I’ve spoken to hundreds of people about money. The most common dream I hear: to have £10,000 coming in. Every month. Without fail.
Understandable. For most people, that’d mean no pressure to work, the ability to spend time however they want, and no nagging worries about money.
Given that goal, the normal move is to work backwards to come up with an investment target.
So take a £120,000 per year goal, divide it by a typical 3.5% safe withdrawal rate, and… gulp – you need to have £3.5 million invested.
That’s the horrible calculation that stops most people dreaming: building up £3.5 million in assets feels impossible.
But there is another way… and my father-in-law is the perfect example.
Every time he FaceTimes us he seems to be in a different hotel abroad. He’s always planning his next big cycling trip with his friends. If his grandkids come to stay, or he has the chance to come into London to do something with them on a Thursday afternoon, he’s always there.
You might think he’s the typical retired boomer: healthy pension, natural post-war frugality inherited from wartime parents. Decades of investment returns, with the double-whammy good luck of a 2010s asset price boom followed by an interest rate increase that lets him live off his gains.
But in his case, not a bit of it. He’s never been much of an investor: no interest in the stock market, nothing much in the way of ISAs. And not a hint of that post-war frugality – this is not a man who dithers in the Lidl aisle comparing the cost-per-unit of toilet roll multipacks.
So what’s his secret? Well, for the last 20+ years he’s owned a simple jewellery business with three employees that spins off cash whether he’s there or not. It doesn’t matter how his (non-existent) investments perform. It doesn’t matter if he spends everything that comes in this month… because it’ll come in again next month.
And he’s free to work on the business as much or as little as he wants. Most days, he’ll take the odd phone call at most. Occasionally he decides to jump into auditing their costs, or trying a new sales channel – but only if he wants to.
If that business makes a profit of £10,000 per month, that’s the same result as having £3.5 million invested.
And I’ve come to think that this is close to the ideal way to live.
It’s not that building a business that spits out a like-clockwork £10k is easier than accumulating £3.5 million in assets – both take years of work, and both are bloody hard. But the difference for me is mindset.
Accumulating millions in assets will, for most people, involve a heroic savings rate – meaning decades of self-denial and delayed gratification. That’s not super fun. Then, habits of a lifetime aren’t easy to change: that “scarcity mindset” becomes embedded, so when they reach their goal it’s impossible to switch gears and enjoy spending.
A business-builder also makes sacrifices – but their focus throughout is on possibility and upside, not scarcity and risk. Then as life progresses, there’s no need to suddenly handbrake-turn: work can drift gradually into retirement over years.
And perhaps best of all, owning a business keeps you feeling useful and engaged – but on your own terms. It’s a generalisation, but when I think of the older people I know, the ones who are still at least dabbling in business or active in academia or sitting on boards are in the best mental and physical shape. The ones who’ve stopped, with not much to do and reluctant to spend money doing anything because they have a fixed amount and will never quite feel like it’s “enough”… not so much.
I know, I’m romanticising here and there are plenty of downsides I’ve ignored or glossed over. Concentration risk, for one: if that business stops performing, you’ve got a big problem. That’s why in practice I’d always want investments to fall back on too.
But given that the typical path is accumulate → stop → hope you can live off it…
The alternative path of build → step back → enjoy deserves a bit of airtime.