When we think up something on our own, we often doubt whether it’s true or not. So when I started coming up with the idea that became the Freedom Formula…
I know I can get some crazy ideas at times: my business plan of selling green-tinted sunglasses to tourists in Ireland (for them to take home and show people what Ireland looks like), for example, seems still not to have been copied by anyone, surprisingly enough.
So when we do get our own ideas, we often look around for a little support. If we can find someone else saying the same thing, then we might be a little more confident that we’re on the right track.
Four years ago, in 2013, I was running my own spreadsheet on how much money I needed, using a range of withdrawal rates between 3% and 5%, depending on how confident I was of my ability to make good returns, or how desperately that day I wanted to quit work. But I wasn’t sure.
And then support came from two sources that could barely be more different from each other: the Rockefeller Foundation and Mr Money Mustache.
The Rockefeller Foundation, has been managing a charitable endowment for more than 100 years, by withdrawing just 4% per year to give to the causes it supports.
And Mr Money Mustache writes about how he knew he had enough money when his annual spendings was just 4% of his total asset base. He knew then that he would be able to cover his spending for the rest of his life.
I don’t remember which order I found out about these two, it was so close together. I had been in a meeting with New York at the Rockefeller Foundation where they explained this approach, common across the endowment industry. And I was consistently googling the Financial Independence – Early Retirement blogs when I came across mustachioed one.
If two people, or organisations, this hugely, enormously, ludicrously different – one of the world’s oldest, richest charitable foundation and a bloke who wears check shirts and, no surprise, a mustache – were saying the same thing, it must be right.
Right there and then, I stopped messing around forecasting somewhere between 3% and 5% being necessary. It’s 4%, and we need 25 times our spending to make sure we can do that.
So thank you Mr Rockefeller and Mr Money Mustache: 25X is thanks to you.
(Although when I downloaded a picture of John D Rockefeller, I thought, maybe he has more in common with Mr Money Mustache than I realised!)
