"Rogue Trader, Nick Leeson (who interestingly now lives in practically insolvent Ireland) managed to bring down Barings Bank in 1995 all on his own! We now know our banks aren't as financially secure as they would have us believe. Learning how to manage your own money and becoming your own best financial advisor has never been as important if you want to become financially secure." ~ Keelan
The first step on the road to financial freedom is financial protection (see my previous post for more on this). In this post I want to explain what is step two: Financial Security and how much does it cost to actually achieve this.
You will have achieved financial security when through your various investments you’ve accumulated a critical mass of capital, that, invested in a secure environment at an 8% rate of return, provides you with enough cash to meet the following living expenses forever without you having to work again should you chose. For the purpose of this illustration we’re gonna assume some numbers.
- Mortgage repayments on your private home until it’s paid off e.g. $1,500/month
- Family food needs e.g. $500/month
- Utilities, gas and electricity e.g. $250/month
- Transportation needs e.g. $250/month
- Insurance – health, disability, house e.g. $300/month
- Taxes – such as property taxes e.g. $200/month
This would bring your total monthly living expenses to $3,000/month or $36,000/annum. Therefore, you would need a critical mass of capital amounting to $450,000 (which invested @ 8% return per annum would generate $36,000) to achieve financial security.
What I like about this calculation is that it removes fuzzy, subjective meanings of financial security; it distils financial security into a finite number…something which I think is enormously helpful for anyone looking to achieve it.
About Keelan Cunningham
Keelan Cunningham is an entrepreneur, multiple business owner, author, and personal finance/wealth building specialist. Keelan’s passion is helping people improve their business acumen and personal wealth creation strategies, so they can lead a truly wealthy life in all aspects and with any luck similarly transform the lives of others.
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