how much money do you actually need?

Summary

financial independence is the point at which working is optional. you can still work, you just don’t have to. most people skip the math on that target and pick a number that feels nice instead of a number that holds up.

I use the 4% rule. you can sustainably withdraw 4% of your invested portfolio per year without running out. work backwards from that.

my personal target is a million dollars a year in passive income. at 4%, that means 25 million dollars invested. that’s the real number behind the goal.

once you have your number, every decision in the business changes. it stops being about whatever feels productive this week and starts being about what gets you to the number.

most people set the bar too low. they hit a comfortable income, get used to it, and stall. set the high target. let real estate, equity, and reinvested business profit do the compounding. the goal isn’t to die rich. the goal is to make work optional sooner so you can decide what you actually want to do with your life.

Transcript

introduction to wealth building and financial clarity

The most impactful business is the business that genuinely improves another human, a better human business. And to grow a business like this, you have to continually improve yourself. This podcast is a documentation of that thesis, scaling businesses and also personal growth. My goal is for you to shortcut this journey.

So if you’re ready to try hard, subscribe. If you like what you’re hearing, please share and enjoy. How much money do you actually need? When will enough be enough? I’m going to answer that question today. This is the Better Human Business Podcast. I’m Jerred Moon, and I’m not going to answer this in a philosophical way.

I’m going to tell you exactly how much money I think you need, how much money I think I need, and how we can reverse engineer that. And so I’m going to get right into it because I’ve been an entrepreneur for a long time, and I haven’t always had clarity around that. And it’s changed, it’s moved. And I just know when I’m super clear on the objective, this isn’t anything.

When I know the objective, I know we’re chasing. I know it’s optimized for, I know what I’m trying to reverse engineer, I know what actions I should take. It just makes everything more clear. And a lot of us can have really solid quarterly plans to attack the quarter and annual plans, and we have great ideas for strategy and all these things.

discussing the philosophy behind setting financial goals

But ultimately, we’re not moving in the direction that we know is long term going to be the best. Let’s make more money. How about next year? How about next year we make more money? When are we done? And do we even ever want to be done? Now I am going to preface this with you don’t ever have to be done.

You can work for as long as you want, especially if you really enjoy what you do. But I think we all want to get to a point, and this is more of the philosophical answer that I’m not going to leave you with, but it’s going to be when you have enough money where working is optional. That to me is you have achieved the end of the game.

The game will keep going, but now you’re in a different position from I have to make this much money to support my life. It’s like I don’t have to work anymore because I have enough money that it can basically go on forever. So that’s the game. Once you have enough money to where working is optional, you can continue to work and continue to make money and keep going and keep playing the game of business, but ultimately the money game is over once working is optional.

how to use the 4% rule to determine your financial needs

So if we can all be in agreement there, now we can start talking some real numbers. So let’s get into it. So assuming we want working to just be 100% optional, meaning like I could log on and work today or I could not. That’s the goal. If we’re all in agreement there, we can hop into basically the understanding the 4% rule.

So if you haven’t heard of the 4% rule, it’s pretty generic. It’s a guideline in retirement planning, meaning you can take out 4% of whatever your nest egg is and then you can keep doing that every single year. So you can, you could like say you had a million dollars saved up and the 4% rule would mean that you could take out $40,000 your first year of retirement and you can live off of that and you’re most likely going to be fine.

This isn’t perfect. Like the 4% rule is not science. Some years you could take out five, some years you could take out three, three and a half, whatever. Like it could bounce around based off of that year. But that is the first thing you need to know going in, the 4% rule. So now you can reverse engineer what you think you need.

explaining my personal financial goals and reasoning

So I’m going to go ahead and say I want a million dollars per year coming in just as income. I don’t want to end with a million and have $40,000 a year. No, I want a million dollars of personal income coming in every single year from the 4% rule. Now this is my actual number. Like that’s what I want.

And so you can forecast your own. You can say okay I think if I was making $100,000 or $150,000 and you might be like Jerred why did you pick a million dollars a year? That’s a lot of money. I certainly don’t need a million dollars to live. I don’t. I don’t spend a million dollars a year. But I think that’s a really safe number for like now and the future of making a million dollars in just personal income.

