“There is only one thing that makes a dream impossible to achieve: the fear of failure.” — Paulo Coelho
One of my themes is Dream Big for 2015. As part of that, I’m taking a fresh look at dreams and how to dream big.
Unless you’re financially set, financial dreams are an important part of the working world.And, even if you are financially set, you can use your skills to help others dream big and help them reach their dreams.
I’ve been reading Tony Robbins’ latest book, MONEY Master the Game: 7 Simple Steps to Financial Freedom. In the book, he helps people figure out their financial dreams, put a price on them, and figure out a plan to accelerate achieving their dreams, and making them real.
It’s an eye-opening book, and one of my favorite aspects is that he bucketed financial goals into five financial dreams. It’s a beautiful move because the key to goals is to start with dreams.
The 5 Financial Dreams
Here is a summary of the five financial dreams:
- Financial security – monthly expenses including rent/mortgage, food, utilities
- Financial Vitality – pay for half of your current life-style
- Financial Independence – pay for your current life-style
- Financial Freedom – pay for your current life-style + up to 3 luxury items
- Absolute Financial Freedom – pay for all your big wants in life
The real brilliance here is how you can chip away at your dreams, make progress, and have milestones along the way, while raising your standard of living and improving your quality of life.
And, your dreams give you something to hold on to, while you work towards them.
Now, let’s take a deeper look at each dream …
1. Financial Security Dream
What if all your basic expenses were covered?
This dream means having the following five things paid for, as long as you live, without ever having to work for them again.
- Your home mortgage, for as long as you live–paid forever. You never have to work again to pay for your home!
- Your utilities for the home–paid forever. You never have to work to pay your phone bill or to keep the lights on.
- All the food for your family–paid forever.
- Your basic transportation needs.
- Your basic insurance costs–all of them paid for without your ever working another day in your life.
How to calculate the price of your Financial Security:
Tony Robbins shares a simple way to figure out your Financial Security needs. To do so, first figure out your monthly overhead or burn rate:
- Rent or mortgage payment: $________per month
- Food, household: $________per month
- Gas, Electric, water, phone: $________per month
- Transportation: $________per month
- Insurance Payments: $________per month
Total basic monthly expenses: __________ x 12 = __________ per year
(U.S. average basic annual expenses: $34,668)
2. Financial Vitality Dream
What if half the costs of your current life-style were covered?
Your Financial Vitality Dream is where half of your cost of living was covered. It’s a clear milestone towards your bigger financial dreams.
“What do I mean by financial vitality? This goal is a mile market on your path to Financial Independence and Freedom. You’re not all the way there yet, but it’s the place where you can be secure and also have some extras thrown in that you can enjoy without having to work.
What do you pay for clothing every month? is it $100? $500? $1,000? How about for entertainment (cable TV, movies, concert tickets)? How about going out for dinner? is it Chili’s or Nobu tonight? So for food and entertainment, are you shelling out $200 a month or $2,000 plus? How about small indulgences or little luxuries like a gym membership, a manicure or massage, or monthly golf dues? Is it $50, $500, or $2,000 plus? Whatever it is for you, how would it feel if half of those costs were already covered without having to work, for the rest of your life? That’s what happens when you reach Financial Vitality. Sounds like something worth celebrating, doesn’t it?”
How to calculate the price of your Financial Vitality:
Tony Robbins shares a simple way to figure out the price of your Financial Security Dream. To do so, simply figure out the price of half of your current cost of living per month:
- Half of your current monthly clothing costs $___________ per month
- Half of your current monthly dining and entertainment costs: $___________ per month
- Half of your current small indulgence or little luxury costs: $___________ per month
- Total additional monthly income for vitality: $___________ per month
- You already know your monthly Financial Security number so add it here: $___________ per month
- Total monthly income necessary for Vitality: $___________ per month
- Now multiply that by 12 and you’ll have the annual amount you need for Financial Vitality: $______________ x 12 = __________ per year
3. Financial Independence Dream
What if your current life-style was fully covered?
Your Financial Independence Dream is where you no longer have to work to pay for your current life-style.
“Pop the champagne, because when you’ve reached Financial Independence, you no longer have to work to have the same lifestyle you have today! The annual interest earned on the return from your savings and investments (your Freedom Fund) will provide you with the income that you need–while you sleep. You are now truly financially independent; that is, independent of work. How amazing would that feel? What kind of peace of mind would that bring you and your family?
Financial Independence means that money is now your slave–you are no the slave to money. Money works for you; you don’t work for it. If you don’t ike your job, you can tell your boss to shove it. or you can keep right on working with a smile on your face and a song in your heart, knowing that you’re working because you want to , not because you have to.”
