| Becoming Financially Independent |
An Investment Management Company
Tutorial - Finding Your BIG NUMBER
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What is a BIG NUMBER?
What you're going to calculate now is how much money you will need to accumulate in
your investments so that you can live off the dividends and interest for the rest of your
life. That's the Big Number.
Some of you are asking yourself -- Why do I have to worry about my retirement? Won't
my company or the government provide that? If these seem like reasonable questions
then push the SAD BUTTON and I'll explain why you're on your own to provide for your
retirement.
SAD BUTTON
For the rest of you, let's move on.
How do you find your Big Number? You can make it as simple or as complex as you
desire. Just answer this question: How much do you spend each month?
Don't have a clue? OK, if you don't have the foggiest idea of how much you spend
each month, push the SPEND BUTTON.
SPEND BUTTON
For the rest of you, let's move on.
So let's say you spend $10,000 per month. (Hey, $10,000 is just a number. You may
spend only $1,000 a month. That's great! Everybody's spending is different --- I'm just
using $10,000 as an example.) More than likely you will want to spend the same
amount each month when you are retired as you do today. Why will you need to spend
the same amount? Although you will have your home paid for and be completely out of
debt, you may want to travel and you will most likely have a multitude of medical bills
that you don't have now (fun to think about, huh). The rule of thumb is to anticipate
spending in retirement between 80% and 110% of your current spending.
If you spend $1,000 per month --- same thing. Plan on that for retirement. Not satisfied
with that answer? Want to make this complicated? No problem. Just give me a call
and we can come up with a more sophisticated answer.
So, just for the sake of round numbers, let's assume you are currently spending
$10,000 per month and you anticipate you will spend the same in retirement. How
much is that a year? It's a simple calculation. $10,000 X 12 months = $120,000. This
is how much you plan to spend each year in retirement if you want $10,000 per month.
(So to do your calculation, just replace the $10,000 with the amount you expect to
spend each month to get your annual spending.)
Now let's calculate the Big Number -- the scary one -- the one that -- once you have
accumulated it -- will allow you to declare "That's it and that's all! I'm Financially
Independent and I can do whatever the heck I want!"
Assuming again that you plan to spend $120,000 a year (which is $10,000 a month),
here is the formula:
$120,000 /0.05 = $2,400,000. $2.4 million would be our Big Number.
Now use that same formula to calculate your number.
(Your annual spending /0.05 = Your Big Number)
Big Number, huh. Is your hair on fire yet? Don't worry, I'll show you how to
accumulate that much -- there is some magic to it that makes it easier than it looks.
Question: What's up with the 0.05 in the Big Number equation? What I'm saying is
that you can expect to earn an average of 5% from your investments each year when in
retirement. Don't like that number? OK, give me a call and I'll help you make this more
complicated.
Question: Isn't there some way to make my Big Number not quite so darn big?
Absolutely! In fact there are several ways. What you have with your Big Number
is an amount that allows you to use only the interest and dividends that your Big
Number produces each month. As a result, when you die, expire, auger in, or
otherwise permanently depart you can leave the Big Number to your children or a
favorite charity. This also acts as a massive buffer in case you get seriously ill and
require medical treatment or home health care not covered by your insurance. In effect
you are partially self-insured. I like this approach because it allows me to sleep at night
knowing I will have enough to retire plus a big gob more -- just in case.
So, if you want to reduce the size of your Big Number - so that you can retire earlier,
we can work it out so you spend a bit of your principal (in addition to interest and
dividends) each month. This will significantly reduce the size of your Big Number.
However, you're going to have to guesstimate how long you plan to live after retirement
because you'll be eating your principal -- and once it's gone -- it's gone. In addition,
you will be planning on not having any money for your posterity (nothing wrong with
that) and you'll need to make sure you are perfectly covered through insurance for any
possible emergency that would otherwise eat up your Big Number prematurely. If you
would like to use this method to calculate your Big Number so it's not quite so darn
big, give me a call and I can do the math for you.
Another way to reduce your Big Number is to become more disciplined with your
spending today. Learn to enjoy life on less money. Once you've demonstrated to
yourself that you can happily live on less --- recalculate your Big Number using your
new monthly spending amount.
A third way to reduce your Big Number is if you are anticipating some "guaranteed"
retirement benefits like social security or a pension plan. YOU must make the
determination of how secure you believe those benefits really are and -- if, for example,
you are convinced you will receive $3,000 per month in total benefits, subtract that from
your monthly spending amount and recalculate your annual spending and your Big
Number.
Got your Big Number now? This is the magic number that will set you free! Learn to
love the number. Write it down and stare at it for a while.
So how in the world do you ever accumulate that much? Well, there's a Secret
Formula that has some magic in it. Are you ready to learn the Secret Formula? -
Click Here.
