$100,000 The Magic Figure?
Financial Management

$100,000 The Magic Figure?

financial literacy

I was talking to someone who was excited to have reached his goal of achieving around $100,000 in pure savings as he mentioned that is all he will need to be able to live and generate an income by investing in various things while at the same time providing him with a good nest to try other business ideas should he decide to do so. Of course, he didn’t mean not having to do anything anymore. In general, it allows him to basically derive his income solely from using what he has to create a cycle of income while sustaining a decent lifestyle. I’ve actually heard from quite a few other people who use the same dollar figure too.

Assuming you are responsible with money, I am almost inclined to say that $30,000 to $50,000 will allow you to accomplish the same thing in this day in age with so many options out there on what you can do. You just have less room for mistakes and need to be more diligent on what you do with your funds. This route is kind of interesting too as most people would normally only think of saving that much money as simply a way to not have to work when you say get to a very old age. Comes down to lifestyle choice I guess.

3 Comments

  • Mike 7/26/2007

    Alan,

    I’d love to hear more about this. I’m currently 23 and hoping to be ‘retired’ by 30 by continuing to save ~87% of my net income but my target is $380k. I’m planning on a continued average annual return of 10% (before inflation) from index funds.

    I don’t see how anyone could do it on $100k, most people bawk at my ‘paltry’

  • joewatch 7/26/2007

    $100k sounds ridiculously low, but maybe what he is describing is a temporary situation while he does not have many expenses – just renting a 1 bedroom apartment, eating at home, used car paid for with cash. Even then, a 20% return on capital would only come out to $20k a year, and I don’t see how somebody could survive on that little. Are you talking about having a part-time or full-time job in addition to the investments?

    It seems that $1 million is the most common number quoted as enough to retire with, and I’ve seen the numbers crunched enough times to believe it.

    On another note, in your previous post, you were talking about how having more money makes you value it a little less. Recently, I purchased 2 round-trip business class tickets from New York to San Francisco for a wedding I will be attending. Normally coach tickets cost about $400 each, whereas these discounted business class tickets cost double, $800 each. My wife commented how spending an additional $800 was a lot of money for just for a couple of airplane meals, warm chocolate chip cookies (my favorite part), a few alcoholic beverages, and to keep your butt a little more comfortable for 12 hours. However, I pointed out to her that $800 is just a drop in the bucket compared to the fluctuation in our investment portfolio (hence, our net worth) that we experience day-to-day due to movements in the market. Today’s move in the market cost us about $60k, as much as the 5-series BMW I have been dreaming about buying! I am normally very frugal, but once in a while, you just have to let go.

  • Alan Yu 7/27/2007

    I’ll make another post about it since I guess it is kind of a good topic for people to think about which I think will also answer both of your questions.

    And Joewatch, it sounds like you have just set yourself up where your wife is now keeping tabs on you so that the next time she wants say that new diamond necklace she will have that example to make you buy it for her. j/k

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