How much money is really enough for you?
I had a chat with a friend recently and asked him the same question. The first answer he came out with was £100m.
Within 30 seconds, that number became £10m. Within another 2mins, that number was below £5m.
This really got me wondering how many more people out there are chasing numbers that have probably been fed to them by the media.
The culture of today is that of the millionaire and billionaire. This is the socially accepted aspiration, which is promoted by our social media and the celebrity culture.
You also see this trend in the startup community with founders aiming to be the next trendy unicorn that achieves a £1bn+ valuation.
There is something seriously wrong with this thinking in our personal lives because what it really leads to is status, and what status leads to is bondage.
The other really destructive reason for this approach to life is that people are being led by others without their own self-generated convictions.
Most people I know want to make £1m simply because they want to feel like they belong to a club of rich people who are themselves aiming to belong to the club of £10m, £100m or £1bn.
Not many people will admit this, but when they dig deeper, this is usually the real reason for such aspirations.
What’s worse is that most people want the millions now and fast.
Let me break some news to you – There is no end in sight if this is where you’re currently heading. You’ll continue to dance in the wind and grow old chasing the illusions of others.
Pause for a minute whilst you read this and ask yourself these questions:
What is money? And what do your happiness and Joy have to do with it?
Consider two individuals, Ben and Matt, who both came into some wealth recently.
Ben has been grafting, failing, learning and cutting his teeth running a side business.
In addition, he’s kept up a high savings rate from his day job. Today he hit his goal of growing a pot of £500k.
Matt has been playing the lottery and saves little to nothing. Being extremely lucky he managed to win £500k in a jackpot.
What is different about these two individuals?
Both of them will experience happiness, which can be temporary and fleeting.
However, Ben will experience something much deeper. He’ll experience Joy, which can come from deeply immersing and loving the process of wealth creation.
You see, wanting to make money is a good thing. However, It is infinitely better if it is money you’re trying to make as a result of understanding who you are, what you care about and where you see your future going.
Being high on self-awareness is a big part of what makes us emotionally intelligent, and money can be a deeply emotional topic.
Financial Independence is the new way of life. It's a choice and a possible outcome driven by your need to live life by design.
It's a marathon rather than a sprint, and a race worth running because the benefits and joys of freedom are priceless.
How Much Is Enough?
Given I have hopefully put you off aiming endlessly for an amount with no real basis, how then do you know how much money is enough?
The beauty of this is that the amount of money that is enough is entirely unique to you.
The single best way of figuring this out is to start by figuring out:
- What is your current annual spend?
- Why is your current spend what it is?
This is extremely important because the first question helps you actually have an idea of a net income number that you currently spend to sustain your life.
The second question helps you figure out the exact makeup of that number. I.e. are you living in excess or not? Are you managing money well or not?
I had introduced you previously to the 4% rule or the Safe Withdrawal Rate (SWR), which comes out of the famous Trinity Study.
The SWR can be defined as the % of a portfolio (or pot of money), which can be withdrawn annually for a given number of years without that pot ever becoming zero.
The SWR of 4% is a guide, but what it implies is that you have enough money when you have a pot equal 25 times your annual spend.
So if for example, your annual spend is £30,000 (£2,500/month), then you have enough money when you have a pot of £750,000.
This is the point at which you have achieved Financial Independence (FI).
25 times your annual spend means that you have 25 years worth of expenses accumulated.
If you have this invested in index funds and growing at say, 7% (net of inflation) per year, then at a SWR of 4% (and an asset allocation majorly in equities), you will almost certainly never run out of money due to compounding.
Even with a 5 – 10% sensitivity analysis of top of the £750,000 for lifestyle changes, we still aren’t talking utterly crazy sums.
In fact, if you think about it, what it implies is that for every £1 of savings you permanently make in your financial life today, it means you will need £25 less in your Freedom Fund.
So for example, if you found a way of saving £150 a month (or £1,800/year) in your budget, it means that you’d need £45,000 less in your £750,000 above.
I’d like you to let that sink in and think of what this really means for you. You’d have enough money to:
- Be free and enjoy flexibility in your life.
- Pursue your passions and enjoy life for it is very short and ticking away.
- Retire earlier if you want or take time out and enjoy some travelling or whatever.
- Spend time with your family even more so and or volunteer and help others.
- Choose interesting work rather than get a job based on the highest bidder.
- Enjoy your children growing up and even leave them an inheritance.