What you're going to calculate now is how much money you will need to accumulate in
your investments so that you can live off the dividends and interest for the rest of your
life. That's the Big Number.
Some of you are asking yourself -- Why do I have to worry about my retirement? Won't
my company or the government provide that? If these seem like reasonable questions
then push the SAD BUTTON and I'll explain why you're on your own to provide for your
retirement.
SAD BUTTON
For the rest of you, let's move on.
How do you find your Big Number? You can make it as simple or as complex as you
desire. Just answer this question: How much do you spend each month?
Don't have a clue? OK, if you don't have the foggiest idea of how much you spend
each month, push the SPEND BUTTON.
SPEND BUTTON
For the rest of you, let's move on.
So let's say you spend $10,000 per month. (Hey, $10,000 is just a number. You may
spend only $1,000 a month. That's great! Everybody's spending is different --- I'm just
using $10,000 as an example.) More than likely you will want to spend the same
amount each month when you are retired as you do today. Why will you need to spend
the same amount? Although you will have your home paid for and be completely out of
debt, you may want to travel and you will most likely have a multitude of medical bills
that you don't have now (fun to think about, huh). The rule of thumb is to anticipate
spending in retirement between 80% and 110% of your current spending.
If you spend $1,000 per month --- same thing. Plan on that for retirement. Not satisfied
with that answer? Want to make this complicated? No problem. Just give me a call
and we can come up with a more sophisticated answer.
So, just for the sake of round numbers, let's assume you are currently spending
$10,000 per month and you anticipate you will spend the same in retirement. How
much is that a year? It's a simple calculation. $10,000 X 12 months = $120,000. This
is how much you plan to spend each year in retirement if you want $10,000 per month.
(So to do your calculation, just replace the $10,000 with the amount you expect to
spend each month to get your annual spending.)
Now let's calculate the Big Number -- the scary one -- the one that -- once you have
accumulated it -- will allow you to declare "That's it and that's all! I'm Financially
Independent and I can do whatever the heck I want!"
Assuming again that you plan to spend $120,000 a year (which is $10,000 a month),
here is the formula:
$120,000 /0.05 = $2,400,000. $2.4 million would be our Big Number.
Now use that same formula to calculate your number.
(Your annual spending /0.05 = Your Big Number)
Big Number, huh. Is your hair on fire yet? Don't worry, I'll show you how to
accumulate that much -- there is some magic to it that makes it easier than it looks.
Question: What's up with the 0.05 in the Big Number equation? What I'm saying is
that you can expect to earn an average of 5% from your investments each year when in
retirement. Don't like that number? OK, give me a call and I'll help you make this more
complicated.
Question: Isn't there some way to make my Big Number not quite so darn big?
Absolutely! In fact there are several ways. What you have with your Big Number
is an amount that allows you to use only the interest and dividends that your Big
Number produces each month. As a result, when you die, expire, auger in, or
otherwise permanently depart you can leave the Big Number to your children or a
favorite charity. This also acts as a massive buffer in case you get seriously ill and
require medical treatment or home health care not covered by your insurance. In effect
you are partially self-insured. I like this approach because it allows me to sleep at night
knowing I will have enough to retire plus a big gob more -- just in case.
So, if you want to reduce the size of your Big Number - so that you can retire earlier,
we can work it out so you spend a bit of your principal (in addition to interest and
dividends) each month. This will significantly reduce the size of your Big Number.
However, you're going to have to guesstimate how long you plan to live after retirement
because you'll be eating your principal -- and once it's gone -- it's gone. In addition,
you will be planning on not having any money for your posterity (nothing wrong with
that) and you'll need to make sure you are perfectly covered through insurance for any
possible emergency that would otherwise eat up your Big Number prematurely. If you
would like to use this method to calculate your Big Number so it's not quite so darn
big, give me a call and I can do the math for you.
Another way to reduce your Big Number is to become more disciplined with your
spending today. Learn to enjoy life on less money. Once you've demonstrated to
yourself that you can happily live on less --- recalculate your Big Number using your
new monthly spending amount.
A third way to reduce your Big Number is if you are anticipating some "guaranteed"
retirement benefits like social security or a pension plan. YOU must make the
determination of how secure you believe those benefits really are and -- if, for example,
you are convinced you will receive $3,000 per month in total benefits, subtract that from
your monthly spending amount and recalculate your annual spending and your Big
Number.
Got your Big Number now? This is the magic number that will set you free! Learn to
love the number. Write it down and stare at it for a while.
So how in the world do you ever accumulate that much? Well, there's a Secret
Formula that has some magic in it. Are you ready to learn the Secret Formula? -
Click Here.
| Investing Wisely |
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| The advice contained within this website is general in nature, only for the use of FI Investments clients, and should not be relied upon without first consulting with FI Investments. |