How much money is enough?

Liz Smith

In a society where ‘more is better,’ it’s not surprising that people don’t stop to ask themselves this very question.

Success is often measured by how much money people have, by the car they drive, or the house they live in, or the latest tech gadget they hold in their hands. People inevitably keep working away their life chasing the money.

But does this make us happier? Studies say no.

Chasing for more makes us miserable. Research shows that making an annual figure of $75,000 ($107,000 NZD) has a positive impact of day to day happiness and life satisfaction, but beyond this figure, each additional dollar adds a little less to your life.

The best way to tackle this question is to ask — How much money is enough for me?

Start by asking yourself, ‘What life do I want to live?’ It’s much easier to figure out how much money is enough when you know the answer to this question. This will look different for everyone, be honest with yourself and your answer, but be sure to remember ‘more makes us miserable, so don’t be fooled into that Lamborghini for happiness.

If your answer means getting out of the rat race and ditching the 9–5 grind, then what you’ll need next is a money goal. A money goal is a number that will give you the financial freedom to enable you to comfortably live the lifestyle you choose, all while having your expenses met.

One way to work out your money goal is to add up your current annual expenses and multiply that by 25 (or 30 for a more conservative approach). Studies show that if you save 25 times your desired annual salary and invest that money into the share market, you can safely withdraw 3–5% of that amount each year for the next 30+ years. So, for example, if your annual cost of living is $50,000 a year, you’ll need to save at least $1.25 million to live your dream life comfortably.

I hear you, $1.25 million is a considerable number, but this isn’t the be-all or end-all. You can significantly reduce that number by geographical arbitrage (which means taking advantage of moving to a lower cost of living location). If you could bring your expenses down from $50,000 to $30,000 a year, your money goal would drop significantly from $1.25 million to $750,000. The critical thing to note here is the minimum amount of money I need each month to live the life I want? This is a great starting point to begin your journey into saving for your desired life.

Having financial freedom defines just that, freedom to live the way you want to live. Think not as money building wealth but rather as building a life and watch your savings grow. Switch out those gadgets mentioned above and grab instead a life of fulfillment and freedom.

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