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Old 08-14-2010, 05:03 PM
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DavidBibby DavidBibby is offline
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Join Date: Jun 2010
Location: Palm Bay, FL
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Default Being Financially Free

One of my goals is to be financially free. Not just DEBT free.. but FINANCIALLY FREE.

What does that mean?

To me.. that means I have a nest egg large enough so that my family and I can live off of the interest.

If I'm only living off the interest.. that means.. so long as my investments are safe (so that the principal is never touched).. I could get interest payments for the rest of my life, and when I die, I can pass it on to my children.

So how much will I need to do that?

First... I'd determine how much I need to live on each month. If I had no debt and owned my home.. I could continue to maintain my middle class lifestyle easily with about $2500 a month. If I wanted to entertain and travel more, maybe $4000 a month would do.

Here's how to figure it out. Take the monthly amount that you need, multiply it by 12 (for 12 months), divide it by a conservative interest rate and the result is the size of the nest egg you'll need.

Here it is again:

$2500 * 12 / .05 = $600,000

I DID say conservative.. because we don't want to dip into the principal...but maybe 5% is just too low...

So here they are again at slightly higher rates...

$2500 * 12 / .06 = $500,000
$2500 * 12 / .07 = $428,571
$2500 * 12 / .08 = $375,000
$2500 * 12 / .09 = $333,333
$2500 * 12 / .10 = $300,000

Now what if I wanted $4000 a month?

$4000 * 12 / .05 = $960,000
$4000 * 12 / .06 = $800,000
$4000 * 12 / .07 = $685,714
$4000 * 12 / .08 = $533,333
$4000 * 12 / .09 = $480,000
$4000 * 12 / .10 = $436,363

So you DON'T need MILLIONS of dollars in order to be financially free. You just need the right size nest egg, at a good conservative interest rate and you can live off the interest for the rest of your life.

So now that you have the formula.. let me ask you a question.

If you had NO debt.. lived in a paid off house... how much would you need to live on? How much of a nest egg would you need to build?

Will that support your lifestyle?

Last edited by DavidBibby; 08-14-2010 at 09:06 PM.
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