There are a few levels of this wealth bucket.
1. Protection BUCKET
If you haven't done your budget do that now.
Have you done that now? Good. What we are trying to figure out is how much you need minimum a year to survive. Not movies not holidays or eating out. Just your rent, food, basic necessity. And figure that total out.
Lets say you are spending 2000 a month. So we times that by 12 months = $24000.
So you need $24000.
That is $24000 liquid cash. So if you lose your job or get sick you can survive a year without losing everything. And best of all you get a peace of mind.
So workout that number.
Monthly Expenses X 12 to get year Amount.
Your First Bucket Will be full when you have (Example $24,000) 1 year of basic needs covered in cash available to you. In either a bank account or in equity in your home.
2. Security BUCKET
The next stage is exactly the same. What ever your amount in the protection is. Write down that number again.
So for the example of $24,000 we right down $24,000 again.
The difference this time is. We want this number return every year. So we want investments earning and bringing in $24,000 a year.
If your protection number was $24,000 this will be $24,000 a year
So we add an investment bucket. This new bucket will be putting our savings and investment bucket. And will flow out into your original bucket (your expenses bucket).
So we have a pool of money, business, royalties, stocks realestate. All these assets will give us dividends, rent interests etc. So we want all these returns from these investments to cover our basic needs.
So we want a number that will give us a $24,000 a year return.
So to make it easy on us. To find out what amount you need to give us $24,000 Per Annum. An easy way to work this out, would be to times $24000 X 10. or add a zero on the end.
So $24,000 becomes $240,000. What we have done, is found a number that will give us that a return at 10%. If you are confused that is ok.
What we are looking for is to earn $24,000 for the rest of our lives. So the best way to do that with investing, is have a lump sum and earn interest off it. We are assuming a 10% return on any money invested on average. So we are figuring out what number with a 10% return will give us $24,000 and for this amount it will be $240,000 X 10% = $24,000
Another example would be. If your protection amount is $30,000. we just add a zero on to make it $300,000
If your protection amount is $36,500 just add a zero on $365,000
What ever you had in your first bucket just add a zero
So now we draw 2 buckets
Example $240,000 X 10% = $24000The top bucket has your total amount of investments (our example of $240,000).
The 2nd bucket is receiving a return of $24,000 a year from the investments. So each year, your Protection bucket will be filled up. For the rest of your life.
3. Comfortable Independent.
This level is trying to afford to keep your current lifestyle.
Lets say you are on $50,000 a year. It covers all your expenses and you are comfortable. This is what you want to write down.
Add everything in your budget. And put the yearly amount down that you want to live on.
Now if you are earning more then you spend, and you save a lot. You can lower this amount.
Or if you are behind and really struggling and you are earning less then you spend, you can lift this amount to what you need.
So we work it out the same as above $50,000 x 10 (or just add a 0) = $500,000
Example $500,000 X 10% = $50,000 a year return.
So now you have $500,000 in your top bucket of investments and the return pouring out is $50,000 a year into your everyday bucket, every year for the rest of your life.
4. Lifestyle BUCKET
So this one it is time to have little fun and re adjust your budget.
We don't want to just "get by" in retirement. We will want a few toys. So in your budget tweek it a little. We just don't want to live " comfortable" we want to enjoy ourselves.
Add a holiday a year in there. Say $8,000 a year. You want a boat $20,000. Spoil the grand kids, eating out a few times a week. You can add what ever you want. Now don't forget we are not paying cash for things. If you Buy a new car for $30,000. You work out what that will cost you. You will use a line of credit or a loan. Which you pay yearly. Just put down 10% of the total a year. To make it easy. So it will cost you about $3000 a year to pay off your car. $1500 interest $1500 principle.You can get exact numbers anywhere.
Added to budget
Holiday ($8000) a year
Boat $20,000 ($2000) a year
Eating out extra (10,000) a year
Paying kids education fees $10,000) a year
Few extras ($10,000) a year
Total $40,000
Last budget $50,000 + $40,000
$90,000 X 10 = $900,000
Example $900,000 X 10% $90,000 a year return.
This one will be fun for you. Just go onto you budget. And add your items. Time to find out and plan for retirement. Once we know the lifestyle we want. We can start preparing for it.
5. Absolute Dream Bucket
Go crazy all your dreams.
Donate to my Charity $10,000
Buy houses in 2 different countries
$600,000 ($60,000) a year
Lamborghini $200,000 ($20,000) a year
Party's $20,000 a year
Previous amount $90,000
New amount $110,000
$90,000 + $110,000
= $200,000
$200,000 x 10 = $2,000,000
This is the life style you always wanted. How about a castle. They are fairly cheap right now. How about Funding a charity? Ferrari? I seen an island for $2.2 million so repayments would be $220,000 a year.(At paying it off pretty quicky. And it comes with a charter business that net returns (after expenses) $190,000 a year. So it will cost you $30,000 a year for an Island.
How about you want to cure cancer. And you need $200,000 for research. This Dream Bucket amount for some people can be in the $10s of Millions. Bust for most people it will be under $10,000,000. Some will be happy filling up there independent bucket.
I personally don't have a flashy car.
I have a nice Ute. And SUV for the family.
I needed more seats and room for toys and bags and kids. And I use my Ute all the time.
A two seater Ferrari does not entice me at all. Oh they are fun to drive. But I would just lose my licence anyway.
Also i would worry about dints and spilling my coffee. There is also really not any room.
Boats are good. But they do eat your money. But i love it. You can buy designer clothes. I find you spend less on clothes in retirement.
You don't need suits for work. Just need shorts jeans and a few nice shirts. And one nice Suit.
So put everything you want. But i'm sure you will find you will not need it to be happy. It will for a while though ;). So aim high for your dreams and enjoy it. And as you get older you may not want to fly to Ibiza every weekend for a party, but you may want to pay the kids mortgage off . Perhaps the money will give you precious time. Instead of working all day everyday for 60 years. You can spend that time with family, following your dreams, writing, painting, or doing something you love.
And the extra time you get from not getting ready for work, driving to work, being at work, will make you happier then ever. But you do want some money to make sure you can go out and not just sit around until you die. My money is on everyone setting up their buckets will have an early, long and fulfilling retirement free from stress and lack of funds. Will be able to travel and go out.
Buckets
Absolute
Absolute
$2000,000
Freedom
$900,000
Independence
$500000
Security
$240000
Protection
$24000
So go on. Draw a bucket with holes in there and start from there.
Next week we will show you how to fill these buckets up.
We will show you what your bucket look like. And what it will look like.
By building pipelines to you tap. And no more pouring money in each week. We will put in the effort to build long term pipelines that will pay of for ever.
Shovel for 60 years or build for a few years, and reap the benefits for perpetuity?
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