What's up you guys, it's graham here so today we're going to be finally answering the age-old question that everyone wants to know it's something that affects all of us and it's a topic that mathematicians and philosophers have been analyzing since the beginning of time, and that would Be am i still wearing pants when i film these videos, and the answer is yes, but i wear sweatpants now because they're more comfortable, but now with that out of the way. Let's talk about this one, how much money you're gon na need to live entirely off your investments seriously. I don't think i can make a video like this and have anyone say they aren't at least a little bit interested in the topic and learning to have their money work for them, because i'll tell you exactly how much you need and how you can get there. This is the type of topic i've been obsessed with ever since i learned about, what's known as the financial independence retire early community in my early 20s.

This is the community, that's known for obsessively tracking your spending, optimizing their investments and building up their net worth to the point where it covers all their day-to-day expenses. When i first heard about this concept, i was immediately hooked and since then i've spent the last 10 years building my entire life around just living off my investments, keeping my expenses to a minimum and over time letting my portfolio grow, but ultimately having investments like this Gives you the choice to pursue whatever your heart desires within the law, of course, and all of this really starts with first figuring out how much money you need and then working backwards to figure out how you're going to get there so without further ado? Here's how much money you're going to need to live in definitely off your investments and what you could begin working on immediately to get there. The first step is gon na be to rob a bank just kidding. You don't need to do that, but what you do need to do is rob the like button by smashing it for the youtube algorithm.

That's it. I think that's pretty fair one like on the video for answering one of the most asked questions on the internet. Okay, it's not really, but did you know that the third most asked question is what time is it along with what men want, which that one is easy to answer? They want four free stocks by using the link down below in the description and weeble is gon na, be giving you four free stocks when you deposit 100 on the platform, that's pretty much free money. That is what everyone wants anyway.

The link to that is down below in the description. Thank you so much and now, let's begin the video alright. So, in order for this to work, we're going to be starting off by answering the topic of the video, and that would be how much do you need invested and really that all depends on one simple question: it's actually not that simple, because very few people know It and that comes down to how much money do you spend like? Obviously, if you're the type of person who's spending two hundred thousand dollars a year, supporting a family of twelve you're going to need a lot more money invested than the person who spends 15 000. A year who reuses toilet paper and rents out the spare bedrooms in their house for extra money.

So unless you know how much you spend every year, it's going to be very difficult to calculate how much money you're actually going to need. But for purposes of this video, let's just look at the average american income, which is 63 784 dollars and then we're going to be working backwards from there to determine how much money you need invested to replace that income entirely. Now. The first approach, which is also the most simple, is what's known as the four percent rule.

This is the formula that says you could spend four percent of your portfolio each and every year, without ever running out of any money, while maintaining your exact same lifestyle. The logic with this is that if the market returns an average of seven percent a year, adjusted for inflation, you're safe to spend four percent of that, while still having enough left over to continue growing and holding you through the times where the stock market ends up. Going down in value so using this logic, if you want to replace the average american income of 63 784 dollars, we would just take that amount multiply it by 25 and that gives us 1 million 619 000 invested to replace that average income. Now, using this sort of 4 rule by taking your spending, multiplying it by 25 and then determining that number from there is by far the most simple and straightforward approach.

The second approach: dividend stocks when you're buying a stock. What you're, really buying into is a small piece of ownership within that company, so yeah. If you want to be that guy, you could technically go and buy a one dollar fractional share of apple and then claim that technically you own a small piece of the company and by small i mean one two trillionth of it. But yes, you would technically own a very small piece of that company through ownership of the stock, but now that you own a small piece of the company by investing in their stock, some of those companies will pay you out, what's known as a dividend, which is Just a fancy word for saying: they're gon na pay, you a portion of profit because you own a small piece of the company by investing in their stock.

Now, when it comes to apple, for example, they're going to be paying you a 0.67 dividend annually, which means for every 100, you invest in apple they're, going to be paying you 67 cents in passive income. Now, obviously, at this level, at a 0.67 dividend, you would need nine and a half million dollars invested in apple to replace the average american income, which is probably both not a smart idea and not gon na happen. But thankfully there are other companies out there that do pay you a much higher dividend. For example, exxon pays.

Eight point: seven percent ibm pays you 5.2 percent boeing pays. You 3.6 percent 3m pays you 3.4 and so on. In this scenario, if you were to pay a list of high-paying dividend stocks, then potentially you would need less money invested to hit that goal of replacing your income. Now.

