3 Steps to Determine When You Can Stop Working
This is the very first guest post on My Own Advisor. This guest post is courtesy of Kanwal Sarai, the founder of Simply Investing, who is on a conquest to bring financial freedom to all.
Most people believe that they have to work till they’re 65 years old. Some people believe that they will have no choice but to work for the rest of their lives. Then there is a minority of people who love their jobs so much they never want to quit, which is fine. But what everyone wants is freedom, the freedom to work/travel/play when and where they want, when they want.
How do you achieve freedom sooner than later? Well, the exercise is quite simple and only requires 3 steps.
Start with a graph, the Y-axis represents money and the X-Axis represents time. Plot your monthly expenses on a graph in red. These expenses should include everything (food, mortgage, car, gas, heating, electricity, mobile phone, clothes, taxes, childcare, eating out, movies, travel, saving for a new car/vacation/home….) I mean everything. For most people the graph will look like the graph shown in Figure 1 below. Generally in life you begin with little expense, then as you grow older, go to college, get married, buy a house, have kids, your expenses will start to grow. Once the kids grow up and move out of the house your monthly expenses will start to decline and then eventually level off.
On the same graph plot your monthly income from all sources except from your full-time job in green. By all sources I mean, rental income, dividends, other investment income, and income from a side business or freelancing work, interest from bonds or term deposits. For most people the graph will look like the graph shown in Figure 2 below. Generally in life you begin with little investment income, then as your grow older and start investing, or start a side business your income will grow. For some people the income continues to grow and skyrockets. For most people the income will start to level off as you get closer to retirement.
Each month or each year, continue to plot the red and green lines on the graph. When those two lines intersect that is when you can quit your full-time day job and stop working (see Figure 3). At the point of intersection your monthly income will match your monthly expenses.
How can you get there faster?
You can get there faster by:
-Decreasing your monthly expenses and/or increasing your investment income
Here are some ideas to decrease your expenses:
-Buy/rent a smaller place
-Spend less on eating out
-Bike or walk rather than drive
-Cut your cable, internet, heating, phone bills
-Buy a used car instead of a new one
-Reduce the fees you pay for your mutual fund
Here are some ideas to increase your investment income:
-With the money saved by cutting your expenses you can invest more
-Forget mutual funds and learn about value investing
-Start a side business, or start freelancing
I know this may seem impossible at first, however when you go thru the 3-step process you will start to make the necessary changes in your life to bring down expenses and increase your income. Before you know it you will have achieved financial freedom sooner than later.
My Own Advisor: I couldn’t agree more with the straightforward advice to “get there faster” by decreasing monthly expenses and/or increasing investment income. Long term, I hope we can do both! We’ll see over time won’t we readers?
About my guest:
Kanwal Sarai, is the founder of Simply Investing, and on a conquest to bring financial freedom to all. He created the Simply Investing Online Course on the belief that the world can be a better place if people didn’t have to worry or stress out about money. Simply Investing’s goal is to change the world one investor at a time. Thanks for your post Kanwal!
Any questions for Kanwal?
Any questions for My Own Advisor?Thanks for reading and sharing this article.