Make sure you know what your magic number is

entrepreneur yacht

The magic number is the amount of money you need to not worry about money ever again.

If you don’t need toys like Ferraris, yachts and jets, then the magic number is probably close to R130million.

Here’s the math:

R130mil will earn R9,1 mil in interest annually (assuming 7% interest).

After tax that is R5,46mil.

Assuming you need 50% to maintain a good lifestyle, that leaves approx. R2,7mil for reinvestment, which should be enough to keep your capital amount in touch with inflation for 50 years.

The balance of R2,7mil (after tax) is for your living costs. In South Africa, R2,7mill will afford you a lifestyle that allows you to send your kids to a great school and university, to travel overseas a couple times a year, and to live in a comfortable house.

Over time your living costs (and inflation) will eat into your capital amount. After 50 years you should be down to nil, assuming you earn zero other income in that time.

In 50 years, you will probably be dead. If not dead your kids will be able to support you (because they love you and they have a great university education).

That’s what the magic number is.

That’s your risk-free benchmark. Once you’ve gone through that number, it’s all about fun.

Until then, it’s all about reaching your magic number.

Make sure you know what your number is.