mercredi 22 janvier 2020

The magic number

Time is precious. And as time goes by, time is more and more precious because you know that you’ve got less and less of it. 
I'm right in the part of life where I haven't that much time left. I arrive early at job and come back a bit late (I'm away from home from 6:30AM to about 6 PM). But I have a job that gives me an income that sets me amongst the 1-2% of the canadian population, so it's hard to complain.  But nothing's perfect. There's not just the income. There's also the joy to be at work, and sometimes the two are inversely related. 
So, I often ask me at which point I'll say that this is enough? At which point will I drop my big job for something more quiet, where I could live without any worries, but I wouldn't get the income that lets me do basically whatever I want to do and buy anything that's not an overly priced luxury (well, for instance, I could buy a drum or go to Japan tomorrow, but I couldn't buy a Porsche…)
To me, the magic number related to freedom is 1 000 000$. Because if you invest that amount in a smart way, you’ll get 100 000$ each year (based on the historical performance of the market). 
If Penetrator can reach the 1 000 000$ level, he’ll be able to slow down, leave his job for a job with less responsabilities and less pressure. He’ll can easily get a job that earns 80 000$ a year, which would be enough to cover all his expenses (because when you’re a 40 years old professional, that’s about the income you could get).
With a 80 000$ income, the house and the car are paid such as the usual expenses (food, gas, school, etc). Penetrator still has some money for his hobbies and a little money to invest on the stock market. But not that much. Anyway, it doesn't really matter to save money when you have 1 000 000$. 
At 40 years old, there's a milestone in your life. You should think a little bit more about comfort. But with one million dollars in stocks, I think there's another milestone: you should stop thinking about saving more money and working for money. You should look for a balance about spare time and money. 

5 commentaires:

  1. Interesting article. Thank you for sharing and congratulations on your career success!

    "Across the country, you were in the top 1 per cent of all earners in 2015 if your employment income was at least $225,409."

    I live on about 25-30k per year with about 8k being all my living expenses (rent, food, clothing, bus pass & travel, phone, electronics etc.) and the rest going primarily to taxes and tuition. [Yes, I am a loser who looks worse than some homeless people.] I cannot even imagine what people with 10x more money do in their day-to-day lives. I guess not living in a mouse-invested windowless basement room in an illegal rooming house with fifteen other Eastern European, African and Indian tenants and one bathroom and eating meat & veggies instead of potatoes and rice for every meal (I also do yardwork etc and pay rent for the year upfront in cash to have a slightly reduced rent from the landlords). I had also two used bicycles stolen, got my room burglarized and was mugged once, and see fairly regularly passed out junkies in the alleys next to my residence.

    For me, I would assume a 3% safe withdrawal rate. To live a normal life, I think a frugal family in Canada without any screaming needs would need at least 50k per year plus a paid off home and maybe a car. That would mean about 2.2M in net worth to live a comfortable life financially free (500k for home, 1,667k for portfolio, and 33k for a used family van and home furnishings). At current rate, I will never reach this number, but maybe one day... maybe I will finally get a proper job... let's be optimistic about the future. I think if you came here as a newcomer with a naked butt, it might be quite challenging to reach this level while relatively young. But for people with roots in major cities and sizable inheritance or a house they bought a few decades ago, it should be quite a breeze.

    If I wanted to live like a loser for the rest of my life, I could probably be financially independent with about 24k per year and no hard assets. This would in minimum required 24/.03 = 800k investment portfolio. This is still not going to happen in my current situation, but it is much less daunting than 2.2M.

    I am quite curious what others are thinking and what might be their numbers or their assumptions. FYI, based on my past readings, most financial planners assume about 6.5% annualized returns on portfolios, which I find overly optimistic.

    1. Yeah, $24,000 after taxes a year is barebones but doable. An extra $1000 a month would make it much better. This only works though if you don't have kids, are single or have a partner who doesn't want much.

  2. How are you in the 1-2% and not already have $1,000,000?

  3. I didn't have the same source as ($)0($). Given that source, I'd be in the 5%.

  4. At some point when you have enough capital invested, the amount you save become a tiny fraction of the overall gain in net wealth you will have in a year. Once you are there, all you need is to have the income needed to pay the bills and your expenses. You can drop your high income job and all the stress that goes with it while growing your networth without picking in your stash of cash. I am not talking of a full retirement, but to quit the big job for doing something that you like at the trade off of earning less money.

    At some point, time has more value then a higher income highly taxable and the compounding will do the rest. From a rough estimation, living in Montreal with a 610$/2 weeks mortgage, 2300$ of municipal taxes + one kid at the day care would cost me about 50 000$ a year after taxes. That is the income I should have to slow down professionally without without taking money in my portfolio.

    If possible Penetror, if you can retire but keep working at your actual job on a contractual basis on the same hourly rate you have, you can have a very good income while working 15-25 hours a week without having all the responsabily of your actual job. That is what my former boss did, he retired early but I keep hire him on my project but he work when he want.