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bryanI hear the term “lifestyle business” a lot these days.  It’s not uncommon for this to be, or become, the goal of many fellow Thrivealists. The name itself has a specific allure for those who could never achieve that mythical state of corporate nirvana: the fabled work-life balance.

Since the term has become so common, I wanted to explore what this looks like and how it compares to a previous lifestyle goal.

First, let’s define the term: “A lifestyle business is a business set up and run by its founders primarily with the aim of sustaining a particular level of income and no more; or to provide a foundation from which to enjoy a particular lifestyle.” (Wikipedia)

So we’re talking about a kind of business that has a goal of letting you live your life the way you want.  Some people want to work from the beach; others want to travel the country in an RV.  There’s no wrong answer and that’s what makes it so appealing.  It can be individualized to suit any interest.

As I started to drill into these lifestyle desires more and more, I found they often sounded like the pursuit of a retired person – one who has achieved a successful career and is now ready to fully immerse themselves in leisure and recreation.

I asked myself what would it take for the retired person to achieve this goal of freedom to pursue their interests and I determined two obvious key factors:

  1. Significant accumulated wealth
  2. An excess of free time

 

The first requirement is rather subjective.  The amount of wealth required depends on the desired lifestyle.  So for the sake of this illustration, let’s use the amount of $1,000,000. I settled on this number because it represents a significant amount of money and does not require me to change the title of this article.

A person with a net worth of a million dollars can come in a few varieties.  It simply means someone whose assets exceed their debt by a million dollars.  This could easily take the shape of a person whose house is paid off and has some level of cash and investments.  In this case, let’s assume it means a person with a million dollars of investible cash – something that can generate a return with little work required.

So now we can picture this person: a million dollars to invest and plenty of time to enjoy themselves.

Let’s take a look at what this means in terms of income. A retired person will generally invest in very safe options with a high concentration of fixed income securities. Simply put, they want investments that pay out cash and hold a stable value.

According to Morningstar, the 5 year average returns for bond indices range from 1% to 7%.  To put it somewhere in the middle, let’s say this person can get a 5% return on investment each year.  So, what does that look like?

The math is easy – $1MM times 5% equals $50,000.  So, a retired person with a million dollars to invest could generate $50k of income per year. That gives us a context for what kind of potential lifestyle we are talking about.

So, now if someone wanted to start their own business with the intention of living like a retired millionaire sooner rather than later, we can see that it doesn’t require an extravagant amount of money. Granted there are other factors to consider, such as the retired person’s ability to withdraw additional amounts from savings, but that impacts earnings and again we assume they are trying to be conservative with their money to ride out the “golden years.” Other factors to consider for the lifestyle worker are the type of work and how long it can be performed. It should be obvious that it would still be wise to save money for the future.

Overall, I found this calculation to be very empowering.  It tells me if I can generate that level of income in a way that allows me plenty of free time – I can be living like a retired millionaire too.

As Gary Vaynerchuk is fond of saying, “there are 300 million ways to win in this country.” The lifestyle business isn’t for everyone, but it represents a real option for a lot of people, myself included. So take a step back and ask yourself what do you really want? When you break it down, it may not sound so unattainable after all.

Bryan is a recent cliff jumper looking forward to running a firm his own way.  He aims to catalog his experiences here for future generations of cliff jumpers to learn from. Starting in January 2015, he will also be the Visiting Instructor in Accounting at Assumption College located in Worcester, MA. Bryan is also the co-host of a new podcast, Ctrl Alterego, which follows the saga of two new businesses in different stages of development.  He has joined forces with Barrett Young of The Green Abacus for this adventure. Follow along atwww.ctrlalterego.com.

Category:
Cliff Jumpers, CPA firm, Personal Growth
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