How Wealthy are you?
If you stopped working today and continued to live at your current standard of living, how long would you last? If you could last a month, then you are one month wealthy. If you could last five years, then you are five years wealthy. And if you could last forever, then you are indefinitely wealthy.”
— R. Buckminster Fuller
Many people interpret this to mean, ‘If I need $4,000 per month to live on and I have $400,000 saved up, then I am 100 months wealthy.’
However, there is a much better way to look at this concept. What if your $400,000 produced passive income, income you received without having to work? For example, what if you made 12% in passive income from investing in certain stocks with your $400,000? Twelve percent of $400,000 is $48,000, so your $400,000 could give you $48,000 in income. When you divide that yearly income by 12 months, it amounts to $4,000 per month. You could live off that income indefinitely and be financially free. You would never have to work again.”
— Van K. Tharp
You might wonder if the $4,000 per month that person needed for financial freedom included taxes. It should, but if you meant $4,000 per month after taxes, then you either have to minimize your taxes or include them in your monthly number. The good news is that you’ll pay much less in taxes on passive income than you will on earned income. When your money works for you, the returns don’t get taxed by nearly the amount that your income gets taxed when you work for money.”
— Van K. Tharp