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OK, you are serious about your desire to escape; I am glad to see it. First thing first: There
are NO LIMITS for the things you may accomplish in life, except those that you impose yourself. Yeah! The higher the rewards the higher the price to pay. That said, lets start with a humble goal.
If you are like most inmates you have a budget, don't you? If you can make it more or less comfortably with your present income and are afraid of the price of looking higher; lets start by just replicating such income. Of course you may be aware that I am talking about anything else but a second job (although, in order to get the raw materials that you will need to build your "tunnel", a second job might be in order). If you have to work for that income in the same way you actually do, we are back at the prison. I am not talking about us working for money; I am talking about money working for us. The vehicle? You pick it! I can't do it for you; but I can suggest some resources to look at for
inspiration:
-
Don't
Let Anybody to Steal Your Dream by Dexter Yager
-
Rich
Dad, Poor Dad by Robert Kiyosaki
-
Cash
Flow Quadrant by Robert Kiyosaki
-
You
Have More Than You Think by Tom and David Gardner
In the meantime I can tell you my overall plan; and may that give you something to think about.
The people at The Motley Fool had devised a general plan for "living off our investments". The idea is to use 5% of our capital for our yearly living expenses (our budget, right?); and invest the 95% in the US stock market. Now, there are plenty of strategies for investing in the stock market. Keep in mind, that historically the market had returned around 11% on average since 1926 and while that doesn't mean we will get 11% every year, it is reassuring to see that even the 1929 and 1974 crashes had not knocked down the system. Why only 5%? Well, among other things, to help smooth the otherwise rough ride of the market as well as to account for inflation. At the prison you have annual pay raises, don't you? Increasing your principal will allow you to have "raises" every year.
Your principal is the tunnel to freedom. How "long" it need to be? As a rule of thumb you should multiply your yearly budget by 20. If you are like the rest of us, and don't have it already, there is another thing you should consider: inflation. Why? Because as time passes by the budget needs to be expanded just to keep pace with the price increases. To better illustrate it lets put some numbers: Lets say that your actual budget is 50K a year and that inflation is 3% annually; The principal should be 50,000x20 = 1,000,000.00 in actual value. Now to account for inflation we need to determine how many years it will take us to reach that goal. Now it is a little bit complicated but you get the idea.
To make the matters even more complicated there is the point of how to build that 1 Million tunnel. If we are going to use the stock market to do it, most likely we will use the dollar cost average system. Each month we will put money on a mutual fund or in a money market fund to buy stocks on an annually basis, or... The possibilities are endless.
Other
authors think that 5% is too conservative and they suggest 6 to 7.5% as a
reasonable deduction for living expenses. For my own Freedometer, I will be
using a 7% figure.
How far I had built mine? I wont speak specific numbers, that's personal business. However, I can say that due to my 9 year delay; as of this writing I can barely cover my laundry and dry cleaning costs with my
7%; so, shut up and let me "shove" :) For all of you, curious about my progress; My Business section
features a quarterly updated The "Digging"
Report.
If you are interested in ideas for "digging" your "tunnel" follow these links:
The Motley Fool The Fool's School
Investing
Mutual Fund Investor's Center -
Education CENTER
RichDad.com
As building wealth is a patience game it may help if you break it down to small pieces: How many snacks can you buy with your present
5 - 7.5%? How many dinners or movies can you pay for now? How many utility bills can you pay now? How many payments can you cover now? And so, and so, and so...
Of course that this is only a game. You are not supposed to use that money until the "tunnel" is completely finished. Go and "dig" it! You can do it!!!
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