Did your escape number scare you ?

[AnasHarn]

Hi everyone,

I've just started to work on this and in order to clarify things and be more motivated, I decided to calculate my escape number based on the book: Escape the rat race & my 1/5/10 Planasy.

As much as I saw the numbers in the book, my own number scared me a bit.
I came up with 21 million euros, which I know isn't incredible either, but still, it's a lot of money.

How did you manage this ? I went to read the stories of startups sold at that price and above, just to motivate myself and rationalize it.

 

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[MTF]

It's cool to dream big and I'm not saying you shouldn't do it.

At the same time, I'm pretty sure your number is way too high and the actual number is probably 4-5x lower.

 

[cm-devpreneur]

Mine scared me. I did my 1/5/10 Planasy in February this year. While I had an idea of all the things I wanted the total number seemed too big. But I am keeping an open mind. I think once you have some momentum it's easier to estimate a more realistic number. There are so many unknowns early on.

I am trying to be more realistic with the shorter term parts of the Planasy.

And I like your idea to look up exits that were at a similar value to what you need.

 

[MJ DeMarco]

At the same time, I'm pretty sure your number is way too high and the actual number is probably 4-5x lower.

This tends to be true, but one doesn't discover that until one make significant progress on it.

The Escape # also seems huge because it is a PRE-TAX number, a $21M number really means about $13M.

 

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[MTF]

This tends to be true, but one doesn't discover that until one make significant progress on it.

And nobody starting out will agree with you until they make significant process. They'll all vehemently oppose you until they make a lot of money and realize they don't want to spend it on what they thought was a "necessity."

The Escape # also seems huge because it is a PRE-TAX number, a $21M number really means about $13M.

Oh, I didn't know that. That makes sense. I always think in terms of after tax.

 

[wyattnorton]

Hi everyone,

I've just started to work on this and in order to clarify things and be more motivated, I decided to calculate my escape number based on the book: Escape the rat race & my 1/5/10 Planasy.

As much as I saw the numbers in the book, my own number scared me a bit.
I came up with 21 million euros, which I know isn't incredible either, but still, it's a lot of money.

How did you manage this ? I went to read the stories of startups sold at that price and above, just to motivate myself and rationalize it.

As you progress, each milestone will begin to lose its "bigness". Once you reach 10,000 euros in one month, 100 will seem so minimal, and once you reach 100,000 euros in one month, the 10,000 will seem so small.

Every mountain seems big when we are at the base, but once we hit three-quarters of the way, we look back to see how far we've come, and the rest of the way seems to be delightful, even if it is more strenuous and vertical.

 

[Antifragile]

The Escape # also seems huge because it is a PRE-TAX number, a $21M number really means about $13M.

This is a big deal and yet most people totally miss tax impact.

When people brag about their net worth, it's often a pre-tax number based on their various investments that may have a historic cost but higher FMV. Taking all that gain into income would cut it in half in Canada. But to create the cash flow for life of freedom, we need after tax real wealth (not just pre-tax financial wealth).

Before MJ's latest book, I did my own numbers. Now we have a new name for it - Planasy. The number ranged widely based on lifestyle I wanted to keep. For example: if I want to live where I live, the cost of staying locally is higher than moving away (because of capital locked into my house alone is large). Raising a family in private schools and "keeping up with the neighbours" on latest Ranger Rover purchase makes a massive difference. But I am unwilling to move, because it has been my dream of living where I do.

My number scared the living lights out of me. It came out to be 10x larger than I thought before I seriously considered all variables. That's why it is a powerful exercise. I was glad to be scared. It shifts your perspective. @AnasHarn , now that you have a 21M number in mind, you know for a fact no job will get you there, no 10% stock market "win" investment will get you there - you must build a business. It's scary and liberating at the same time.

 

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[biophase]

This tends to be true, but one doesn't discover that until one make significant progress on it.

The Escape # also seems huge because it is a PRE-TAX number, a $21M number really means about $13M.

MJ, I don't remember but is the escape number what you need to buy everything outright cash and then have enough to live on, or is it the number you need to be able to invest to afford the things you want?

I've found that this number gets lower as you move towards it simply because you are making money and hopefully investing. Also, you don't need to wait until you hit that number, you can simply move your lifestyle towards it as you get closer.

Just taking the OPs number $13M after taxes. I'll just guess at what that could possibly consist of. A $3M primary house, a $1M vacation home. $1M for couple of nice cars. Everything else may add up to $1M? That leaves $7M left over. Investing the $7M at 5% gives him $350k a year. Easily enough to cover real estate taxes, insurance, etc. and provide maybe $15k a month in spending money?

Keep in mind that the original $13M is barely being drawn down. The $4M houses and $7M invested is preserved. So did you even need to wait until $13M to live this way? Probably not. You can start when you are at 1/3 or 1/2 of that.

So is the first goal, get a $4M home? second goal a lambo? third goal $15k/mo spending money? fourth goal $1M vacation home?

You don't need to get everything on your escape number list all at once. You can figure out the number you need (say it's $5M) to get the first house. Then when you get to $7M, get the second house.

 

[Guest-5ty5s4]

Honestly, I imagine getting to a point like in a video game, where the numbers coming in are growing so fast compared to the numbers going out that I’m not that worried anymore.

Of course, I have milestones in my head too...

 

[AnasHarn]

The night has passed and I've had time to think about this number.

It is indeed scary, but it seems to motivate me more than anything else.

What I remember is that the arrival to this number will be done in a progressive way and, I hope, in an exponential way.
"A journey of a thousand miles begins with a single step"

The numbers you give @biophase are indeed close to my goals.

However, I don't understand the difference you make between before (BT) and after taxes (AT).

Indeed 13M AT are equivalent to 21M BT, in any case, I have to create a product/company/service that is worth the 21M.
If I plan to sell my business, a potential buyer will have to pay 21M and I will receive the 13M at the end, but the final objective remains the same, to create 21M in value.

Am I wrong?

 

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[Dr5x]

It's cool to dream big and I'm not saying you shouldn't do it.

At the same time, I'm pretty sure your number is way too high and the actual number is probably 4-5x lower.

..all depends on personal (target) liftestyle - for some people $5k/ month does the job, for others it's $500k/ month

 

[Dr5x]

This tends to be true, but one doesn't discover that until one make significant progress on it.

The Escape # also seems huge because it is a PRE-TAX number, a $21M number really means about $13M.

I kind of observe the opposite - people tend to elevate their lifestyles (= increase costs), hence their targets (must) grow OR they simply love to play the game..