The downside to this, unfortunately, is that, even though a stock might pay a high dividend, it doesn't actually mean that's a good stock to own, for example, over the last five years, even though ibm is paying you a 5.23 dividend annually, the price of their stock actually Went down now compare that to apple which pays you a 0.67 percent dividend, but their stock price has gone up 400 percent in that same time frame. The other downside to this is that companies can and do completely cut or suspend their dividends if they're not doing well like just this. Last year alone, 639 companies have cut or suspended their dividend payments. So if you were someone who's, relying on those dividends for income you're out of luck, so in my opinion, even though dividend stocks can be a good replacement for your income, i wouldn't create your entire portfolio around it, because it's much more important to look at the Overall growth and health of that company, rather than just how much money they pay, but ideally, when done correctly, not only you're going to have a stock that pays you regularly, but you're also going to have a stock that goes up consistently in value.

Like our apple example, that way would be somewhat the best of both worlds and finally, the third approach where you could speed this one up. A lot is by investing in real estate. Now i'm obviously biased when it comes to this, because real estate is by far my biggest investment, but undoubtedly it's also been the most profitable and there are so many advantages to investing in real estate for those that are willing to put in the work. For example.

Instead of spending twenty thousand dollars in stocks, you might be able to use that twenty thousand dollars as a down payment to buy a hundred and twenty five thousand dollar house that rents out for a thousand dollars a month. Now, of course, when you go and rent a house like this, not all of that's gon na be profit and you're gon na have expenses. In this case, four hundred and fifty dollars a month would go to the bank to pay the mortgage payments. Another 50 a month would pay the insurance on the house.

Another 100 a month would pay the repairs and the maintenance, and another 100 would go towards vacancy and miscellaneous, leaving you with 300 a month in cash flow from a 20 000 investment. In that scenario, you're making an 18 return on your 20 000 investment you're, also paying down the mortgage, and ideally the house is also going up in value at the same time. Well, now, if you want to replace that average income of 63 000 a year, that would require you to have 17 properties that each pay you that 300 a month in cash flow or if we go and put that in a dollar amount. That's about 350 000 invested in down payments and similar properties like this now full disclosure here, but this is a really simplified example and real estate is oftentimes like buying yourself another part-time job, not to mention deals like that can be hard to come by, but they're, Not necessarily impossible, but even if we cut the profit in half at a 10 cash on cash return, that would mean that 630 000 invested in the right deals would bring enough income to replace that 63 000.

A year like, i said this is how i first began covering all my expenses. I bought my first rental property when i was 21 years old and shortly after that, i made it a point to only spend what that rental property made me. So that way, i could reinvest everything else i was making into buying more real estate. Now again, this is a very simplified example and you should not dive into real estate without doing a lot of research on exactly which properties to buy, because it is very involved.

But for the right people who don't mind doing the work up front and don't mind. Managing this, then, yes, real estate can lead you to retire with a lot less money. So, as you can see, we got a bit of a spread here in terms of how much money you'll actually need to make three thousand dollars annually. On the smallest side, real estate could potentially do that with six hundred and thirty thousand dollars, assuming a ten percent cash on cash return.

Dividends could do that with one million two hundred and sixty thousand dollars at a five percent return, and a four percent withdrawal rate would do that with one million six hundred and nineteen thousand dollars now in terms of how you can get those numbers, because i'm sure You don't have an extra few hundred thousand dollars lying around to go and invest and then retire early. Here's my advice, and this would apply to any option you wan na take first, you got ta track your expenses. I know this sounds incredibly basic and i say it all the time but be honest with me. How many times have i said this and you looked at this and then just not done it.

I would venture to say that probably 90 percent of you watching who hear me say this: don't actually do it. All you got to do is go to mint.com or personalcapital.com. It's completely free to do this just sign up and then, after that, just track your spending for the next 30 to 60 days to see where your money is going. The second.

After doing this cut back on what you don't need, once you track your spending over 30 to 60 days, it's gon na be really easy to see those inefficiencies - maybe you're spending way more than you realize, on starbucks and food delivery, you're making a whole bunch of Impulse purchases on amazon - or maybe you finally realized you - haven't hit the like button, yet whatever it is, you should be able to cut back and save about 10 to 20 percent of your budget just by watching your spending and then making adjustments accordingly. Third, you got ta save and invest that extra money, literally whatever you cut back on in step. Two just save and invest immediately open up a roth ira. If you don't already have one or just throw that money in a low-cost index fund or save it up to buy real estate or do something with that money immediately in terms of investing it, then fourth look into getting another job or potentially switching your careers.

