I recently read an article over on Monevator’s blog where he suggested that in order to remain motivated to achieving your financial freedom you need to know what your saving for. While I agree on one level with this he suddenly proclaimed that ‘only misers love money for its own sake’. That’s when it hit me. Maybe I’m the miser he’s talking about.
All this financial planning, prudent investing and passive income generation is being done for a reason. I always presumed it was so I could own a nice house somewhere nice and reach the point where the family has a nice comfortable life and I no longer need to work the 9-5pm (sorry that should read 8-6pm with 1.5 hour commute each way). This aim sounds ideal and when you start planning for it, you realise it is achievable.
However, I have a nagging doubt that I’ll never have enough. I mean how much income do I need to live comfortably? Maybe I could move to deepest Asia and get by happily on $1,000 a month. If i’m staying in South East England could I get by on £30k a year? How about £50k? £100k would be nice! When is enough enough?
Once you start investing and see the wonders of compound interest at work it’s hard to see how you’ll ever be able to put a stop to it. Investing for your future is kind of like walking up a see saw, you struggle up hill in the hope that one day you’ll cross the middle pivot and you can enjoy the ride down the other side. Where is the middle pivot?
I was recently talking to my father about our respective ISA portfolios. I nearly fell of my seat when he let slip that he spends ‘that nice dividend cheque’ that comes through the post every couple of months. It got me thinking…when will the day come when the portfolio stops growing and I start spending it?
In some respects the buzz I get out of investing is not the bottom line or the net worth figure i religiously calculate every month end but the joy of watching the portfolio grow in size. If i got my kicks from the profit then maybe i’d be more like the old man and be spending all that lovely dividend or interest income?
I see your point.
I am fairly similar to you from a savings point of view and find it difficult to work out how much I need to retire.
When you get used to saving 50% it is easy to forget that when you have an income stream large enough to retire on you can stop saving anything. Spending becomes 100% of disposable income and savings 0% (probably less extreme than this but you see my point).
Marco – I think it is paranoia that any chosen draw down rate will not be sustainable. In a funny way when you are in a position where you are saving hard/well and looking forward to not working (and living on the income + draw down) it can in some odd way, seem like you are losing your financial freedom to some extent, even though it’s the opposite!
Hi UTMT,
One metric I follow is what percentage of my net income from my job that my dividends are. At the moment my dividends are equivalent to about 40% of my job earnings and my near term goal is 50%. I ‘should’ hit 50% in 2015/16. At that point I will review everything and decide what my next step is. When I hit 75% I will give serious consideration to leaving normal full time work and certainly the work I do now. Currently that will be in 5 to 6 years time when I will be in my mid 40s.
At the moment its nice knowing that my dividends will cover both my mortgage and monthly bills, for me thats a worthwhile goal to aim for.
All the best, Dylan
Dylan,
That is a great metric to follow. You’re obviously doing really well if your dividends are hitting the equivalent of 40% of your current income. You must have started investing early?
I actually track something similar (all investment income) on the spreadsheet mentioned on this post. When I reach the point of considering leaving work a fair chunk of my income will come from property so i need to track that income as well as my dividends.
Happy investing!
I started investing into active funds in my early 20s and individual stocks about 15 years ago. I buy blue chips on good yields, at least equal to the market. I am a ‘buy and hold investor’, rarely do I sell, only three trades last year and I mostly reinvest dividends as I remain fully invested. There are many great businesses out there but it’s getting them at the ‘right’ price with good yields.
Fantastic. Well done on the early start!
It’s an interesting conundrum and one I’ve heard many people are struggling/have struggled with. Personally I’ll be out the door as soon as it’s remotely “safe” to do so (and probably earlier) although I currently have zero dependents so my views could change radically if that situation changes! All the best in figuring it out, only you know when enough is enough!