How To Calculate Your Wealth Number (The 7% Rule)
Published: 2024-07-27
Status:
Available
|
Analyzed
Published: 2024-07-27
Status:
Available
|
Analyzed
Predictions from this Video
Incorrect: 0
Prediction
Topic
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The speaker aims to invest in assets that generate a 7% cash flow annually, allowing them to live off this income.
"The way that I come to this number is I know that if I take this $1.1 million today I can invest into some assets that are going to pay me 7% cash flow not potential growth 7% cash flow meaning an income being deposited into my bank account then I can take the 7% cash flow and live off of this income"
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To retire comfortably with $77,000 annually, one would need $1.1 million based on a 7% rule.
"if I wanted $77,000 a year for me to retire comfortably today then what I do is I take this number and I divide it by 7% and that tells me that I would need $1.1 million today to be able to fund my retirement"
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The 4% rule suggests that individuals can withdraw 4% of their retirement savings annually to cover expenses.
"This is where many people follow What's called the 4% rule where when you have this big nest egg you'll be able to spend 4% of this amount of money this huge sum of money every single year and this will be able to fund your income for retirement until you die"
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A $1 million investment account allows for annual withdrawals of $40,000 (4%) to fund retirement expenses, with adjustments for inflation.
"for example you build an investment account worth 1 million Now what you can do is you take out 4% which is around 40,000 not around it is $440,000 today and then you can continue adjusting this with inflation but now you pull out $40,000 to fund your expenses"
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The US dollar was removed from the gold standard on August 15, 1971, fundamentally altering monetary systems.
"in August 15th 1971 the United States dollar was taken off of the gold standard which changed the way that our money worked forever"
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A free live investor summit will be held on August 14th and 15th, focusing on changes in money, investment opportunities, and wealth building in the current economy.
"this August 14th and 15th 53 years later I am hosting a live investor Summit it's completely free where I'm going to be going over a couple things Number one I'm going to go over how money has changed not just over the last five decades but also over the last 5 years and then I'm going to go over how investment opportunities have changed and how you can build wealth in this new economy"
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The speaker underwrites real estate deals to achieve a 7% cash-on-cash return.
"the way that I underwrite my deals is I look for a property like this that I know is going to pay me a 7% cash on cash return"
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A $150,000 cash purchase of a property requires an annual profit of $10,500 after all expenses to achieve a 7% cash-on-cash return.
"let's just assume that this property sells for $150,000 if I were to buy this property for $150,000 cash that would mean that I would have to make $10,500 a year of profit not rental income but profit after paying all my expenses"
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Cash flow real estate deals are available in the Midwest, specifically mentioning Michigan and Detroit as examples.
"if you can't find these types of deals where you are maybe you have to look somewhere else because I can tell you that in the midwest you can find these types of deals well they're pretty available I wouldn't say everywhere but they are available my office is in Detroit and what I can tell you is that these types of cash flow deals are available in Michigan"
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When investing in real estate for cash flow, the focus is on the underlying asset and investing in areas with growing populations.
"I want to make sure that I understand I'm investing in the underlying asset not just the cash flow I want to invest in a good underlying asset that's paying strong cash flow what that means is when I'm investing in real estate I want to invest in an area that I believe is growing so what I look for number one is a neighborhood where the population is growing"
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Increasing rental income in an area can directly boost cash flow from real estate investments.
"because that can increase the rental income which can increase my cash flow that's what I make my investment decisions off of"
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Dividend-paying funds are identified as a second method for generating cash flow.
"the second way that I like to invest for cash flow is investing my money into dividend paying funds"
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The speaker invests money into their portfolio of funds every Wednesday, regardless of market conditions, without a specific strategic reason for the day.
"so every Wednesday money leaves my checkings account and is invested into my portfolio of funds why Wednesday I don't know why I always get this question the reason why I picked Wednesday is because in the middle of the week There's no secret sauce to this I don't care what day you pick for me it's Wednesday"
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The speaker's investment portfolio is primarily composed of dividend-paying funds, with additional allocations to value, emerging market, and innovation funds, noting that value funds also pay dividends.
"the largest piece of this are my dividend paying funds after that I have some value funds and then a little bit of a merging market and Innovation funds but the bulk of this are dividend paying funds by the way these value funds also pay dividends"
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Dividend payments received from funds are reinvested to continuously increase income generation.
"then I take that dividend payment and I reinvest it back into these funds that way it's just constantly working to produce more income every time"
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When investing in the stock market, it is crucial to analyze the underlying asset rather than solely focusing on cash flow.
"when it comes to investing in the stock market you want to look at the underlying asset not just the cash flow"
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The speaker underwrites real estate deals to achieve a 7% cash on cash return.
"The way that I underwrite my deals is I look for a property like this that I know is going to pay me a 7% cash on cash return."
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To achieve a 7% cash on cash return on a $150,000 property purchased with cash, the profit after all expenses must be $10,500 annually.
"if I were to buy this property for $150,000 cash that would mean that I would have to make $10,500 a year of profit not rental income but profit after paying all my expenses my property taxes my insurance my maintenance management fees and my vacancy costs to justify my investment because that would be a 7% cash on cash return"
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Cash flow real estate deals are available in the Midwest, specifically in Michigan, and the speaker's office is in Detroit.
"I can tell you that in the midwest you can find these types of deals Well they're pretty available I wouldn't say everywhere but they are available My office is in Detroit and what I can tell you is that these types of cash flow deals are available in Michigan"
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When investing in real estate, the speaker prioritizes the underlying asset's quality in addition to strong cash flow.
"I want to make sure that I understand I'm investing in the underlying asset not just the cash flow I want to invest in a good underlying asset that's paying strong cash flow"
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The speaker looks for neighborhoods with growing populations, indicating increased demand, more employees, and incoming businesses and money, as a primary investment criterion.
"I want to invest in an area that I believe is growing So what I look for number one is a neighborhood where the population is growing because if the population is growing that means more people want to be there there's more demand in that area there's more employees that want to work there there's more businesses coming in more people want to be here more businesses and more money is moving in That's what I want to see first"
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The speaker's investment decisions are primarily based on receiving cash flow, with property value appreciation being a secondary benefit.
"if property values go up great that's icing on the cake if property values go down oh well I'm still getting my cash flow That's the way that I make my investment decisions off of"
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The speaker invests in dividend-paying funds for cash flow.
"I invest my money into dividend paying funds"
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The speaker invests a set amount of money every Wednesday into their portfolio of funds.
"I have a system where every Wednesday money leaves my checkings account and is invested into my portfolio of funds"
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The speaker reinvests dividend payments received quarterly back into their funds to compound returns.
"every quarter meaning every three months I get a dividend payment out of these funds Then I take that dividend payment and I reinvest it back into these funds"
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When investing in the stock market, the underlying asset should be considered, not solely the cash flow (dividend yield).
"when it comes to investing in the stock market you want to look at the underlying asset not just the cash flow"
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