is to use the writings of this blog to evolve them into something more tangible and actionable that people will find really valuable. There is obviously a lot of work to do and a long ways to go in this department …
Readers – What do you think of my Money Design sketch? Any critiques or suggestions? Do you have any similar plans laid out for how you will achieve financial freedom? If so, please share. I’d love to hear!
Related Posts:
1) My Cash Flow Plan – September 2012 Update
2) My “Money Design” – 2012 Update
3) How to Retire on 500K with the Greatest Potential
Photo Credit: freedigitalphotos.net
Wow social security kicks in at 70, and in France we complaint that they try to move it to 65… I think it is very wise to use your blog income to invest, I would be tempted to consider it “fun money” 🙂
My plan includes more rental income than government income, as I have my doubts that my government will be able to provide something in 30 years time. I try to have a personal plan, and anything from the gvt will be icing on the cake.
Pauline, I feel the same way. I look at SS as icing on the cake if it even exists. I’m planning on being able to live without it.
More doubters of SS! 🙂 I totally agree that I should be well equipped to live without it. In my version where I insert the numbers (which I’ll be posting next month), I’ve got it setup for 75% payout (which is what SS is saying it will be by then).
Ha, I feel I have mislead you. Social Security actually kicks in at age 62 if you want it to, but you’ll get a ton more if you wait until age 70 to start taking it. I think you are wise and brave to rely on your own strengths – especially in the rental income area. That is another form of income I hope to pioneer soon!
Looks like a good plan, especially if Social Security is still around when you need it. 🙂 I think investing your blog income is a great idea. It’s a great way to take the side income you’re earning and making it work for you down the road.
Thanks John! And you get to be the first comment to down on SS! 🙂 Can I ask what do you plan to do with your blog income?
I love reading posts like this, it’s so pleasing to know that there are others out there who think this far in advance.
My only criticism would be to not anticipate any Social Security, I believe that it will not exist in its current form when I get to retire in 40 years time.
That’s two for downing SS! I really hope the program isn’t completely gone – it means we’ll have all paid into a big Ponzi Scheme!
Glen, you’re going to find that most of my posts are this forward thinking. And you may be excited by my next update as I plan to add numbers to each of these income sources. Do you have a post yet on MPB that maps out your financial plan?
Very cool! I need to start planning this way sometime soon, especially if I decide to retire early. The number of options shrink the earlier you retire for sure.
Don’t worry Lance. If you forget to put together a plan, you can always copy off of mine. That’s what these posts are for! 🙂 The pre age 59-1/2 column is very tricky. Honestly, I’ve been struggling about what to find to bridge the income from job to eligibility for the 401k, etc. It seems more and more that my only real course of action is to do something fantastic like sell some kind of eProduct or groom my blog for a six figure sale someday ….
Its important to have a plan many people get stuck in the beginning stages that they never evolve. Blogs are getting a lot of attention now a days and it is only slated to grow from here.
Don’t worry, this plan will be evolving all the time! And behind the scenes, it is getting funded, so the progress is good! I really do hope blogs continue to prosper the way they are now (or better). I’m loving the side income and hope the community I build will continue to last.
Thanks for sharing. I always like to see how people plan out their financial future. Without a plan you can be sure to go nowhere.
I’ll be reading your blog for tips on how to make that rental income section work. I’ve got a lot of work to do in that area if I want that to be a source.
I find it amazing how much thought you have put into this plan. I’ve just started to think about my retirement, but nowhere in as much detail as you have.
Have you thought about possible consultation work? I’ve noticed a great deal of people with experience in certain fields selling their advice with a nice income.
Thanks Justin! Like I mentioned to Lance (up above), you don’t have to come up with a plan – you can just copy off mine! 🙂 Just kidding, but seriously anyone could string together the options I’ve laid out here and have a fine retirement. It’s all a matter of how committed you are to funding it.
Good point on the consulting. A lot of people do quite well for themselves on this area. I may just do that if my career and knowledge continues to be of value to the industry I serve. I’d actually like to do a combination of different things including speaking, coaching, presenting, and other 1 on 1 services.
Really loving the sketch though I wouldn’t even add SS. I just don’t count on it and I guess it would just be extra. My wife and I have a similar plan but we looked at how much we would like to have each month considering no house car payment etc. So say the goal is $5-7k per month, we look at how much would we need to have saved total to achieve this. Then we looked at what are other sources of income that could be include monthly such as rental, dividend and other sources of income if we are unable to save said amount. Another factor is when we plan on retiring and how long we think we might live so retiring at 45 means we would need income for 30-45 years.
Thanks Thomas and welcome to the site. Do you have your plan posted anywhere on your site? I’d love to take a look. I think you’ll really get a kick out of the next version of this update, as it will include numbers for each of these areas. It sounds like you have built a lot of safety margins into your plan, which is an aspect I totally love.
I think it looks great! I also wonder about the future of blogging. That is why I am not going to make any permanent plans with the side income. It could disppear too easily.
I unfortunately agree, Holly! As much fun as it is and as great as the side income has been, this could ALL disappear at the drop of the next Google PR update. Technology and advertising is fickle, so we should all be very cautious. Thankfully I plan to craft a lot of my writings and teachings into more “tangible” products that people can actually use someday – a very long-term goal for me that still has a great deal of work to be done!
When you say $5k, you mean after inflation? 5k might not be much post 70.5.
I was wondering who my first inflation comment was going to come from! 🙂 However, it is an EXCELLENT point! Yes, I mean after inflation. To keep things simple, I have left inflation out of my calculations (even for my next update in November), but I may work it in later on in a very advanced analysis. For now, I just wanted to shape my sculpture before I start adding in the fine details.
I like the design! I have not planned out my retirement to this extent, as I don’t even have the extra income to throw at my retirement accounts just yet. But I like your method. I’m all about reverse engineering my short-term savings goals, might as well start thinking long term as well.
Jacob, thanks for the compliment! And with your budget developing skills, I doubt you will have little trouble putting together your own plan very shortly! For me, all this actually started with my budget which is why I can appreciate your site. Had I not “worked” in maxing out my Roth IRA or 401k over the last 10 years into my budget, I don’t think I’d be able to post a plan like this with much confidence.
I like your analytical approach to mapping out retirement at this age. It’s praiseworthy. I also concur with you that you can’t solely rely on the blog income to plan your required savings for the future as anything on the Internet lacks long-term perspective.
Thanks Shilpan! If you like this, than you’ll love the next version. I’m going to make projections about where my funds will be at each step of this process, and hopefully that will result in just the right amount of income I need to pull this off.
looks like a great plan. I look forward to seeing how it progresses. I have enjoyed your blog and look forward to seeing all the changes in action.
Thanks Chuck, and thank you for reading for so long! That means a lot. Hopefully you’ll enjoy my next update of this in November.