Quantifying how much of the household's obligations depend on continuing employment.
Key principle
Dependency is the share of obligations that would go unmet if employment income stopped. It is a number, and it can be tracked.
Lesson
Content
Employment-income dependency is the proportion of a household's obligations that currently require employment income to be met. Full dependency means asset income covers nothing; zero dependency means asset income covers obligations entirely.
The measurement is straightforward. Take monthly obligations from Module 1. Take monthly income produced by assets — actual distributions, interest, rent or business profit not requiring the household's labour. Divide asset income by obligations. That percentage is coverage; the remainder is dependency.
Most households beginning the framework find coverage in low single digits, which is normal and is the starting point rather than a verdict.
Two refinements make the figure honest. Use obligations, not total spending, so the measure reflects what must be met rather than what is currently spent. And use sustainable asset income — income the assets produce without depleting the base — rather than realised gains from selling assets, which reduce the base that produces future income.
Tracking this single figure each quarter turns a vague aspiration into a measurable position with a direction.
Illustration
Educational example(s)
An illustrative household has monthly obligations of $4,150. Its assets produce $2,700 per year in distributions and interest, which is $225 per month. Coverage is 5.4%; dependency is 94.6%. Two years later, after contributions and reinvestment, asset income is $520 per month and coverage is 12.5%. Figures are illustrative only and do not represent an expected trajectory.
Examples are illustrative only. They are not forecasts and do not reflect any individual result.
Common mistake
Measuring coverage against current spending rather than obligations, which makes the target move every time spending changes and usually makes it look further away than it is.
Risk explanation
Asset income is not contractual. Distributions can be reduced or suspended, rents can go unpaid, and business profit can disappear. A coverage figure describes what assets produced recently, not what they will produce. Coverage should not be treated as a substitute for the protective reserve.
Do this
Action step(s)
Calculate your current coverage percentage and record it with the date, alongside your surplus figure.
Reflection question
What would your coverage figure need to be before your relationship with your job changed in a way you would notice?
The same material reads differently depending on what your capital needs to do next. You may be in more than one phase at a time.
Capital Building
Read this as a question about direction: which surplus, which income stream, and which asset should the next dollar move toward — and what would make that move durable rather than opportunistic?
Capital Conversion
Read this as a question about productivity: what is the capital you already own currently doing, what cash flow could it support, and what drag, liquidity or liability constraint has to be handled before it can do more?
Capital Preservation
Read this as a question about durability: what could force a sale at the wrong time, how much liquidity keeps that from happening, and how is purchasing power protected without abandoning growth entirely?