This is another topic that i've talked about non-stop, but it's so important that i'm gon na mention it again. There have been multiple studies that show that people who switch jobs every two to three years make nearly 50 more than someone who stays within the same company and even if you just switch jobs once you could see yourself with an average of a 15 pay raise. So, given that, if you find yourself making less than you would like to consider switching jobs and at the very least you could be making 15 to 20, more, all of which now is just extra money. You could save and invest and fifth slowly build this up over time.

While you reinvest your profits, the reality is, unless you get crazy, lucky buying individual stocks that just so happen to take off or you work crazy hours buying up as much real estate as you can. It's gon na take some time to hit your goal and you got ta be okay with that. However, even though you might need anywhere from 600 000 to 1.6 million dollars to hit your goal, it doesn't mean you're actually going to need to save all of that money. That's because, realistically, if you want to speed things up by a lot, you're going to be reinvesting all of your profits like instead of spending that 300 a month you're making in rental income, just immediately go and reinvest that into buying more stocks or more real estate.

Or if you have a dividend, that's paying you five percent annually, just have it set up to automatically reinvest. So that way, you now have an extra five percent, making you an extra five percent. Then, after a while, it just becomes a matter of time until your investments naturally grow to the amount that you need, and the other really good news with this is that the less money you spend the less money you're going to need to replace and not everyone Needs to live off of 63 000 a year, but on the flip side, if you want to spend more than 63 000 a year, then yes, you will need even more money. As far as my own thoughts on this and what i would do honestly, i would probably use a combination of all three options.

If you want to invest enough to replace your income, see. The issue i see with real estate is that in the beginning, it's like buying yourself, another full-time job. You've got to take a lot of time to find the right deal then fix it up and then rent it out and then any ongoing repair maintenance issues and then just overall management. Now people will say it's a bit riskier to do this because you're taking on a loan from the bank, but usually when you do this right, the biggest risk is just a prolonged vacancy which could really be reduced by buying into a better neighborhood vetting.

Your tenants and also accurately pricing your listing, so it doesn't sit empty for too long. This is pretty much all i did throughout my 20s and it was absolutely worth it, but it was not easy. It took a lot of time and a lot of work to get it to a point where now it's semi-passive. So if you have the interest to go this route, i would absolutely do it, but i wouldn't rely a hundred percent on it.

Same also applies with dividend stocks, even though some stocks might pay you a lot of money that does not guarantee that dividend won't eventually be cut or reduced. If the company doesn't do well, there's also no guarantee that the stock price is going to go up in value. There's so many examples out there of stocks that pay you five to eight percent, but the stock price goes nowhere. And finally, we got ta talk about the four percent rule with index funds, even though this is the safest approach with the least amount of work with the least amount of risk.

It also takes the longest and for people who want to take a more active role in investing and growing that money faster. This one on its own is not ideal, so i would say the best chance you have at minimizing the risk and making as much money as you can in the shortest period of time as possible is to use all three invest in real estate. So you can leverage your money, get a higher return and be more actively involved, then throw in a few good dividend: stocks that you know are going to pay you a consistent amount and then buy a few well-diversified index funds that you know you could always fall Back on that way, you're not going to be 100. One thing you could speed up the timeline a little bit and if one of them fails, you still have two more to fall back on and lastly, one final thing i want to mention: that's helped me tremendously in terms of replacing my spending through.

My investments is avoiding lifestyle inflation. This is what happens when you start to make a little bit more money, and then you start to spend a little bit more money, and most people are guilty of this. However, one of the best things you could do is when, as soon as you start making more money, you save the difference immediately without changing a single thing and then just pretend like it doesn't even exist. This is what i did throughout my entire 20s, no matter how much money i made, i kept my expenses the exact same, and then that was it that allowed me to invest a substantial amount of money that now has grown to the point where it covers all Of my expenses and overall, that's the basic outline in terms of how much money you need and some of the steps you'll need to take to get there honestly, the math behind it is pretty simple stuff, but the hard part is sticking with it.

Keeping consistent with it, avoiding lifestyle, inflation and always no matter what hitting the like button for the youtube algorithm. So with that said, you guys thank you so much for watching. I really appreciate it as always make sure to subscribe and hit. The notification bell also feel free to add me on instagram.

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Thank you so much for watching and until next time.