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What is considered as a state of Financial Unbreakability?
A person will be considered to be in a state of financial unbreakability when their monthly Passive Income equates or exceeds their monthly Expenses.
For example, if your monthly expenses (for housing, food, transportation, entertainment, etc) are $3,500
when your monthly passive income generated from your asset (ie from dividends) is => $3,500,
you would have achieved Financial Unbreakability.
Illustration example:
Let's say for example you would need $3.7million to able to achieve financial unbreakability.
and this amount is invested in cashflow generating assets such as (bonds, fixed deposits, REITs, dividend stocks) that will generate 4% annual returns for you
the passive income amount it will generate on a monthly basis is $12,333.
formula: ($3.7 mill x 4%) / 12 months.
Next, we will need to take Inflation into account
and for this, we can look at the past Consumer Price Index trend.
United States' CPI increased at a CAGR of 3.5% in the past 74 years,
here are how other countries fare:
Singapore's CPI increased at a CAGR of 2.4% in the past 68 years.
Australia's CPI increased at a CAGR of 4.8% in the past 74 years.
Malaysia's CPI increased at a CAGR of 3.3% in the past 52 years.
Say if you are a 30 year old adult today, and your desired age of retirement is at 62 years old (32 years later).
You will want to know how much money will have the same equivalent purchasing power as $3,500 today in 32 years time.
let us use an estimated inflation rate of 3.5% (based on the CPI CAGR figures collated above).
To do this, you will need to calculate the Future Value by using a formula like this = ($3,500 x (1+3.5%)^32) = $10,523.
this means $10,523 will have the equivalent purchasing power of $3,500 today in 32 years time.
Thus, assuming all things constant, in 32 years time, with $3.7million worth of assets that can generate up to 4% returns per year ($12,333 per month), that will suffice to sustain a lifestyle for you that costs up to $3,500 per month today.
Remember, everyone's financial journey and goals are different, you do not have to stick to the figures above, feel free to adjust where you see fit to suit yours.
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