Are you ready for some high level stuff? I think you’re ready for it. I don’t share what I’m about ready to share with just anyone. I reserve it for special people and special occasions. I think you’re the person and this is the occasion to discuss the blue line.
The first time I shared this was in a small dark room in Las Vegas with about 60 NFL players.
The blue line. What is it, and why could it be one of the most important things you should track? Let’s find out.
The thin blue line is the amount of money your money makes. The blue line visually shows you how much you can safely withdraw from your investments each year without running out of money. This is an important concept, so let’s make sure you really understand it.
In a later lesson, I will talk about the 4% rule. Basically, we want to know how much we can withdraw from our investments without the fear that we are spending down our investment accounts.
Although some investors are obsessed over calculating their net worth, I think there is no more important number than what the blue line represents.
By calculating and tracking what you could withdraw from your portfolio and live on, along with your income from other sources, such as rental income or Social Security, you will know when the income from your investments could replace the income from your job.
This blue line is your freedom! This blue line shows your level of financial independence. The higher the blue line, the more money you are making from non-work activities, what we call passive activities.
The blue line is super important, and I’ve found that people really can get into it. On some level, you can understand what your net worth is, but it’s hard to really get your head around what it means. Okay, I own this and owe that. But what does that mean in the real world? The blue line is the real world. It tells you exactly how much money your assets make for you. That’s something that makes sense and something you can get excited about tracking and increasing because when you increase your blue line it increases your chance at financial independence.
The proceeding blog post is an excerpt from Get Money Smart: Simple Lessons to Kickstart Your Financial Confidence & Grow Your Wealth, available now on Amazon.