Steve Jobs and Steve Wozniak co-founded Apple. We all know that.
What many don’t know is that there was a third co-founder. His name was Ronald Wayne. The reason we don’t hear much about him is because he quit Apple just two weeks after the company was formed. He then sold his 10 percent stake in the company for a mere $800. Had he not sold…well, we know the story.
But then consider his situation at the time. He had a family to support and bills to pay. Working on an unproven product in a scrappy startup was not the ideal of stability, at least for him.
When asked about “why he quit” decades later, he said that he made the best decision with the information he had at the time.
And that is the right way to look at it. It must be.
We can do Monday morning quarterbacking all day long but that is the right way to approach decision-making in many scenarios we face in life.
On a tangentially similar note, say you come into a windfall, planned or unplanned, and that windfall is big enough to cover your forever expenses. The windfall could be an outcome of a startup you had a stake in that IPOed at an unbelievable price.
Or an accidental stock pick which you then forgot about, and which later turned into a goldmine that gave you that lottery-like outcome.
Or you slowly and methodically scaled up to that windfall through regular savings and investments, just like what 99 percent of us do.
Whatever the case, you now have a decision to make. What should you do? Money wise, you are done with the slaving.
And if you are done, if you’ve won the game, why keep playing? Yes, more money would be nice but if that comes with the risk that could make you go back to slaving, that is no good.
When you’ve won the game, it is not just money that is at stake. It is time. It is freedom to do what you really aspired to do with this one precious thing called life. That is what’s at stake. What else would you be doing with your time is at stake if money was no longer an issue.
So how do you know if you’ve won the game? We’ve all heard of the four percent rule. That is, if you can cover your annual living expenses with four percent of your money, you are technically done. You’ve won the game. Because if you’ve designed your life and your money right, you in theory will never run out.
But I like to plan a bit conservatively, especially considering today’s interest rates and market valuations. I’d shoot for the three percent rule.
But if leaving rich heirs behind is your goal, I’d use the two percent rule. I know many of you are, knowingly or unknowingly, in this camp or scaling up to be in that camp because I see the numbers.
But the two percent rule means saving up to a target net worth of 50 times your annual living expenses. So, if you spend $50,000 a year, you’ll need to save up to a $2.5 million portfolio.
That appears big but is doable assuming you have a reasonably long runway.
The biggest hurdle though in trying to win this game is not numbers. It is you and me. Because as author Morgan Housel says, the hardest and the most important financial skill is getting the goalpost to stop moving. And that is a skill most cannot master.
But if you can get that goalpost from not moving, you are done. Not done working but done working on somebody else’s terms. That is the essence of financial independence.
Some takeaways hence…
- Blindly chasing more growth without weighing underlying risks is what gets us into trouble. Your life situation, your goals, your aspirations are unique to you. Your financial plan and the portfolio that feeds into that plan, hence, should match that uniqueness. Just because your neighbor does some random thing with his savings does not mean you need to follow him.
- Your expenses dictate everything. Do not let them creep up more than they need to because that independence that you so desire might not ever come, no matter how much money you have.
Thank you for your time.
Cover image credit – Vlad Chețan, Pexels