The key to Financial Security isn't the size of your income. It is the relationship between your income, and your Engine. Capital isn't the enemy of Labour. Sufficient Capital can set Labour free. That sounds more like love to me. An Engine is the Capital you have built up to work on your behalf, so that you can think about things other than money. An Engine isn't a pool of coins... it is a slice of ownership of a real business doing real work. The key to building Capital is *reinvestment* - building something rather than spending everything.
Traditionally, the idea of retiring comfortably (without help from family) requires building an Engine over the course of a working career. The Engine then looks after the pensioner in their Golden Years. 15-20 times the required spending is often quoted target. That means the Engine needs to earn 5-7% in real terms (above inflation). For bigger funds, 3.5% is a more "sustainable drawdown rate"... meaning you would need closer to 30 times the income you require. If the money only earned 2%, you would need an Engine 50 times the size of the spend.
What the money earns is clearly important, but it isn't the most important thing. The key to it all is how much is spent.
One of my financial heroes is Bill Cunningham. In his words, "If you don't take the money, they can't tell you what to do". He doesn't take money for his work. That gives him the creative freedom to do whatever he believes in. He lives about as simple a life as is possible to live in New York. Check out the documentary on him on Netflix.
Someone who earns £10,000 a month can be further from Financial Freedom than someone who earns R10,000 a month (about £563). The key questions are, (1) how much less than you earn do you spend, (2) are you building an Engine that could one day earn for you. Gradually, you can build an Engine that acts as a "Mini-Me" which works for you and takes the pressure off. Gradually, you will get the option of "not taking the money". That is the essence of freedom - choice. Bill lives off almost nothing, and so needs almost nothing.
Someone earning £1,000,000 a year could have no choice but to work in a job they hate, because they have no Capital and a bunch of commitments. Our lifestyle tends to adjust to earnings, creating habits and expectations that are hard to unlearn. For less than half of that, just once, someone could have an Engine that generates R10,000 a month comfortably. Don't expect the big salary owner to have the skills to live on that. We often look for lessons in Financial Freedom in the wrong places. Rather than those with big salaries, we should look for those who can breathe.
Traditionally, the idea of retiring comfortably (without help from family) requires building an Engine over the course of a working career. The Engine then looks after the pensioner in their Golden Years. 15-20 times the required spending is often quoted target. That means the Engine needs to earn 5-7% in real terms (above inflation). For bigger funds, 3.5% is a more "sustainable drawdown rate"... meaning you would need closer to 30 times the income you require. If the money only earned 2%, you would need an Engine 50 times the size of the spend.
What the money earns is clearly important, but it isn't the most important thing. The key to it all is how much is spent.
One of my financial heroes is Bill Cunningham. In his words, "If you don't take the money, they can't tell you what to do". He doesn't take money for his work. That gives him the creative freedom to do whatever he believes in. He lives about as simple a life as is possible to live in New York. Check out the documentary on him on Netflix.
Someone who earns £10,000 a month can be further from Financial Freedom than someone who earns R10,000 a month (about £563). The key questions are, (1) how much less than you earn do you spend, (2) are you building an Engine that could one day earn for you. Gradually, you can build an Engine that acts as a "Mini-Me" which works for you and takes the pressure off. Gradually, you will get the option of "not taking the money". That is the essence of freedom - choice. Bill lives off almost nothing, and so needs almost nothing.
Someone earning £1,000,000 a year could have no choice but to work in a job they hate, because they have no Capital and a bunch of commitments. Our lifestyle tends to adjust to earnings, creating habits and expectations that are hard to unlearn. For less than half of that, just once, someone could have an Engine that generates R10,000 a month comfortably. Don't expect the big salary owner to have the skills to live on that. We often look for lessons in Financial Freedom in the wrong places. Rather than those with big salaries, we should look for those who can breathe.
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