How to calculate the price of your Financial Independence:
Tony Robbins shares a simple way to figure out your Financial Independence. To figure out your Financial Independence, multiply your annual spend by 20. Figure out your all up spend to maintain your current lifestyle.(To break it down, first figure out your monthly all up spend for your current lifestyle, and multiply that by 12.)
This approach is based on a few assumptions, with the goal of helping you quickly get to a ballpark baseline.
Via MONEY Master the Game: 7 Simple Steps to Financial Freedom:
“…if Ron wanted to know how much he would need to accumulate in his nest egg or his Freedom Fund most financial planners owuld tell him to multiply his annaul income number by 10, or even 15. But doay, with such low returns on safe, secure investments, that’s not realistic. Remember, on the way up the mountain (the accumulation phase), you might put your investments in an aggressive portfolio that could give you 7% to 10%. On the way back down the nmountain (the decumulation phase), you will want your investments in a secure and less volatile environment, where by nature you would likely get smaller returns. So it might be smarter to use 5% as a more conservative assumption. Ten times your income assumes a 10% return. Twenty times your income assumes a 5% return.”
4. Financial Freedom Dream
What if your current life-style, and a few new luxury items you’ve always wanted were covered? And what if donations you want to make, whether to give back or pay it forward, were also covered?
“Once you’ve freed yourself up from the need to work for the rest of your life, how about freeing up your lifestyle? Financial Freedom would mean you’re independent, you’ve got everything you have today, plus two or three significant luxuries you want in the future, and you don’t have to work to pay for them either. To get there, you need to ask yourself, ‘What annual income would I need to have the lifestyle I want and deserve?’ What do you want the money for? Is it for the freedom to travel? To own a bigger home or a second vacation home? Maybe you’ve always wanted a boat or a luxury car? Or do you want to contribute more to your community or church?”
How to calculate the price of your Financial Freedom:
- Luxury item #1 per month _________ $_______ per month
- Luxury item #2 per month _________ $_______ per month
- Donation per month_________ $_______ per month
- Monthly income for Financial Independence (your annual number divided by 12) $_______ per month
- Total monthly income number for Financial Freedom: $_______ per month
- Multiply by 12 to get the annual amount you need for Financial Freedom: $_______ per year
5. Absolute Financial Freedom Dream
What if your unlimited lifestyle was fully covered?
Your Absolute Financial Freedom dream is where the money you make while you sleep pays for everything you want.
“How about Absolute Financial Freedom? What would it be like if you could do anything you wanted, anytime you wanted? How would it feel if you and your family never had to want for anything again? If you were able to give freely and live completely on your own terms–no anybody else’s–and all without every having to work to pay for it. The money you make while you sleep– your investment income–would provide for your unlimited lifestyle. Maybe you would buy your parents the home of their dreams, or set up a foundation to feed the hungry or help clean up the ocean. Just picture what you could do.”
How to calculate the price of your Absolute Financial Freedom:
- Luxury item #1 per month: _________ $__________ per month
- Luxury item #2 per month: _________ $__________ per month
- Luxury item #3 per month: _________ $__________ per month
- Monthly income for Financial Freedom: $__________ per month
- Total monthly income number for Absolute Financial Freedom: $__________ per month
- Now multiply that by 12, and you’ll have the annual amount you need for Absolute Financial Freedom: $____________ per year
How Much Money Do You Need in Your Money Machine?
Of course it does. But the key is to know what it depends on and how to calculate some simple and quick baseline numbers.
To recap, multiply your annual needs by 20. To figure out how much money you need in your money machine, you multiply the amount of money you need each year, by 20. This is a conservative approach that assumes a 5% rate of return.
So, if your basic expenses for the year cost $35,000, then the critical mass in your Money Machine would need to be, $700,000, so that it generates $35,000 each year to cover your Financial Security.
And, if your Absolute Financial Dream cost $650,000 per year, then you would need a critical mass of $13,000,000 million, so that it generates $650,000 per year.
Note that Tony Robbins provides ways to build, grow, and accelerate your Money Machine throughout the book.
Be Committed and Creative
As Tony Robbins puts it, you can realize your dreams if you’re committed, creative, and add more value to other people’s lives than anybody else. (This is along the lines of how Zig Ziglar put it: “You can have everything in life you want if you will just help enough other people get what they want.”)
“This thinking can create the quality of life you want for yourself and those you love. What makes most people just dreamers versus those who live the dream is that dreamers have never figured out the price of their dreams. They make the number so big they never begin the journey. There isn’t a dream you can’t realize if you’re committed enough and creative enough, and if you’re willing to find a way to add more value to other people’s live than anybody else.”
Dream big, start small.
Imagine the art of the possible and use your dreams to inspire all that you’re capable of.
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Image by DieselDemon.