Many people hope to save a certain amount of principal and then use the money to make money in a safe and reliable way, thereby achieving financial freedom and living a comfortable life of early retirement.
However, the vast majority of people do not know how much money they need to save to achieve financial freedom, nor do they know how to manage their funds.
Next, I will tell you how to calculate your own financial freedom threshold, and how to manage your finances more safely and reliably and obtain better returns.
The so-called threshold of wealth freedom is the minimum deposit amount you must have, calculated based on your actual assets and consumption.
We must remember that everyone has different needs for living conditions, so the threshold for wealth freedom is also different.
Let me give you two extreme examples.
Suppose a person lives in the center of Shenzhen and wants to live in a large single-family villa. There are four elderly people in the family who need to be taken care of. They have given birth to three children and sent them all to elite education. In the future, they will be arranged to immigrate abroad.
Each person in the family has a car, which is replaced every five years or so.
The old man likes to travel abroad, his wife likes to buy luxury goods, and the children's hobbies are all taught one-on-one by top teachers in the country.
We also hired three nannies to take care of the food and daily life of the elderly and children, and a full-time driver to take care of the transportation.
How much money does such a family need to achieve financial freedom?
Don't ask me, I can't calculate it. Poverty limits my imagination and calculation ability.
Let’s assume another person lives in a small county on the 18th tier and doesn’t like to go out, so he doesn’t need a car.
There are no elderly people in the family, and I have no plans to get married, let alone have children. If one person is full, the whole family will not be hungry.
I don’t have any spending habits. The most I do is spend money to buy some skins while playing games at home, and then open some video and novel APP memberships.
Eating is also very casual. Just find a noodle restaurant downstairs and you can have three meals a day.
How much do you think he needs?
Sounds outrageous, right? You must be thinking: Can living like this be considered financial freedom?
In fact, it can be counted, because his needs are only a little bit, and as long as the passive appreciation money can cover all his needs for money, it will be counted.
As long as he himself believes that his life and mental state are free and comfortable, that's fine.
Of course, for the latter example, it is easy to create a misunderstanding: Can I easily achieve financial freedom as long as I control my living cost low enough?
no.
In the same living situation, different people have completely different feelings of happiness.
Perhaps for a very small number of people, this is the kind of life they want. This is the result of their active choice and acceptance:
He just doesn’t want to get married and prefers to live alone; he just doesn’t like the hustle and bustle of big cities and prefers to live in a small place without any pressure;
He is not picky about shopping and eating at all, and has little interest in luxurious meals, but he has a special liking for high-quality and cheap street snacks...
The vast majority of people do not want to live this kind of life.
We may live like this passively for various reasons, but it is not wealth and freedom, because it is not the life you want.
We can use a more appropriate word to describe it: low desire life.
In the late 1990s, after Japan's real estate bubble burst, a large number of young people passively lived such a life, leading to the rise of otaku culture, which was called Heisei abandoned otakus.
Their lives and wealth and freedom have absolutely nothing to do with it.
Remember, a life of wealth and freedom is based on a living situation that you think is more comfortable.
This state cannot be deprived of money, otherwise you will not be able to bear the emptiness of being unsatisfied all year round;
Don't be biased toward luxury, otherwise no matter how much money you have, you won't be able to satisfy your growing desires.
After clarifying the above logic, let's first calculate all the expenses for the rest of your life.
The first step is to calculate the major expenses you need to pay, including houses, cars, medical expenses for immediate family members, education expenses for children, etc.
The house should be based on the standard that you can live safely for the rest of your life.
For example, if you own a house in a second-tier city, but if you want to live in a first-tier city in the future, you must calculate the price difference and use it as expense statistics.
Or if you still have a mortgage to repay, you need to pay off the mortgage in one lump sum first, or calculate all the remaining mortgage and interest as expense statistics.
The car is calculated according to its own needs, taking into account the replacement cycle and subsequent car needs.
For the medical expenses of immediate family members, each person must set aside a budget of 10,000 yuan per year; in addition, the whole family needs to have a flexible fund of 500,000 yuan in reserve in case of emergencies.
Children's education expenses can be calculated according to the actual situation of each family. The difference in amounts for different routes is also very huge.
All fees calculated above must be deducted from your total deposit amount.
Give an example to help everyone understand.
Suppose you have 10 million, but you expect to spend 1.5 million to improve your home in the future, 500,000 to purchase a car, and 1.5 million to have a child attend a private school and work. A family of 5 people will need a total medical budget of 2.5 million yuan in the next 50 years, a total of 6 million yuan.
Then, the principal you can use to make money is not 10 million, but 1000-600=4 million yuan.
The second step is to calculate your family’s average annual expenses.
If your family has the habit of keeping accounts, it would be best to count up the annual regular expenses for the past five years to see how much the average monthly expenses are, what the difference is between the upper and lower limits, and what the average growth trend is.
If you are not very good at calculations, then directly put the data into the EXCEL table and use the table to generate a line chart, which will look more intuitive.
If you can't calculate your own living expenses, there is a simpler way, which is to look at the average salary data in your city.
Taking an ordinary family of three as an example, without special spending needs, they need to earn 3-4 times the city's average salary every month to have a relatively comfortable quality of life.
For example, if the average salary in your city is 5,000 yuan, then your family needs to have 15,000 to 20,000 yuan in passive income every month, which means 180,000 to 240,000 yuan in interest income per year.
The third step is to calculate all the expenses of your family in the next three years (except for the major expenses already calculated).
The reason for calculating this amount of money is that it takes a period of time for you to put money in the bank to generate interest, usually 3-5 years. During this period, you will not get any interest, so you need to set aside the expenses during this period.
