Most people would express the desire to be “wealthy”, but few can answer “what does that mean”? Many define it as having a certain amount of annual income, but we do not agree with that definition. Being “wealthy” is about having accumulated assets that allow you to live out the rest of your life with enough income to enjoy the lifestyle of your choosing. By this interpretation, being wealthy is different for everyone and depends upon several factors: -
- The amount of net annual income needed to pay for your chosen lifestyle.
- The time over which that annual income is needed (i.e., how long will you likely survive)
- The net annual rate of return at which your accumulated assets will grow.
- The rate of annual inflation over the same period.
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So, if you are 30 years old today, have a lifestyle income requirement of say €75,000 per annum and plan to retire at age 50 (and live to age 90) then your definition of “rich” will be different to another’s if they require different income over a different period. Becoming “rich” is about accumulating the required asset’s value to satisfy your individual needs (or wants) and has little or nothing to do with current income.
The starting point on your journey to being wealthy is to decide what that means for you, is to “know your NUMBER”, as, until you do, how can you ever plan to achieve it? There are many financial calculators out there, although most of them are offered by financial institutions, advisers & brokers, whose ultimate aim is to gather your data and use it to sell their wares. These too tend to be generic and do not, in our view, make reasonable assumptions. The long-term assumptions we suggest are: -
- Annual net return on assets: 3%
- Annual Inflation rate: 2%
Using these assumptions, the following NUMBERS relate to providing €10,000 per annum in income for the time periods mentioned. All other figures will be proportionate: -
Note: All figures rounded to the nearest €5