26/10/2024
The Million Dollar Misconception
There are many false truths when it comes to wealth that have become cliches.
The two numbers I most commonly hear are;
1. I need $100,000 a year in passive income
2. I need $1,000,000 in net wealth to be financially free
These two numbers couldn't be further from the truth of what most business owners need to create financial freedom.
After looking at the finances of thousands of people, we've identified that most want 75%-100% of their pre-retirement income.
So if you're earning $200,000 a year after tax, it's likely you'll want $150,000 - $200,000 a year in passive income.
The common rebuttal is "but I am going to live a simple life in retirement, I don't need that much..."
I reply, "Ideally?"
You're telling me you want to work an entire life, only to retire and have to sacrifice your current lifestyle?
Sure, you won't have kids at home or a mortgage to pay, but you'll have plenty more time to enjoy life and tick things off your bucket list.
In an ideal situation, wouldn't you prefer to have more than what you need instead of being forced to fall short?
Next is the wealth required to get there.
There are three potential scenarios for your wealth.
1. You are required to draw down on the capital as the income and growth produced is insufficient to cover how much you need to fund your lifestyle.
The risk of this strategy is longevity and is your draw down going to erode your wealth before your croak? The ideal situation is to ensure that your wealth can last until at least 100 and you still have your home which could be sold down to create liquidity if needed.
2. You have enough income that your capital value remains stable. We typically target a safe withdrawal rate of 4% which should preserve the capital.
It will still get eroded by inflation, however, you'll maintain a nice nest egg for your kids and you'll never have to worry about surprise bills or your money running out.
To put this into context, if you want to draw $200,000 a year at 4% draw down rate, you will need $5,000,000 in investment assets.
3. You have more wealth than you need and your draw down is below the income and growth produced, meaning your wealth will grow in perpetuity.
This is true generational wealth and the key to success is ensuring your future generations are equipped with the skills to manage the money and become stewards of wealth for future generations.
Alternatively, you use your excess wealth to pursue philanthropy and do good in the world.
The key to any of these scenarios is having a well thought out plan. Most people have absolutely no idea how much they need, what wealth is required to get there or how they are tracking.
Good news is that I can help.
Our head of wealth, Jim Fairhall-Dickie has space to help 5 people map out their wealth game plan over the next couple of weeks.
In this session we will get crystal clear on where you're at and what's getting in the way. Identify what you're trying to achieve and how to get there and build a game plan based on your next best moves to maximise your surplus and accelerate your wealth using our Freedom Formula.
If you'd like some help mapping out your game plan, drop a comment below and I'll send you the details.
