Hitting Financial Freedom is Easier Than You Think

Hitting Your Financial Independence Number

Last post, we spoke about how the monthly spending or burn rate is a critical factor in determining one’s wealth.  And when one’s passive income (i.e.: not directly dependent on their time, effort and energy) approaches their burn rate can one consider themselves financially free. 

According to the American Dental Association, the average working dentist’s age is 49 years old. That means that if they were to retire at age 65, they have another 16 years chairside.   

Bureau of Labor Statistics data shows that, in 2021, the average household headed by a person age 65 or older spent $52,141 — or $4,345 monthly — on housing, food, utilities, household operations, clothing, transportation, health care, entertainment and miscellaneous expenses. 

The average high income professional, who makes well above the average household, also has a corresponding increase in monthly expenses. So what does it take to be financially free? 

If you were to take the traditional financial planning route, you would have to build up a nest egg about 25 times your burn rate, using the 4% rule. 

Let’s use the modest burn rate of $6000 per month of take home, which translates to an after tax annual requirement of $72,000 in today’s dollars.  For the average 49 year old dentist, and applying the average inflation rate of 3.8% between 1960 and 2022, this translates to $132,119 post tax 16 years for now. This translates to a pre tax requirement of $176,159 annually. 

This means that they would have to accumulate a nest egg of just shy of $4.5 million. In addition, one in retirement would be taking out distributions from their nest egg hoping that the markets cooperate, and that they do not run out of money before they die. 

For the starting dentist at age 27 years old, that number rises to a staggering $9.9 million! 

This seems like a onerous amount to achieve. 

But what if there is another way in which you do not have to accumulate such a staggering amount to hit financial independence? 

What if you built up a portfolio of cash flowing assets that pay you 10% annually? Applying our original example, your nest egg requirement to hit financial independence is at $1.8 million, less than half that is required for the 49 year old dentist, and less than one fifth that is required for the starting 27 year old. 

What is even more remarkable, if you were to invest in such a tax efficient vehicle such as real estate, your nest egg requirement is even smaller given that the earnings are tax-free 

This is a very realistic possibility for everyone, and only takes a bit of a paradigm and mindset shift and learning in order to achieve. It all begins with shifting from solely investing with appreciation in mind, to that of the end goal of investing for cash flow. 

Hitting financial independence, freedom and abundance is not as intimidating or far fetched, if you have the right mindset and strategies in place.

If you want to talk about how you can build and preserve wealth and generate passive income like the ultra-rich, set up a time to talk with me