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If I was starting from scratch, my wealth building goal would be 4% of $2MM.
That's what I recommend Your Personal Wealth Building Goal should be.
To understand why I'm recommending 4% o $2MM, we first have to understand...
Compound Interest Calculator used in video: click here
Take a look at the graph below.
Both of those lines represent how your wealth can grow over time.
If you had to pick one of these lines for how your wealth grows, which one would you pick? Probably the one that goes up fast, right?
That line is the orange one and it represents compound interest.
Compound interest over time can grow your money exponentially. I show examples of how compound interest works in the video above.
By using compound interest, you can turn relatively small amounts into huge piles of money over time. This happens when you get compound interest to work for you.
By the same principle, relatively small amounts of debt can turn into huge piles of debt over time. This happens when compound interest is working against you.
Compound interest can work for or against you.
You want compound interest to work for you, not against you.
Why 4% of $2MM?
4% of $2MM is $80K.
If you were to pay yourself 4% of $2MM every year, you would be paying yourself $80K a year for living expenses.
I like $80K because with this amount of yearly income, you can live like a king, almost anywhere in the world.
And you're only taking 4% of your total invested assets, which means that most likely, your invested money would still be growing over time. This also means that your annual "salary" will increase over time (and perhaps keep up with inflation).
This means that even after you pay yourself, your wealth continues to grow just by sitting there. You don't have to do anything to grow it.
At this point, you are getting paid to be rich. This is what true passive income looks like.
- 1How much money do you need to invest?
- 2How much money do you want to pay yourself per year?