According to real estate mogul and money expert Preston Seo, there are three numbers all individuals must track if they want to build wealth and become millionaires.
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“The difference between people who struggle with money and those who build real wealth isn’t how much they make; it’s what they track,” Seo said in an episode of his popular YouTube series, “Legacy Investing Show.” Seo broke down these three numbers that he claims can offer a roadmap for financial freedom.
Net Worth
Seo stated net worth is akin to one’s financial score card, and it can be easily tabulated by subtracting one’s liabilities from their assets.
While it sounds simple, most people don’t track their net worth consistently, which, according to Seo, should be once every month. They, therefore, have no idea whether they’re actually moving forward or backward. After all, high income does not necessarily equal high net worth. Individuals should track this number consistently to ensure it’s going up.
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Savings Rate
Next, Seo highlighted savings rate with the following formula: “Savings rate = (income – expenses) ÷ income x 100.”
Your savings rate shows you how much of your income you actually keep after all other expenses are paid and highlights some truths about your financial behavior. Is there a good deal left over, or are you spending almost everything you make?
Tracking your net worth is a great first step, but it means relatively little without understanding key factors contributing to how and why that number is trending in the direction it is. Seo said that if you’re not tracking your savings rate, you have no idea how long it’s going to take you to achieve financial freedom.
Your Freedom Number
Speaking of financial freedom, Seo defined the freedom number as “the amount of money you need to make in order to never work again.” He advised tracking this number with the following formula: “Your freedom number = (monthly expenses x 12) x 25.”
In other words, the estimated cost of retirement for 25 years. So if someone has $5,000 worth of monthly expenses, they will need $1.5 million invested to retire.
This number is based on the 4% rule, which states that if retirees withdraw 4% of their investment portfolio every year, their money should last throughout retirement (even once inflation is factored in).
“The idea here is as long as your investments are earning at least 4% on average per year, your money should last forever,” Seo explained.
What Does Another Financial Expert Think?
Jason Hester, managing partner at Balefire, respects the clarity in Seo’s three-number dashboard. “Most households stall because they drown in complexity and end up tracking nothing at all,” Hester said.
He was careful to point out, however, that a dashboard is not helpful in and of itself — but, rather, when it’s connected to a plan of action. This personalized action plan can include getting clear on how much money is “enough” to retire on, incorporating side ventures to grow income, diversifying your investment portfolio and/or instituting methods of accountability.
Ultimately, there is never a guaranteed path to anything and each person’s goals and circumstances are vastly different.
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This article originally appeared on GOBankingRates.com: Want To Be a Millionaire? Pay Attention to These 3 Numbers, Says Finance Whiz Preston Seo
