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How much do you need in order to retire?
To answer this question, we should ask ourselves, how much do we need to spend every month? What kind of lifestyle do you want to live?
Let's take for example, I'm a modest guy and am comfortable with RM5,000 per month.( Today's value). How much money on hand,do you think I need in order to retire?
Notice that unlike most speakers out there, I did not inquire about your age, you will see very shortly why the number of years you expect to live on does not affect how much you need in order to retire soundly,given that you are able to replicate the below situation into your portfolio. Besides,who can predict when they're gonna die? The following part of the article is very powerful, before you read on,I invite you to find a place where you will not be interrupted as you will discover how easy it is to retire. Sit tight and be prepared to be astonished as I open your investment eyes.
Let's move back to the above situation, a nice guy with not much commitment,he only needs to provide for his parents and himself and they will all be living a humble lifestyle with RM5,000/month. How much does he need to retire forever (at least until he kick the bucket)?Below is the magic number :
If you want to retire at a small town with RM5,000 pumped into your account for you to use monthly,You'll only need Rm1,000,000.00 . Why?
Theoritically, if you use RM5,000 per month, all your RM1,000,000 would have been used up in 16 years and 8 months.Say,you're 30 years old now,by 47,you'll be broke if you retire with only RM1,000,000.
So why did I say you can retire without worrying about how many years more you will live?
Let's introduce the dividend paying stocks!!
There are few kinds of stocks in the market,one of them is the dividend paying stock. These companies are usually established cash rich company with strong free cash flow. These stocks may not be able to generate amazingly high return but they are stable and most of the time will not be too badly affected by the economic dips. Most importantly, they generate dividends. When these companies have more cash than what they know what to do with,what do they do? They give them out, straight to the shareholder's pocket. How we usually measure these companies are through it's dividend yield.
Dividend yield(%) = (Dividend Per Share for the whole year / Price of Share at the time of purchase) * (100)
Let's bring out the first business I have ever invested in, Padini.
As of the time of writing, Padini is giving out a projected dividend of 10 cents per share (And growing based on record) . Divide 10 cents by the share price of 196 cents and you get a dividend yield of 5.1% and supposedly growing). 5.1% if considered okay. But I would always enter to support the price of Padini shares at 1.61 which yields a dividend yield of 6.2%.
Now,multiple this 6.2% to your 1 Million ringgit and you should obtain RM62,111.00. Make it easy,say RM60,000.00 per year, divide it by 12 months and you will arrive at the number I have shown you above, RM5,000 per month.
This means that you will enjoy a passive income of RM5,000 per month doing nothing. No bosses,no difficult customers,no stress.
Do you know what is the best part of this idea? Your RM1,000,000 is still there. That means after 10 years,if you choose to donate all your money to charity, you can still use the RM1,000,000 in your assets account. Given that the share price does not climb, which is not likely the case as the share price will increase as the company make positive progress. Just imagine if it is compounded at only 10% per year. Retiring at a small town with a PASSIVE INCOME of RM5,000/month just to find out that your humble pie of RM1,000,000 has turned into RM2,600,000.00 in just 10 years.
Not too bad~
Of course, generating RM1,000,000.00 to invest is easier said than done but with the right method and determination, It's only a matter of time.The only obstacle between you and your financial freedom is your unwillingness to learn and to take action. I challenge you to say you can't afford to retire after reading this article.
Astonished by what you have just read? Share this with your loved ones for this might be the greatest gift you could give them. The guide to financial freedom.