Most of us have a strong desire to have more money, but our reasons vary. I’ve struggled to express my thinking on this subject clearly and concisely, but Jonathan Chevreau managed to say it in three words: “freedom, not stuff”.
I don’t have much to add to Chevreau’s remarks – I encourage my readers to see what he had to say. Stuff always seems great when you’re buying it, but it loses its appeal quickly. It makes no sense to go to work and trade your time in return for more stuff.
Freedom is what it's all about. On my spreadsheet, I have a column that calculates my percentage freedom. I take 4% of all my investments (from the 4% rule), giving the amount I can safely withdraw each year; then I divide this by my annual budget. When this hits 100% I could pay my entire budget from sustainable withdrawals from my investments.
ReplyDeleteAt this point I'm still hovering around the single digits, but I take heart from knowing that my peak saving years are in my future, while my peak spending years are probably right now, so things should only get better.
Incidentally, by this measure, the typical advice to save up 6 months' expenses amounts to only 2% freedom, which I think is a starkly accurate characterization of most people's financial state.
@Patrick: I like the idea of an automatic "freedom percentage" calculation. Maybe I'll add that one to my own spreadsheet.
ReplyDelete@Patrick, I like that idea very much too. Innovative thinking, there.
ReplyDeletePersonal finance guru Dave Ramsey has a similar measure to your freedom percentage called the "Pinnacle Point". The metaphor is that is the apex of the retirement savings hill you've been working to ascend. Once you're at the pinnacle, you just coast down the other side. He uses an overly optimistic 8% withdrawal rate. I think 4% is realistic.