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My formula for never working again is both very simple and incredibly unlikely to ever bear fruit.

I buy lottery tickets, spend hours dreaming of lavish getaways and a life of leisure, and then rinse and repeat the following week.

This is also why I become so upset when I hear about someone winning a mega sum like R100 million and talking about continuing to work. To each their own, but we must implore all future winners of lottery jackpots to do the right thing and begin living the holiday immediately.

For those who prefer a more prudent approach to exiting the working world, determining your “financial freedom number” may be of interest.

You can define that number as “the amount of passive income needed in order to pay for your daily living expenses”:

It’s the amount of income required from your savings and investments that would allow you to quit your job and no longer work. That doesn’t mean you have to quit your job, but it gives you the freedom and control to do so if desired.

It’s important to note that calculating this number requires you to be debt-free, have an emergency fund that can cover three months’ expenses, and have investments that generate enough income to cover all living expenses.

CapeTalk interviewed personal finance expert Warren Ingram, who outlined a simple formula:

He suggested starting with your expenses (monthly, annual and periodic), not your income.

Ingram also discussed the “5% rule” and a simple, quick way of determining a rough number – you’ll need about 20 times your annual expenses.

Alternatively, multiply your monthly expenses by 12 and divide it by 0.08.

There’s no harm in erring on the side of caution when it comes to this number. After all, unforeseen expenditures will likely pop up long after you’ve decided to hang up your boots.

Financial advisors worth their salt will factor those in when discussing your financial future, of course.

The above formula is based on the most popular method for calculating financial freedom, detailed in the Trinity Study and called ‘the 4% rule’.

Sweat Your Assets with those basics:

…we are financially free for life once a 4% annual withdrawal of our investments can cover our annual expenditures. The formula’s application is straightforward: to calculate our Financial Freedom Number, we multiply our annual expenditures by 25.

What you end up with is a rough guide that, while not comprehensive, is a good starting point.

Carrying on earning a salary past this point will also provide a buffer and allow for living it up a little post-retirement. After a lifetime of hard graft, that’s the least one deserves.

As far more adept minds have pointed out, what is clear from the research is that wealth is not a point in time – it is a journey. The differentiating factor is the rate of that journey and the earlier one starts, the better.

Chatting with expert financial services providers, such as the team at Consequence Private Wealth, is a great way to get the ball rolling en route to financial freedom.

You can still play the lottery at the same time and blindly live in hope of striking it rich, but at least this way you’re being an adult about it.

[sources:capetalk&swa]