Thursday, February 22, 2007

Financial Freedom

I am 4 years away from retirement (although I am not going to retire yet). What I mean is that in about 4 years my portfolio will generate enough income from dividends and interest to cover all of mine and my wife's monthly operating expenses. That has been one of our big focus points for the past 5 years.

Wealthy to me, is when your assets can sustain your lifestyle no matter what and rich is when your assets toss off more income than you require. Once we hit that goal we will continue to build the portfolio, however we will decide then if where we are working really makes us happy. If not, then we can go and do other things for earned income. Imagine not having to work, but if you do work you do something that makes you happy.

We have been keeping a close eye on what I call our monthly operating expense (MOE) and an even closer eye on how much closer we get to covering it every month. Although we have money invested in non-income producing assets (NIPA) the majority of our assets are invested in income producing assets (IPA). The NIPA's will eventually be converted to IPA's, however they currently tend to gain more annually then IPA's where they are at. So once they are large enough they will be converted to high paying bond investments.

This strategy allows me to not be concerned with the market's volatility, because a diversified portfolio of IPA's will continue to pay out the dividend no matter what the stock does (if they cut the dividend, then I cut them from my portfolio - although I should have seen the cut coming if I have been doing my homework). In fact the lower the stock price the cheaper I get to buy the perpetual stream of income. I never think about selling unless the company starts to show forms of weakness. 4 more years and my Monthly Portfolio Income (MPI) will equal my (MOE). From that point forward as my MPI grows, I can grow my MOE or just indulge in bigger and bigger toys from time to time.

Just a follow up...

(MPI < MOE) = Dependant on earned source of income.
(MPI = MOE) = Independently wealthy.
(MPI > MOE) = Rich.

Have a productive day,

Jake Blake

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