Believe it or not, nothing really changes. You stop worrying about home maintenance bills, property taxes, paying for baby supplies, eating out, footing college tuition and affording healthcare for your family. That’s a relief. But you get used to it due to hedonic adaptation.
To start, how you feel depends on the construction of your net worth, your liquidity, and your cash flow. The more cash flow you have, the happier you will feel. Having lots of liquidity is nice, but you will feel like you aren’t maximizing your investments during a bull market.
Here is a snapshot of my cash flow from investments and other passive income in 2017 compared to 2016. I’ll be updating my 2018 estimated figures soon. My goal was to generate ~$200,000 in annual passive income because I’ve decided that $200,000 - $250,000 a year is the income where maximum happiness occurs living in an expensive city.
He only has 3 rental properties. Based on his dividend income his stock portfolio is maybe a couple million at most. I don’t see how his net worth can be over $10 million. Maybe he has bitcoin???
I didn’t post his income from his online business. It depends on how much he values his business. It’s not zero for sure. He has a pretty well known brand.
It is all about attitude. The problem is some are never satisfied or happy. Live below your means and the stress of running out of money goes away. Lived my life that way. Then making money is fun not an obligation or chore…
What’s the reasonable annual income for a networth of 10M? I think the 200k income on 10-20M networth is really low from FS article. Maybe he was using a 10-20M stock portfolio and expecting a 1-2% dividend or interest income.
If I give you 10M dollar as a landlord networth, what’s the reasonable annual cash flow you can get? You can use mortgages and only invest in 1-4 unit residential properties.
It also depends on what kind of property you buy. If you spent all 10 million into a luxury mansion in Atherton, that’s different from buying 50 condos in Vallejo.
When I left my job in early 2012, I made it a goal to achieve a $200,000 annual passive income figure by June 2015. At the time, I had around $80,000 in annual passive income and figured why not shoot for $200,000 in order to never have to go back to work again.
In those days, 4% interest rates for dividends and interest income were more readily available. Thus, $200,000 a year in income would theoretically require only about $5,000,000 in invested capital.
I’m talking about passive income, not appreciation or capital gain. If we can forgets about the price changes for stocks and real estate, what’s your opinion on a reasonable cash flow income on 10M networth? If you assume 4% net rental income, you can get 400k rental income with 10M networth without mortgages. If you use 50% mortgage ratio to buy 20M properties, you may even get 600k net rental income every year.
With current bay area level, you can expect appx 2% as rental profit (with rental cap rate 3.5 assumed). I assumed lowest possible 2% here. The rental profit increases depending on location, multiplexes or apartments etc.
This is in line with S&P average dividend income 2%-2.2% range out of 7% overall S&P growth.
For your question of passive income,my guess, it may be around 2%-2.5% for 5M ranges.
The reason for linking S&P, it is as passive as any other investments, you just buy the index and hold it, no matter whether economy crashes or goes up, for any common/novice person.
When networth money increases 5M, 10M and 20M, people tend to do business like work (active business, not passive investments) and the returns are high.
My estimate of FS networth is more than 7M, 2M in checking and savings; 2M in stocks and 3M in real estate. His stock portfolio could be up to 5M depending on his portfolio size.
So his networth is between 7-10M. I tend to think his networth is around 10M since his stock investment could be focused on growth instead of dividend. If his networth is below 10M, he may not throw the idea of 10-20M networth number.
I’m surprised that he keeps so much in checking and savings. Why does he need 2M in savings account?
Income is nice. But having $10m net worth is more comforting. Take only conservative bets with it. Don’t risk principle. $10m can last a lifetime. $200k draw is plenty. Concentrate on growing principle not so much cash flow. Principle grows tax free just make sure it grows faster than inflation… I prefer real estate but stocks can beat inflation too … And you can always borrow against it
Drawing $200k per year your $10m will last 50 years. Even at Ally bank at 1.5% interest it would last almost 100 years.
Don’t be greedy, enjoy life. Just make money for fun not through desperation…
I think the cause and effect are upside down. People having their own, active business tend to accumulate wealth faster. That includes your neighborhood dentists. It’s hard to get to 5 or 10M thru W-2 income. For one the tax code is really against you, and Trump just made it even more so.
Ooh boy! Jil just mentioned what rich people do with their money if they are allowed to put most of what they can in a life insurance. The famous IULs (16% return nowadays). You enjoy the upper hand (16%), never lose in the crash (0%), or as they say “Zero is your hero”. You never lose your principal, you just pay for the cost of insurance. You get to recapture up to 80% of your premiums. 80% earning 16%, the same 80% you use to double or triple your $ somewhere else.
If you haven’t gotten the idea, sorry.
If it’s true, this guy has $2M in the bank. Though critics would say it’s insane, is the most secure decision if a crash is coming. But for those who work on earnings, with real money, it is a poor decision. But, who is going to lose more at the end if the crash is of big repercussion? Not him! He never risked his money. You did!
Who’s got $10M liquid in his hands as of now? Raise your hands!
Why? Because when you have more than $1M to invest, the game is better, more revenues or interests to earn.
But, let’s talk about the topic I commented days ago. I was speaking of a REIT that gives you 12% return in your investment above $1M. Tax free?
So, if you don’t have that money to invest, how do you expect to earn $200K a year?
At least I know that I am chicken, I play with small numbers to get bigger ones. I went to the flea market today, invested $2, they will turn it into $200. I don’t move a finger for $0.50 on the dollar. I have to get $25 or no deal. I had the capital to do it. And that’s a big difference when you’re tied with loans, mortgages and whatnot. And that’s not an offense, it’s reality.
Disagree. I don’t think net worth has anything to do with being passive or active. Someone with a very high net worth can be very passive if they just dump everything into an S&P fund. Someone with a low net worth can be very active if they chose to use all their funds for house flipping.
