Tuesday, August 14, 2012

How to Get Rich - Asset Numbers Not That Important

Have you ever wondered how much you have to have to be considered rich ?

Do you know how much you need to have to enjoy a comfortable life ?

Truth is, it isn't really about the asset numbers at all !

Number Obsession

If you ask any Financial Adviser or Financial Planner you will get a different number on how much you have to have saved to live the rich life. They all use formulas and future projections to show what they feel you will need to be comfortable.But really how accurate are these numbers they give you ?

The truth is, they are all making educated guesses as to what they feel the future will be like. No one really knows what the future will be like. If they did, I suspect they would already be on a beach somewhere enjoying all their own wealth.

Therefore, the numbers they give you should only be used as a guideline. Many times their number is higher than what you actually need. Remember, for the planners who sell investments, the more you invest with them, the more money they make as well.

Alternative Focus

As an alternative to reaching a savings or investment asset goal, I would suggest you calculate what your current living expenses are today. Now add an amount of additional income that would make you feel rich today. Use this rich income amount as a guideline for building your investments.

This rich income amount would cover all expenses associated with living your dream life in today's dollars.
In other words, what would you have to earn today to feel absolutely filthy rich ?

Now, subtract out your current net income. This difference will represent what additional income you need to generate to feel rich. You can now calculate how much of an investment you will need to generate this income. As an example, at a 10% yield you need to invest 10 times your additional annual income amount requirement.

Eventually, you will also want to replace your current earned income with passive investment income in order to free up your time to enjoy your wealth.

Simple But Effective

This approach is much simpler to calculate on your own without the help of an adviser. There is no need for complex computer software models and future unknown projections. You would simply repeat this procedure once per year to adjust your income targets as you go.

You will also find that you can start to enjoy a rich feeling much sooner as your income starts growing. One drawback of the traditional asset number building strategy is that you don't feel rich until much later in life. You really do owe it to yourself to feel good about your financial position as soon as possible.

Give this approach a try and you may find that you are closer than you think to realizing your future dreams and goals.

As always, I welcome your comments and suggestions for future topics.

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