Why calculate for 3 years instead of 5 years?
Because we need to allocate financial management funds, part of them will be deposited for 3 years, and part will be deposited for 5 years. In this way, after 3 years, you will have interest income to cover your living expenses; after 2 years, your 5-year financial management income will arrive; after 2 years, the 3-year financial management income from your second investment will arrive... …
The perpetual motion machine of wealth is spinning!
Now, let’s take a look at how much interest money can earn every year by putting it in the bank.
According to the deposit interest rate table in 2023, the 1-year interest rate is 1.75%, the 2-year interest rate is 2.25%, the 3-year interest rate is 2.75%, and the 5-year interest rate is 2.75%.
But since you have considered financial freedom, the funds on hand must not be too small.
At this time, you should go to a big bank and make an appointment for a large certificate of deposit. There is a difference in interest rates between certificates of deposit and direct deposits.
Taking Bank of China's large-denomination certificate of deposit as an example, with a minimum deposit of 200,000, the 3-month interest rate is 1.595%; the 6-month interest rate is 1.885%; the 1-year interest rate is 2.175%; the 2-year interest rate is 3.045%; the 3-year interest rate is 3.85% .
You see, the interest rate of the 3-year large-denomination certificate of deposit is directly 1.1% higher.
The interest rate on ICBC's 3-year certificate of deposit is even higher, at 4.125%, which is already close to the yield on 5-year treasury bonds.
Careful students have discovered that it can also be used to buy national bonds!
The yield on 5-year treasury bonds is usually between 4% and 5%. This is a very safe way to manage finances with relatively good returns. The so-called national debt is equivalent to the country borrowing money from you for development, and then cashing in the principal and income to you after maturity.
We can be a little more flexible and allocate the funds that can be used for long-term financial management, with half used to buy 5-year treasury bonds and half used to place large certificates of deposits in large state-owned banks.
In this way, on average, we can get at least an annualized rate of return of about 4%, and we will calculate it based on 4%.
Now, we can formally calculate our own financial freedom threshold.
First, divide your family's average annual expenses by 4% to get the principal amount you need to buy Treasury bonds and deposit certificates of deposit in the bank.
Taking the average monthly household expenditure of 15,000 yuan as an example, the annual expenditure is 180,000 yuan, divided by 4%, it is 4.5 million yuan.
In other words, according to the financial management method of treasury bonds + large certificates of deposit, a principal of 4.5 million yuan can generate an average interest income of 180,000 yuan per year.
Next, divide your living expenses budget for the next three years into three parts.
Put one copy in a payment APP for daily use so that it can be used at any time within a year; the other two copies can be deposited in the bank with a one-year term. You can withdraw them in advance when necessary, and you will only lose a small amount of interest income.
This operation is to facilitate daily use, and at the same time set a low threshold for bank withdrawals to prevent yourself from spending more money than you budget.
Taking an annual expense of 180,000 as an example, that means putting 180,000 in the mobile payment software and 360,000 in the bank for one year.
Finally, take out the major future expenses you have calculated and plan them separately.
Suppose you have set aside 1 million yuan for housing improvement, but do not plan to improve it in the next 5 years, then you can first use the 1 million yuan to buy 5-year treasury bonds.
When it expires, you will have an extra 200,000 yuan. At that time, you can increase the budget for improving your home to 1.2 million, or you can spend it as you wish.
The same goes for cars and children's education expenses. Plan the time you need to use them, and manage your finances appropriately before using them. The benefits gained from this added value can give you a greater choice.
For example, if you plan to change your car several times in the future, you will need a total of 500,000 yuan; if your child goes to an ordinary public school from childhood to adulthood, a total of 200,000 yuan will be enough.
Then the money will not be used or used that much in the short term. It can be used for financial management to gain profits, so that you can buy a better car or send your children to a better school.
But the medical reserve funds of family members cannot be operated in this way.
A family needs to set aside 500,000 yuan in flexible cash and put it in a separate bank card for survival. It can be taken out at any time for emergencies, but the funds must be used for their intended purpose and should never be used for other purposes.
Let’s briefly summarize it.
In the example just mentioned, how much property does this family need to have to achieve the financial freedom of an ordinary local living standard?
First of all, the family needs a fully paid house and car (the previously calculated housing improvement budget and car purchase budget will be used for subsequent upgrading, maintenance, and replacement), and a total of 4.5 million in cash (financial management principal) is needed. ) + 540,000 (daily expenses in the next three years) + 1 million (housing improvement budget) + 500,000 (vehicle replacement budget) + 200,000 (children’s education budget) + 500,000 (family medical budget) = 7.24 million yuan.
In other words, if an ordinary family wants to achieve financial freedom, real estate and cash together, about 10 million yuan is a basic threshold.
It can allow you to live an easy life without having to work to earn money to support your family, but it will not allow you to live a particularly rich life.
It should be noted that all our planning methods are based on the current status to arrange the future. There will be many uncertainties in it, such as severe inflation, war, major changes in the family, etc.
You need to maintain physical and mental health, exercise more, have a regular schedule, and spend time on your hobbies and leisure.
Also, don’t assume that you can rest easy just because you currently have enough funds. Our lives are full of chance. Even if we are fully prepared, we may still encounter unexpected surprises that we cannot resist.
Don't live your life like a useless person just because you have wealth and freedom.
We can stop working and make money because we have the freedom of choice; but we must not lose the ability to make money.
If one day we encounter a major accident and all our savings are wiped out or even owe a large sum of money, our ability will be a reliable guarantee to save our lives.
Now comes the most important question, how do you earn the principal to achieve financial freedom?