The only money goal.
So many people want financial freedom… but most do not take enough action to make it a certainty. Financial freedom means many different things to many different people, for some it is the ability to live 6 months of the year in Bali just working 6 months in New Zealand. For others it is to retire in comfort. For others it is to help their children into their own homes.
Let’s break down a retirement dream, I want to retire when I am 55.
I would love to own my own home in the Eastern Beaches ($1,800,000).
I would love to own two new cars under warranty ($190,000).
I would love to own a launch ($320,000).
I would love to own a bach down in Onemana ($850,000).
I would love to spend $125,000 a year.
Okay well, we need to have enough cash to buy a house, two cars, a launch and a bach which is $3,160,000.
And investments earning $125,000 per year. If we assume a 5% yield that is $2,500,000.
Alright well, we best get saving… it is going to take a while to save up $5,660,000. In fact, if you are 30 like me, I have 25 years. So I need to save $226,400 per year… That’ll be difficult. Or if I save $50,000 per year, in the bank earning 2% interest. It’ll take me 58 years so I can just push off my retirement until I am 88…
Just kidding. Saving is not the answer.
If you want to retire. If you want financial freedom (ie the ability to earn money without working), you need to understand that you have to earn money without working.
You can’t keep trading time for money.
You need to start trading money for more money. So you need to invest.
But first. There are a lot of financial planners and wealth coaches who peddle this kind of example. But you don’t actually need that much money.
Aiming for financial freedom, where you have more money than you know what to do with, is not quite the right goal for most people. It’s too out of reach.
What most people should aim for is financial independence. Where your annual expenses including all mortgages, insurance, food, holidays, parties, etc are covered by annual recurring income – from property, business, shares or other investments. If you can build income streams that are passive (do not require much work from you) it will mean your time can be spent how you like.
The one money goal you need: make your passive income larger than your cost of living.
If you can identify now how much it costs you to live each year, you can work out your end goal and reverse engineer how to get there. Let’s say you need $100,000 a year for your family to live off if you have your mortgage fully paid down. This will be a good life.
Just work backwards from $100,000 to where you are now. Let’s assume you currently have 1 rental property bringing you $10,000 cash each year. It is obvious you will need to keep buying investments if you wish to increase your annual income.
The main thing you must have is a mindset of acquiring cash producing assets and investments over the time window you have, whether this is 1yr, 5yr or 50yr, you must create habits that keep you focused on your income goal. Set up emails from trademe and realestate.co.nz that send you property info that meets your buying criteria. Learn about investing in shares.
Pick up some investment books. You can learn decades of investment lessons from 1000s of transactions in a matter of hours if you just read the books written by the experienced investors. You do not need to pay for a coach. Spend $100 buying 3 books and dedicate your leisure time to the pursuit of financial independence.
Unless you surround yourself with friends and family who share the same dreams as you, unless you focus every week on building up your knowledge, unless you learn about your target markets and take action, it’s not likely you will reach your passive income goals. It might not seem like you are making much progress but keep faith in your processes and work with mentors who will keep you accountable.
Now you know your passive income goal, a lot of people are wondering.
Should I invest in cash producing investments or investments which grow in capital value.
Should I invest in shares or property.
There is a great article to read right here which compares investing in shares, property.