Monday, December 12, 2011

New goal - Job Optional

I was at a seminar this week put on by a group promoting real estate investment.  It was mostly an information session, trying to sell spaces at a weekend retreat.  There message wasn't really anything new, it was planting a seed of additional information available in the future if you pay a hefty fee to attend another session (and then another session).  

The one item that came to me at this seminar was a very cool new term, "job optional".  Basically, job optional is exactly as it sounds, getting to a point that you no longer need to work a day to day, that your mail box money (passive income) exceeds your monthly expenses.  A seemingly simple concept, but difficult to achieve.  I like this term, as you could exist without a job, but it does not imply retirement.  It allows for options and flexibility in life and in your future.

I have two clients who are job optional in their 30s through real estate investment.  I have been working on analysing their portfolios.  I figured since I helped build these portfolios, I should be able to replicate it myself with work and effort.  They had clearly defined goals and a singular focus and direction towards an end result and achieved it by never losing focus on their ultimate vision for the future.

The first step is to accurately ascertain how much money you need to live the lifestyle you desire.  My wife (and by extension myself) does not believe in completely sacrificing your life to live only for tomorrow, you have to enjoy today and be smart looking forward to tomorrow.  For example, if you like to travel, you have to budget that into the figures.  If you do not add items like travel to your budget, you will never be able to financial afford to take a trip or whatever luxury items you enjoy.

For most of us, this number will be a negative.  This is why jobs exist.  This negative number is how much money you have to make each month at a job to live your lifestyle.  The larger the number, the more money you need to make each month.  This is a number that has to be replaced by your mail box money. 

I have back tracked my expenses for the past year and averaged out my expenses to reach a fairly accurate monthly expense estimate.  I have added ten percent to this number as a buffer for life's unexpected bumps.  I figure this gives me a pretty reliable estimate.  Inflationary concerns are limited as rents increase annually and should cover these.

Now, the fun begins.  My efforts going forward are to find properties that produce "mail box money".  After you deduct all the expenses, mortgage payments, etc, that there is a monthly left over balance, which is predictable.  To be safe, I will be deducting 10% off each month's rental income for vacancy, repairs, maintenance, etc. 

It is pretty interesting to do the math on your monthly budget and how much you are deficient each month, based upon your expenses.  This is a great tool to predict how much money you will need in the future for your own retirement.  I suggest, heading into the new year, that everyone work these numbers.

My number is rather large (or so I think), so this goal will take some time.  I think with focus and direction, it is attainable.  There is no sense in setting goals that cannot be achieved.  I will update you as my progress begins.

1 comment:

  1. I really like this idea Greg. We have been trying to do this since we first started working with you 2 years ago. Although we have found that finding the right properties are challenging, I fully beleive in this. And like the saying goes, if it was easy, everyone would be doing it. Good luck Greg, we are with you all the way.