Seems like nobody is satisfied with their job these days and are looking for a way out. How much do you need to make the jump to freedom? Find out in this post with easy to use worksheets to find your magic number and quit your job for good!
In 2017 85% of people working at 9-5 jobs hated their job! No wonder I get so many questions about how much money you need to quit your job…
It seems like everybody wants to save up or make enough money to quit their job. Very few people actually like their job.
So.. how do you escape that boring 9-5 job???
One way is to simply save up or earn enough money that you don’t need to work, but how much do you need? That’s the big question.
The answer?? It depends. Haha, I know that’s not what your looking for so here’s a better answer:
I’m going to show you how to calculate how much you need to quit your job right now. To do that I’m going to walk you through a couple simple worksheets that will lead us to your number.
Let’s start with how much money you spend per year.
WHAT ARE YOUR ANNUAL LIVING COSTS?
To figure out what your annual living costs are, tally up everything you spend money on monthly and annually.
What do you spend money on monthly?
House Insurance $__________________
Car Insurance $____________________
Car Repairs $______________________
House Repairs $___________________
Add all those up to find you total monthly living costs below.
Total Monthly Living Costs $____________________________
What do you spend on annually? These are things you spend on only once per year.
HOA Fee $________________________
Add all those up to find your total annual living costs below.
Total Annual Living Costs $____________________________
Next, let’s add up your monthly and annual expenses to get a total annual living costs for a year:
(Total Monthly Living Costs $________________________ x 12) = $_________________________
Total Annual Living Costs $__________________________
Total Living Costs Per Year $_________________________________
Here’s an example that I did to give you an idea of what it would look like when you do it:
(Total Monthly Living Costs $4,000__________________ x 12) = $48,000____________________
Total Annual Living Costs $0__________________________
Total Living Costs Per Year $48,0000__________________________
So, I would need about $48,000 a year to live comfortably. Each person is different so you’ll need to fill out the above worksheet to find your number.
HOW MUCH MONEY DO YOU NEED TO QUIT YOUR JOB?
Now, this comes down to how you invest your money. I’m going to show you a simple formula to determine how much money you need based on the rate of return (how much money you are making off of your invested money) and your total annual living costs you just figured out.
Here’s a simple formula that I’ll walk you through:
TOTAL ANNUAL LIVING COSTS / RATE OF RETURN = HOW MUCH MONEY YOU NEED
So, back to my example. If I want to earn my living costs by investing in the stock market, here’s how I’d use the formula to figure it out.
I know that the average return of the stock market is about 10% over history (S&P 500) between 1928-2016*, at least for now. Here’s how I’d fill out this formula:
Total Annual Living Costs $48,000 / Rate of Return .10
How Much Money I Need: $480,000
Boom! That’s all there is to it! I need $436,363 invested in an S&P 500 Index fund to make $48,000 per year on average!
That’s what it would cost me to reach financial independence. How much would it take you? F
Fill out the following form to find out:
Total Annual Living Costs $_____________________ / Rate of Return:_____________________
How Much Money You Need: $________________________________
WHAT IF I DON’T WANT TO INVEST IN THE S&P 500 INDEX?
If you don’t like the idea of investing in the S&P 500 Index, there are plenty more options out there and the great thing about this formula is that you can recalculate it by changing the rate of return.
Here’s a list of different investments and their average rate of returns:
CD’s - .27% or (.0027)
Certificate of Deposits have drastically dropped off in recent years so it would be unrealistic to give you a historical average. Lately a 1 year CD has averaged about .27%.
US Treasury Bills - 3.42% or (.0342)
Intermediate-Term Government Bonds - 5.18% or (.0518)
Long-Term Government Bonds - 5.51% or (.0551)
Long-Term Corporate Bonds - 5.96% or (.0596)
Stocks (S&P 500 Index) - 9.63% or (.0963)
Feel free to insert any investment of your choice into the formula. If you have another investment option and you know the average rate of return you could insert that as well.
THE POWER OF KNOWING YOUR FINANCIAL FREEDOM GOAL
Once you know how much you need to reach financial freedom, you have a goal to work towards.
It’s very powerful to know what you are working towards rather than blindly saving without any idea of what you are saving to reach.
Make sure you are saving enough money to reach that number and don’t forget the power of investing. If you’re investing now, not only are you saving towards that goal but the value of your money is increasing, leading you to your financial goal even faster.
Fill out the above worksheets to find your number and then save it! Write it on a sticky pad or save it on you computer where you can see it. Keep it in front of you, so you have a goal and you always know what you’re working towards!
- Fill out the Annual Cost of Living Worksheet to find out how much money you need to live on.
- Fill out the How Much You Need to Quit Your Job Worksheet to find out how much money you need to have to quit your job.
- Put the number somewhere where you can see it often, so you know what you are working for.
- Make sure you are saving and investing enough to reach that goal.
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