HOW MUCH MONEY DO YOU NEED TO SAVE IN ORDER TO RETIRE?
Obviously this depends on a whole heap of different things, but, it's pretty simple to calculate for yourself.
You all did that thing where you work out what your costs are, right? And you did a Bare Minimum, Good Life, Great Life version too right?
Well, if you haven't you need to get my 21 Days to Dominate Your Finances to walk you through that.
Anyway, fast forward and you now have a set figure you need / want to have in retirement each month.
All you're now going to do is multiply that by 300.
Let's say you want £3,000 per month to retire on. Then 3000 x 300 = £900,000.
If you can amass £900k as your Net Worth (again, go to 21DDF if this means nothing to you), then you can invest that and should be confident of getting around 4% return.
4% of £900k is £3k per month.
Boo, I hear you cry.
OK, that is gross, and you probably calculated that you wanted an income to be net. I.e. you wanted £3k in your pocket to spend each month, not £3k to be taxed each month.
Well, there are a couple of things for you. The current state pension is £730.60 per month. With the 25% tax-free allowance and the current £12.5k tax-free allowance, your actual tax bill would only be £241.60 per month. So boom, sorted.
Don't believe the State Pension will be around when we get to retire? You might be right, so instead of making 4% per year return on your £900k you need to be making 4.32%... just do that instead.
Right now, you could get a guaranteed return of 4.66% on your £900,000 by way of an annuity. Don't worry if you don't know or care what that is, just trust me, it's a thing.
But, I wouldn't recommend doing that. You can quite easily manage your own finances and receive 4.32% and upwards without taking on massive risks. There are large companies out there at the moment paying 8%+ as dividend yields.
I digress, but actually it does bring me quite nicely onto my next point...
How do you get there?
It's all very well knowing you need 300x your desired monthly income. But how do you actually get to that figure?
One cheeky chappy we all know and love, CAAAARL worked out that to hit his goal he'd need to save £1k every month from now until he retires at 65.
Slightly terrifying and potentially unrealistic.
In reality, if Carl invested in a sensible way, he could get that number down to £230 per month instead.
Well, you pay super clever people like moi to help you figure it out.
And as a lot of you are self-employed entrepre-douches, your main asset is likely to be your business. If only there was a way you could pull out more money in a more tax-efficient way, and then invest that money for this ideal future retirement you've got in mind?
Well, as luck would have it... there is!
Enter the borderline essential Financial Asylum!
Laura P (Chartered Accounting nerd) and I (Personal Finance nerd), have teamed up and are currently working with people who have businesses in the £60k - £200k turnover bracket. We help them do a whole bunch of clever stuff that saves them costs, and also act as a board of directors to help their business grow.
It's great. We're great. But, not everyone is at the stage of being able to afford us. We've generally saved our annual fee after the first 2 months, but whatever. It's still a chunk of change each month to be paying out.
So, we decided to help everyone else out as well, by running 1-day workshops together.
What we're going to do is tear apart your numbers, both personal and business, and show you how to get all the low hanging fruit so you can improve your financial situation. Save tax, invest more, cut costs, etc.
You'll get to see us do it to other people in the room, and you'll have it done to your business as well. So there are going to be about a dozen opportunities for us to show you how to better manage your money going forward.
What do you have to do? Right now, just go to The Financial Asylum website and let us know if you're interested in one of our Workshops. We'll keep you in the loop as to when the next one is going to be, but roughly they'll be every quarter or so.
I'd obviously say it's a no-brainer. Except I wouldn't say that cos it sounds a bit spammy. So instead I'll say you'd have to be wicked retarded to not see how this could help you. As long as you have a business, it's virtually guaranteed that we'll be able to save or help you make the cost of the day.