I keep hearing the financial advice (in books, articles, on the radio etc) that says there is a line. The line is where the money from your investments / savings (or other revenue from a book or a pension plan) generates enough interest (money) that it pays your current or needed salary. When you cross that line, then you're really free ~ free to retire or do what ever you'd like with a full salary and none of the work involved.

Something I heard recently recommended plotting every month on a graph your salary and your investment interest. The goal is to watch them get closer and closer throughout your life. They actually recommended putting the chart in your bathroom above the toilet so you could see it everyday. But really, money is the last thing I want to think about in the bathroom!

So I did the math, just for fun, to see how close (or in our case) far we are from our goal of crossing that line. When I figured it out (what percentage our investments made compared to our net monthly salary (what actually lands in the bank), we're at 1%! ie (these are not the correct figures for privacy reasons). If we made 3000 net a month, the interest on our investment every month is only $30.

I thought $30 was doing pretty well for 'free money'. But I need to be making $3000 to cross that line! (not the correct figures but you get the idea.)

1% I have a ways to go! Fortunately I'm 36 and I have some time.

How close are you to crossing the line or do you know any success stories of people who have been able to cross?

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I was playing with a retirement calculator, Retirement Planner - MSN Money
If we continue making what we are, do NOT increase our retirement savings up from 6% of our income. And assuming our income does not increase and our cost of living does not increase we will be 70 before we cross the line assuming 10% interest.
Assuming 15% interest on investments puts us to retiring age 58
And if we increase our savings to the recomended 10% of income we will be looking at age 54-67 being able to hit the target. Still its difficult to figure out where the line is. I am sure that other factors such as me getting a job once the kids are older, DH getting pay increases. If we could get to a point where we no longer have a morgage will all help us cross the line sooner. I am turning 27 next month and while time is on my side the earlier you get started savings the faster you will reach that line.

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Kimberly Proud Mommy to Bethany Rose April 2006

How do you figure the percent? I did the retirement calculator not long ago and it was all assumptions but basically, I'll be in the poorhouse with what I am contributing to my 401k and assuming I get annual raises. Is there some sort of formula that you used to get the 1% figured?

No, I just rounded out the figures and figured it out that way.

Here are some examples.
Net (what lands in the bank) monthly pay Investment Income Percentage
$5000 $50 1%
$5000 $500 10%
$4000 $2000 50%

Hope that helps. The calculator works better than my system though. I just like to know how close I am. The graph idea is even better ... you can watch those two lines (employment income and investment growth) get closer every month. At this stage, I'd be more inclined to see how much closer it got every year. I can't help but wonder if the graph is better for those getting really close. I guess it's the whole idea of making your money work for you. I like that idea but it seems pretty far off at the moment.

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This is an interesting post and does provide some food for thought. What books do you read regarding investing? I saw a post of yours recently (I think it was yours) and you mentioned Montley Fools -- I've always enjoyed them myself. Any other suggestions?

The Motely Fool ones were the best (I've read most of those. I've also read the Idiot's Guide to ... (money, investing, the stock market .. anything I can find related to finance) and all the Dummy Books too.

Hmm... all the Fool books, Idiot books, and Dummy books. Says something about my choice of books!

Oh, and I love the David Bach ones .. The Automatic Millionaire and the Smart Women Finish Rich are really, really good.

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I liked the David Bach ones too. I look at where I have my 401K allocations annually and will adjust them then to riskier mutual funds If the yields are too low. The David bach books, I read the smart couples book, gave a good overview of options to give you an idea of what type of funds are available. I know for us we don't invest enough (6%) but we at least know that we need to increase it as soon as we are able.

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Kimberly Proud Mommy to Bethany Rose April 2006