I’ve been reading a lot of personal finance books lately. One of them being Tony Robbins’ book. I first saw his Netflix show, and I decided to buy his book on money.
The first part of the book is cool. It helps you define your goals. My 3 main goals for my money in the next 15 years are:
Reach financial security – This means that if I lose a job or an emergency happens, I can live for at least 6 months on this money.
Reach financial independence – Imagine being able to live for the rest of your life, without ever having to work again. This is what financial independence is. I’m hoping to achieve this in the next 10 years (with smart investment moves).
Reach absolute financial independence – Financial independnce but with room for 3 major goals. Private jet? Yep, this fits here. Your own island? Yeah, with this level of financial freedom you can afford 3 absolute luxuries without breaking your financial indepence.
Just a side note: my 10 year goal is to grow my blog to 100,000 monthly readers. I haven’t written this down anywhere.
Tony says that you should set your goals with a time in mind and a set number of cash.
Financial security for me would probably be around £5000, that’s enough to keep me safe for 6 months. I can reach this in less than a year.
Financial independence is reached through the 4% rule.
The 4% rule states that if you hold an investment, you can safely take out 4% a year without killing the investment. If your investment returns 7% per year and inflation is 3%, you get left with 4% remaining.
If you invest £1000 a year for 15 years at 8% return (vanguard life stratergy returns), after 15 years you’ll be making £30,000 a year from doing nothing other than having a direct deposiit. After 5 more years, you’ll be making £52,000 a year from nothing. This is far more than what most people earn in a year, and you’ve earned it by investing money, no hard work or putting your time into anything. And this money never stops, every year you’ll get an extra £52k just to play with.
If you work in tech and earn around £70k per year, you could put away 40k a year (leaving you with £30k, which is a normal salary for non tech jobs). If you put away £3300 per month, within 20 years you’ll be making £177k per year in interest. You put in no work for this money, you just made a direct deposit. Fair to say that £177k can help you live a comftorable life. If you live frugally and put away £40k, you’ll be making an extra £260k a year.
People with a poor mindset believe that you have to exchange your time for money. This isn’t true. You can earn thousands every year, in fact, £52k a year with no exchange of time. It’s called passive income. Imagine sleeping, and you wake up to find out that you’ve made £3000 while you were asleep.
You should have 3 buckets of wealth:
- Your risk bucket
- Your growh bucket
- Your dream bucket