Step 4: Enjoy Money
The greatest thing money can buy is complete control over your time.
You buy assets, and your assets will buy you the lifestyle you want down the road.
So how much money do you need to stop working?
“Retirement”
REMINDER: Retirement isn’t an age, it’s a calculation.
Once you reach the point where your assets (dividends, stocks, rentals, businesses, etc) are bringing in more than enough to cover all of your bills, you no longer HAVE to work.
Your age doesn't determine retirement.
The amount of passive income your assets are bringing in does.
The 4% Rule
The 4% Rule is a calculation that you can use to figure out how much you'll need in your investment account in order to retire. It is called called the 4% rule because the idea is that you would sell 4% of your investments each year to live off of.
For example, if you have an investment account worth $1,500,000 and decide that you are ready to retire, you'd be able to live off of $60,000 per year using the 4% rule:
4% * $1,500,000 = $60,000
Since the Stock Market grows at an average rate of
6-10% per year in the long term, the 4% withdrawal rate gives you some wiggle room to account for inflation (which is typically around 2% per year) and ideally allow your portfolio to provide you money to live off of for as long as you live.
The 25x Rule
If you want to figure out how much you'll need to have in your investment account to give yourself a certain retirement salary, you can use the "multiply by 25" rule. Simply multiply your desired salary by 25 and you'll get the amount needed to have in your investment account to comfortably withdrawal 4% per year.
Example: $60k Salary * 25 = $1,500,000
The Wealth Building Formula:
1. Invest every paycheck. ($VOO is my fav)
2. Ignore the short-term noise.
3. Hold until you can live off of ~4% of your total portfolio each year for life.
4. Go ghost and enjoy life.
“Track your money, set money goals, and reward yourself for hitting your goals. That’s how you’ll keep yourself motivated to keep pushing forward.”
— The Market Hustle