This may sound very dreamy but I can assure you it’s as real as the sunrise was this morning.
I spent a couple of days last week for some electives at Cambridge and a good friend of mine was there too.
He’s 38 and showed up to learn too. What made him differ to everyone else in the room though was that he had already achieved Financial Independence.
His portfolio of circa $1.5m provides him with about $60k annual income, which more than covers his annual costs.
What he was interested in doing over the next couple of months was spend time on Boards of small companies because he is passionate about stuff like that.
Note that he didn’t have the need or pressure to report to a job somewhere because he had a desperate need for money.
He knew of these principles when he was 21 and began the journey towards FI, which he achieved when he was 35.
He isn’t the only one I know. As a matter of fact, we know a number of others personally, who have spent time understanding:
- who they are,
- the things they are good and bad at,
- what matters to them and what doesn’t,
- what they want out of life and what they’d like to contribute,
- where they’d like to get to one day and what they're doing to get there.
Why am I telling you all this?
Living life by design and purpose is what it is all about.
Although the above thinking is there to help you figure out how much is enough for you, your life isn't lived in a vacuum and involves others.
For me, although we have been executing a clearly defined plan for FI, we also know that alot of the money we are making or seeking is really there to support causes we're passionate about.
Related: The Power of Generosity and Why It Pays
You too have to spend time understanding what your true life motivations are.
Why are you here? How much more time do you really think you have? Do you really want to spend that precious time chasing the wind and drifting aimlessly for the next 30 years?
What do others have to do with it?
Financial Independence is a superpower and it’s available to everyone. It is the big domino that will set many other things in motion and give you a life of real freedom and flexibility.
You have to choose it, love the process and make it a priority in your life because you’ll enjoy a richer and much more fulfilling life as a result.
One of the major concerns I have is that the majority of people out there that we know will end up working all their lives to pay off a mortgage or fund some unnecessary lifestyle.
They’ll never take risks nor veer off from the predictable mediocre path that most follow.
I don't want to see this happen, especially if I can do something about it.
With the right financial education, planning, drive, discipline and lifestyle choice, it doesn’t have to be so.
If you really want to begin this journey, seek out someone who you know has been there, model their process and make it yours.
Alternatively, feel free to grab me for a Coaching Session to design a path unique to you.
Whatever you do, start today!
If you want the “RoadMap To Financial Independence”, then subscribe below. I have put together a thoroughly practical course on Teachable that anyone anywhere in the world can use to achieve Financial Independence:
Related:
Plot Your Escape. Choose Financial Independence
How Much Money Should You Have Saved By Age?
Ever worked out how much money is enough for you? What matters most you – Status or Freedom?
Do please share this post if you found it useful, and remember, in all things be thankful and Seek Joy.
Money can be such a blessing if we see it as coming from our Lord. He is our true provider and we are His stewards. When we properly steward the money He puts in our hands, without grasping for more than what He has given, than He can trust us with more. Thank you for your thought provoking post! Bless you Brother! 😊
Hi Donna, thank you for stopping by and for your very thoughtful and wise words. I couldn’t have written it more beautifully.
I agree and see our roles as stewards as a Faith walk. It’s a totally different way to how most in the world see money. Blessings to you too 🙂
Thank you for this insightful and informative post. God will provide wealth as a blessing but only as a side benefit of seeking first His kingdom and His righteousness. So many times in the Bible He tells us that He doesn’t mind prosperity; He just doesn’t want us to treat money as our God. Only He can have that position. And our God is able to supply all our needs according to His riches and glory in Messiah Yeshua.
Dear Maria,
Thanks for your insightful comments. I welcome the diversity of perspectives on the subject of money and Financial Independence, including the spiritual dimension.
It’s true that money shouldn’t be the main focal point of our lives. We need to get our priorities right.
However, Money is really a gift and should be managed well. It’s a vehicle for achieving various purposes, some of which includes our livelihoods and that of others.
Achieving Financial Independence in my mind is only part of the journey of self discovery and purpose. I see it as a powerful way of ensuring we actually do support the causes we are passionate about and living life in a way that isn’t just about us. In essence, love for others. It’s a big part of why i actually write these blogs.
Thanks again for stopping by. Hope to hear more from you 🙂
Yet another great post Ken, I’m learning something new every time, if it’s not a new concept then it’s a fresh way of thinking.
Ros, brilliant! Glad you’re enjoying these posts. Your comments are much appreciated.