How a Great Budgeting Plan Can Help You Live Off of $112,000 Per Year for the Rest of your life

Budgeting can be extremely powerful when done correctly. Most people mess up their budget by either making it too aggressive, too restrictive, or not challenging enough. While there are a lot of budgeting strategies available on your next Google search, the NetMax Budget Ratio takes the flaws out of the equation and sets up your finances to win in the long term.

How much so?

What if I said I could prove to you how the median American household can have a $2,800,000+ portfolio that generates passive income annually? The best part is that you will be able to live off of the amount generating less taxes without touching the principle. If you don’t want to.

It isn’t magic, just a bit of Effort and Compounding will do the trick.

The Budgeting Correctly to Tackle the Savings Problem

The net/max financial plan is one thing, but this net/max budget ratio is truly a gem. It corrects what the experts get wrong. Financial experts say to invest at least 10 percent. I’m sure this was written in hieroglyphics. To quote the Dorthraki, “It is known.”

However, the advice is also flawed (in three subtle ways).

Firstly, back in the 1970s-1990s, retiring off of 10 percent was great since most already had a pension. Today, the majority of Americans don’t have pensions and will have to fend for themselves in retirement. Fortunately, bloggers like the Financial Samurai are waking people up.

Read why saving 10% won’t get you through retirement.

Secondly, when you tell a group of people that the destination is 10%, turns out most people will start to feel comfortable at 5% and taper off by 8%. The average American is saving less than 7% in 2023. Besides 2020, the average savings rate in America has been less than 10% for the last three decades.

Finally, the worst part is that most people save after they spent money. Without adequate guidance, the 10% rule is moot since most don’t know when to take it. Is this Gross or Net of taxes? Or is it net of spending, discretionary, or luxury? Who knows. As the average date night scales to $100+, knowing when to save is important. It makes a BIG difference.

Clearing Up Savings’ Confusion

All of this confusion is building up to a full-blown financial crisis. Americans aren’t just saving less each generation, they are spending more on credit. So instead of blindly following experts, I found a way to outsmart myself with the NetMax budget ratio.

The new preferred target is north of 28% of your Gross Income (before taxes).

Why 28%? At the 28 percent savings rate, you will be able to retire in 30 years. At 10 percent, it will take you a robust 50-60 years. Your time and your money, so this is your choice. Personally, I’m retiring in 15 years. I really can’t see myself working north of 55. Not even part-time.

Here are three apps that make budgeting and tracking your household spending and savings.

Living Based on a Big Enough Why

Most people don’t have a big enough WHY to jolt them away from consumerism. Sadly, social capital (the appearance of wealth) is far more socially lucrative than real wealth. Case in point, you won’t impress anyone at the next function by talking about your 401k. However, pull up in an expensive $80,000 car, and spectators’ eyes will turn.

Human beings ascribe a lot of value to how we look. However, appearance doesn’t pay the rent, mortgage, or student loans. The only thing that pays bills is hard currency.

It’s better to double down on budgeting to build a life based on freedom.

The budget ratio (download the FREE calculator) pushes your savings/investing goals north of 28 percent while paying off debts.

As a built-in perk, this budget strategy doesn’t hold you back. In contrast, the aim is to help you cut the fat and run faster and further.

Based on the 2021 Bureau of Labor Statistics, the median US household brought in north of $87,432 annually (up 3.7% from 2020). 28 percent of that gross income would be $24,480.96. Even rounding down to $24,000, the median US family would be able to invest $2,000 monthly. Through the mysterious power of investing in your employer-sponsored plan ie 401k, 403b, or 457b and/or an index ETF like the Vanguard Total Market Index $VOO, you could grow your contributions to $2.8 million.

See the Investment Calculator below for proof.

Going Beyond Budgeting: What Happens Next

This is the best part of why budgeting works so well. All your efforts will now be working for you. After you have amassed this robust $2.8 million portfolio, you have options on how you withdraw. To keep it simple here are some examples:

1. Straight line (annuity-style) – $2.8 million divided by 25 years which would burn out your money at $112,000. It’s fine but you can end up spending your way to the bottom. To mitigate, this you can even put up to $250,000 insured into a high-yield savings account,
2. Dividend-Investing at 3.5% – $2.8 million multiplied by an average 3.5 dividend yield. This would provide you with $98,000 without touching the average capital gain of 5%-8% annually. There are dividend positions like $JEPI that pay as much as a 10% dividend yield,
3. Or using the 4% withdrawal rule – $2.8 million multiplied by 4%. This would give you $112,000 while your principal remains untouched and growing at 5%-8% annually.

On top of you the average social security annual benefits of $15,000 – $30,000, you will be able to live pretty comfortably north of $100,000 annually for the rest of your life. How you spend it later, is all on you. Enjoy you earned it!

My wife and I will be traveling in retirement. Maybe we will link up somewhere, someday. Also, check out Old Quebec, it was a lot of fun in a romantic area.

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