What does financially secure mean?
Original post:
>Is there a generic definition of
>"being financially secure", expressed not in terms
>of $$$ saved, but other parameters such as
>(a) no debts
>(b) steady income
>etc.
>
>I'd be interested in hearing people's comments.
Jimbo's reply:
I think that (as you indicate) any valid definition of this type of
term must be made relative to the _context_ of the individual. I
don't have a handy definition for "being financially secure" but
I do have one for "being independently wealthy". (I'm suggesting
that "being financially secure" involves less wealth than "being
independently wealthy."
A person is "indepedently wealthy" when he or she is able to live
comfortably off of his or her investments. The actual dollar figure will
vary with the particular person and their context, but not infinitely. "To
live comfortably" is a somewhat vague phrase, but it does have a valid
meaning. If you have to do without some luxuries that are available to
billionaires, well, that doesn't mean you aren't indepdently wealthy...
since you can get by comfortably without those things. But if you have
to do without some normal routine luxuries (a decent car, vacations, etc.)
then you aren't independently wealthy. (I still want to leave room for
context, though, since some people don't like travel or cars, I guess!)
For most people, I would suggest a practical rule of thumb. Take your
current actual living expenses. Don't include any interest payments you
may be currently making, since you won't have those payments when you are
wealthy. Just sit down and calculate how much money you need to live your
current lifestyle on an all-cash basis. Now add 10-20% depending on how
"tight" you perceive your situation to be. You should have a number such
that, if you got that much money per year after taxes, you'd be able to
live very nicely.
Now take that number and multiply by 20.
If you had all your debt paid off, and you had that much money in
investments, then you would be able to live 10-20% better than you
do now, without having to work.
There are some details here that I've glossed over, of course. But I'm
just going for a rule of thumb. I'm very interested in hearing feedback.
(One big factor here is that you may not want to assume, as I've done,
that your current expenses are the most relevant. Do you plan to have
kids? You better plan for that, too.)
So, back to your question. I think it is very possible to be "financially
secure" even in a situation where you still need to go to work. If you
like your job, and if you aren't worried about not having a job in the
future, then you can subtract from the wealth figure that I calculated
above by an amount equal to 20 times the *net* takehome pay from your job.
(I.E. subtract all expenses associated with work, taxes, etc.)
If there is interest, I'd like to work through some examples and post
them here and on my web page for commentary.
--Jimbo
(
geocities.com/vyque)