That’s going to be a safe number that like adjusts for inflation and everything else because some people say a million dollars is not a lot of money. When people say that what they actually mean is a million dollars is not a lot of money if that’s all you have. If like all you ever had was a million dollars and you couldn’t make more money or if your money wasn’t making you money then yes a million dollars could go fast.

step-by-step guide to reverse engineering your wealth target

And like if I gave you a million dollars tomorrow you would have to still work. You could probably take a lot of time off but like you would still have to work. That’s what people mean when they say a million dollars is not a lot of money. But a million dollars per year as just straight personal income with no expenses like a million dollars in a business is also different than a million dollars personal income.

I hope we’re very clear like you could make a million dollars in your business and only take home you know 20% of the profit so that’s $200,000. But I’m talking about a million dollars just into my bank account what I withdraw and that’s what I can live off of that year. So that’s my number. I’ve set the bar pretty high.

You can set your bar wherever you want and some people might think I’ve set the bar pretty low. It all depends on who you are and where you’re coming from. So now that we know the 4% rule you can start to reverse engineer. So if you haven’t already done the math while I was talking if I want a million dollars coming in per year, reverse engineering the 4% rule, I need $25 million dollars invested.

the role of real estate and other investments in wealth building

$25 million dollars. That’s my number. I need $25 million dollars. And so now I have that number. So when someone asks me when are you done? How much is enough? It’s oh it’s when I have $25 million dollars stacked. That’s when I’m done. I now have enough money. And it’s like well how are you going to get that much money?

It’s like well there are lots of different ways you could do this. But ultimately a very high cash flowing business, large business is going to be part of that. You could sell a business. That will give you a big pop, probably a couple million dollars or if you have a smaller business maybe a million.

It gets you closer to there. You also don’t actually need a full $25 million dollars. So another way to look at this is if you’re going through real estate. So I have real estate investments that throw off cash flow but at a certain point I have mortgages on these properties. At a certain point those mortgages will be paid off.

the importance of setting high financial goals

And so after that, after I pay property taxes and whatever, there’s going to be a certain amount that just comes straight to me. So if it’s like well $25 million dollars is kind of my number. So I’ve quantified it. That’s what I’m trying to optimize for. But the real number is a million dollars per year.

So that’s the real number. The big target is $25 million because then I could just throw that in like index funds and just live off of that in perpetuity. But if the real number is a million dollars per year then I need roughly $83,000 per month. And so let’s say I had a handful of properties and the cash flow after the mortgages are paid off, what if that’s $20,000, $30,000 a month?

Well now I know I need less. Let’s say it’s $30,000. So I need another $50,000 to cash flow. So that like lowers the amount of cash I need stacked just out there. It doesn’t have to be $20 million anymore. Maybe it’s $10 or $15. I’d have to do the map on that. But you see how this game works, right?

final thoughts on finding your number and planning for financial freedom

And how mathematical it actually is. And some people don’t know what they’re chasing. And maybe I get there and I want more. Or maybe I get there and I don’t. Or maybe I don’t get there at all, who knows? But that’s what I’m trying to reverse engineer. And that’s the main point I’m trying to get across is letting you hear my thought process of this.

Why did I land on a million dollars per year? It’s just like, sounds good. Sounds like plenty. Sounds like I will be able to live a massive life pulling in a million dollars per year without having to work. That sounds great. That sounds like I can do anything and everything I ever wanted. And there are people who make a lot more money than that.

Lots of people make a lot more money than that. And you have to know that it’s absolutely possible. But you have to start asking those kind of questions. Because if you’re asking how do I make $15,000 extra for my retirement nest egg, then that’s what you’re optimizing for. You’re reverse engineering an extra 15K for your nest egg.

But if you ask a bigger question, you’ll have to start coming up with bigger solutions. So I have a really big question I’m asking. That’s how do I get to $25,000,000 and how do I do it as quick as I freaking can? I’m also not saying I want $25,000,000 when I’m 60. I’m saying I want that as fast as I can possibly do it.

And that’s what I’m optimizing for. It changes every action, it changes every thought, it changes everything I do about what I do, how I tackle it, whether or not it’s a good opportunity or bad opportunity. Because if it doesn’t get me closer to that goal, then I’m not doing it and I’m not interested in it.

So that is how much clarity it gives me in having an actual number. Not everybody wants a number, but I challenge you, go find your freaking number. Find out what it is. Reverse engineer some of this stuff. Try and find out what it is. Set it low, set it high, it doesn’t matter. But the higher it is, the better questions you ask and the better you’ll optimize for chasing that bigger number.

Either way, try harder.