How to Profit from the Up and Coming Bull Market Part 3 of 3
By Stephen Sutherland, author of Liquid Millionaire.Posted in the Category of ISAS, Investing, Stock Market, Wealth Building, Financial Advice on 25th May, 2009.
Tags: boom, bull market, financial goals, isa, isa trend investing.
How Getting Clear on Your Goals Can Help You Profit from ISA Trend Investing
In Part 1 and Part 2 of this series I talked about the power of clarity and how getting crystal clear on your financial goals, combined with ISA Trend Investing, can help you profit from an imminent stock market boom.
Today, in the last part of this series, I am going to help you to calculate how much money you would need to accumulate to pay you the amount needed to live your dream lifestyle.
The 7% Withdrawal Formula
I suggest you use the 7% withdrawal formula that my brother Paul and I featured in our first book: The FAST TRACK to Financial Independence.
Here is how the 7% withdrawal formula works:
Let’s say that in the future you had the knowledge of how to return 20% each year. If you attained that knowledge, you could then safely draw down 7% to pay for your ideal lifestyle.
Let’s do this working out together on a calculator.
Do you remember how, in Part 2 of this series, I asked you to write down how much you would need each year to live your dream lifestyle?
Take this amount and divide it by 7 and then multiply it by 100. This is the amount you would need to accumulate to give you the annual cash flow to create and live a dream lifestyle.
Write down the following:
The capital mass amount needed to pay for my dream lifestyle is:
£_____________________
Next, when is your deadline?
Most of my clients say something in the region of 5-10 years.
Write down the following:
My deadline is:_________________
Finally, you need to work out your new capital mass after inflation has been factored in. I normally use a figure of 3% per year.
Now it is time to do your calculation. All you need is a standard calculator that has a % button.
Once you have worked out your new target with inflation factored in, simply write in the space below, your new capital mass figure.
Your new capital mass figure is £_______________________
This new capital mass figure now becomes your main aim and needs to be burned into your mind.
And to make sure what we have just done is crystal clear, here is an example of the full process.
Step 1 - When asked how much it would cost you to live one year of your dream lifestyle, you answer £70,000 (after tax).
Step 2 - The capital mass you would need to pay yourself £70,000 per year would be £1 million (£70,000 divided by 7 and multiplied by 100).
Step 3 - Because you want to get to your dream lifestyle in 10 years, you calculate that the amount you really need to accumulate is £1.34 million (with inflation factored in).
Step 4 - If you accumulated £1.34 million over the next ten years, you would then be able to pay yourself a 7% withdrawal each year, which would mean you could pay yourself £93,800 per year–and that £93,800 would give you the same purchasing power as £70,000 in today’s terms.
Step 5 - Your £93,800 per year of cash flow would pay for a dream lifestyle. Plus, because you would have the knowledge of how to grow your wealth at 20% per year, you would not only get richer but your lifestyle would improve each and every year.
Step 6 - In this example, your £1.34 million would grow into £1.5 million (after deducting the 7% withdrawal to pay for your lifestyle, the remaining capital would grow at 20%) which would mean the following year you would have £105,000 to pay for one year of a dream lifestyle.
This means you just got richer and your dream lifestyle just got dreamier.
It is good to know that when you have accumulated enough money to allow you to live your dream lifestyle, you have reached a stage in your life where you can proudly say that you are Financially Free.
If you have any questions about how to accumulate the amount of money needed to make you Financially Free, please contact one of my team for a chat. You can be sure there will be no selling, no jargon, just the facts.
Your friend,
Stephen Sutherland
The UK’s Leading Authority in ISA Trend Investing and Author of Liquid Millionaire
