I think they are different
I’m a little bit obsessed with money. My wife often comments on this.
Generally speaking, being obsessed with money is seen as a bad thing. Greed is one of the deadly sins, and left unchecked can become a kind of addiction.
In some ways, wanting to be financially independent looks a bit like greed.
Think (talk) about money a lot –YES.
Have strong desire to acquire large amounts of money –YES.
But that is where the similarities end.
Greed doesn’t really have an end point, and taken to extremes also lacks a specific purpose. It’s a lot like that story about Joseph Heller and his comment on the financier worth more than he would ever earn.
Financial independence is different. The end game is defined (you can work out more of less how much you need) and the purpose is to have enough passive income to cover your living expenses. The formula looks like this:
- annual living expenses = investments x rate of return
The nice thing is that you have the power to change two (maybe even all three) of the variables in this equation.
You can save more money to increase the amount of your investments, and you can spend less to reduce your living expenses. You can technically increase your rate of return by choosing riskier investments, but I am not going down that rabbit hole 😉
For me, those numbers look like:
- annual living expenses = about 3 million yen for a decent lifestyle
- rate of return = a conservative 3%
- necessary investments = about 100 million yen
I have a plan, and I think it’s feasible to reach FI at some point.
The nice thing is that this is not all or nothing. Any passive income you have makes your life better, even if it is just a few hundred yen a month.
And thus the snowball starts rolling.
Your annual expense target is significantly lower than ours (great job!). Is your situation that your house is paid and you don’t have kids to send through college anymore? We’re targeting a slightly higher rate, but we’ll have to include rent or a mortgage in the mix.
Hi SB
Yes, our youngest just finished uni so we don’t have children expenses any more (other than spoiling the grandchildren). We’re actually going to buy our flat (‘mansion’) in July but it’s so cheap I don’t think it will make much difference (9m yen -the mortgage is going to be about 30,000 yen a month).
If we are not saving or working I think we can easily get by on 250,000 yen a month. I can’t imagine completely giving up working completely either, so expect to have freelance/part-time income of at least 100,000 a month. In Sendai, that’s going to be plenty.