The average person might say that $1,000,000 is enough money. If you invested it and lived off the dividends, it would probably be enough for a comfortable life. If you meant to spend it on living the good life, $1,000,000 doesn’t go nearly as far as it used to. Everybody has a point at which their financial needs are met and they are “financially free”. This “freedom number” is different for everyone, but you will never know if you’ve achieved it if you don’t know what your number is!
Some studies have shown that happiness doesn’t increase very much beyond a middle class income of $70-75k per year. This is more than enough for a comfortable living in most parts of the country, but it’s not nearly enough to drive a new BMW every three years and vacation in Tahiti each summer. It would be really tough to send a child to an Ivy League school on a $70,000 salary.
How do you know if you will have enough money? It depends entirely on your lifestyle.
1. How old are you now and how much longer do you expect to live?
If you’re 90, your life could end at any moment, so you require much less money for the rest of your life than someone who only just turned 30. With that said, it’s a good idea to plan to live longer than you expect!
2. What are your monthly expenses?
How much would the life of your dreams cost? Let your imagination run wild. What kind of expenses would you have? A top of the line bowling ball each year or a second flat in Vail? A housekeeper once per week or a thoroughbred? Determine how much income or nest egg it would take to finance your ideal life.
3. What are your responsibilities?
Do you have three children attending college within the next 10 years? Does your spouse work? Do you have to care for an aging parent? For how long do you expect to financially provide for others?
4. What is your debt situation?
Is there 25 years left on a mortgage? Significant medical bills? Credit card debt?
5. When would you like to retire?
How much do you need each month to do it? How would you like to spend your retirement years? Do you desire to travel regularly? Play 18 holes of golf every day? How much would a typical month of your ideal retirement cost?
● Maybe you value free time above all else and would be happy living a simple life tending to your vegetable garden or you want to live an active life travelling the world.
6. What toys do you want to own?
A plane? A Porsche 911? A ski boat? A waterfront vacation home? Swimming pool? Harley Davidson?
There is absolutely no set answer to the question of how much money is enough. It is completely dependent on your desires and circumstances. This number may be quite small or quite high, but it’s your number. If you have never considered how much money you need, you should be wise to take some time to think about it.
Money solves problems and provides choices. It has limited value beyond those two purposes, but both solutions create freedom. It is always a mistake to use money for establishing status. Using money to keep up with the Jones’ is needing it for the wrong things. This is a limiting belief that requires working much longer and harder than necessary.
Take some time and think long and hard about what and who is most important to you. Make a plan to develop an income, savings, and a net worth to acquire the possessions and freedom that will allow you to live your life in the way you desire. Spend time to focus on this important issue and you may be able to quit working much sooner than you think.