Multiply-by-25 Rule (from passion savings)

The Multiply-by-25 Rule (click on link for full article)

“The power of the Multiply-by-25 Rule is how it gets to the nitty-gritty of what is going on in the money management project. Why is it you want to save? It’s so that your money can start earning money, and thereby a bit of the burden of doing that by going to an office or factory each day can be taken off your shoulders.”

The Multiply-by-25 rule assumes that you will be able to invest the money saved in an investment that will provide a 4 percent annual real return.

1. You need to determine how much an item of spending costs over the course of a year.
2. You need to multiply by 25 to learn how much you need to save to create a fund that covers that expense for life.