How much do you need to quit your job? 

This month I want to revisit how much we need to hold in passive income generating investments to fund our lifestyles. 

This is a relatively simple formula I have used throughout my financial career. I apply the same formula to my own financial situation when deciding how much I need (or could expect live on) to fund my lifestyle without the need to continue working. 

My Assets (excluding my home – unless I intend to sell my home) less debts.

Then I multiply this number by 0.06 e.g. Assets $1,000,000 less debts of $300,000 = $700,000.

Multiply $700,000 by 0.06 = $42,000 Therefore I can expect to receive $42,000 per year from my investments that I can use to fund my lifestyle.  

If I don’t feel that this is enough then I need to work at ways I can increase my assets, or reduce my debts, or both so I can have certainty that I can continue to fund my desired lifestyle without the need to go to work for an income.

I have based my formula on investing in growth assets that will generate for me approx 6% income per year after tax and are giving me capital growth above inflation (so my purchasing power of my money can buy as much in the future as it can today).

This will ensure that my money will grow and I can draw a higher income each year to offset the higher costs of life in the future. 

One last interesting point.

People always complain to me about wanting to stop work. Fair enough I say unless you really like what you do. However if your current work after tax is paying you $60,000 based on my above formula this would be valued at a $1,000,000 asset.

However to manage this asset you are effectively sacrificing (whatever hours you are doing now) to manage this asset 35-50hrs per week.   

So to me paid employment is an asset, which I give up some time to manage.

Long term I want to be saving some of that money that I earn from my job, and build up my superannuation (minimise tax), build my wealth and pay down debts; so effectively I can get to a time where my own assets are generating more income than my paid employment.  

So when I have achieved the point at which I have financial Freedom?

The point when I have the choice to work or not as my income from investments is greater than my income from work (and this is enough to fund my lifestyle expenses. This is when I feel a person has attained financial freedom in my terms.  

I hope to be bringing you more ideas from my personal experiences in the future and helping you too along your path to achieving financial freedom.

We plan to be adding video presentations and telephone conferences to our websites so you can view them in your own time and in the comfort of your own home. 

We have also launched our Skype Online Meeting Service for clients who wish to access our services more regularly however are unable to visit or office us face to face (office) so now can do this virtually.

You can easily download the free software to load Skype www.skype.com on your computer if you have not done so yet. Our screen name is FMW.Financial.Planning we look forward to seeing you online J 

Till next time 

Warm regards

Peter Horsfield