When working towards financial independence, your goal is to your passive income to provide you with enough money to live comfortably. But how much money is enough?<\/strong><\/p>\n Whenever I\u2019m working from the office, I am surprised by the number of people I see going into their day job. Coffee in one hand, phone in the other, walking towards the office (no, that\u2019s not the reason quitting caffeine changed my life<\/a>).<\/p>\n They are commuting from all parts towards their office job, making money. Yes, most of us really need to work to make money and use that money to build wealth<\/a>. <\/em>\u00a0<\/p>\n But for what?\u00a0<\/em><\/p>\n It is important to have a plan for life and ensure financial security. Start budgeting, start saving, invest some money, and save for retirement.<\/p>\n The thing is, when is that ever going to stop? How much money is enough?<\/strong> At what point can you stop chasing money?<\/p>\n The moment you decide you should define how much money is enough<\/strong>, is one of the most important financial decisions you can make.\u00a0<\/p>\n In today\u2019s world, many people are growing up, thinking that there is no enough when it comes to money. All we want is more.<\/em> That\u2019s why all the rap songs are about money<\/a> and why the website where you can spend Bill Gates\u2019 money<\/a> is so popular.<\/p>\n When you chase the empty promise of more, there is one thing you know for sure: you\u2019ll never get there. <\/strong>You can save money all you want; you always want more. It\u2019s like running in a hamster wheel, you\u2019re running as hard as you can, but you\u2019re not moving<\/em>.\u00a0<\/em><\/strong><\/p>\n Let\u2019s take an example: you define enough as having 1 million dollars, and your neighbor defines enough as 5 million dollars.\u00a0<\/p>\n You and your neighbor are talking about investing and start to invest at the same time. You both put $1,000 per month towards your investments, making $12,000 per year at a 7% average annual return<\/strong><\/a>.\u00a0<\/strong><\/p>\n When you want to work towards having one million dollars, starting at 25, you could hit your goal around 53. When your enough is $1 million, your accumulation phase will look like this:<\/p>\n For your neighbor, who wants to have $5 million before they keep like they have enough money, they could hit that goal when they\u2019re 75. That means an additional 22 years of working to reach that point:<\/p>\n It is important to ask yourself: is that worth it for me? Do I want to spend 22 extra years going after that high (liquid) net worth<\/a>? Or am I satisfied with a lower net worth?<\/p>\n It\u2019s not all about money either. It\u2019s about the time you spend doing the things you love. Once you\u2019ve spent the time, there is no way you\u2019re getting it back.\u00a0<\/p>\n [Curious? Check the average net worth in the Netherlands<\/a>]<\/p>\n When you\u2019re thinking about how much money is enough<\/strong>, it\u2019s important to know where your priorities lie. Your priorities are what you really value spending money on, and you would never want to cut out of your life.\u00a0<\/p>\n How can you determine your priorities? You can start by asking yourself these questions:<\/p>\n When you have clear where your priorities lie, and what you value, what you want to spend your money on comes naturally.\u00a0<\/p>\n For example, I don\u2019t value living in an expensive apartment in a big city, so I spend around $400 per month on rent. I value exploring new places and traveling, so that\u2019s where I spend most of my money.\u00a0<\/p>\n I don\u2019t care about clothing. Well, I have to look decent when I go to the office, but that\u2019s all there is for me. In the past 1.5 years, I didn\u2019t even buy any new clothing<\/a><\/strong>.\u00a0<\/p>\n There are certain basic expenses that I have to keep my standard of living. I don\u2019t want to be depriving myself.\u00a0<\/p>\n Most months, my spending is below $1,000 \u2013 last year, my average spending was $700 per month, including travel<\/strong>. That means I can live in an apartment with my partner, bike to work, eat food I love, travel a lot, and regularly see my friends and family.\u00a0<\/p>\n For me, it would be enough to be able to spend $12,000 per year and live the life I want.\u00a0<\/p>\n If it\u2019s difficult for you to know where to start, there are a couple of basic steps in personal finance that you can take.<\/p>\n First, it\u2019s important to save enough money<\/a> for an emergency fund. I would advise saving money between three and six months of living<\/a> expenses, depending on what makes you comfortable. Personally, I have three months of living expenses set aside because I know I can get another job within weeks.<\/p>\n Please write down your financial term goals and work toward them every month. It is important to know what you\u2019re striving for. It will make you motivated to keep going.<\/p>\n Be your own financial advisor<\/a><\/strong> in terms of planning your retirement. Retiring early or not, you need to know how much money you need to retire. Retiring is something most people start to think about when they get older. However, with the power of compound interest, the earlier you start, the better!<\/p>\n Things you can plan for is to pay off any debt you may have; this includes credit card debt and student loans. Save more each month, live frugal, earn some extra money<\/a>, stop living paycheck to paycheck, and you will surprise yourself with how quickly you can pay it all off.<\/p>\n Money management is an essential skill to learn, the earlier you learn it, the better.<\/p>\n Last but not least: investing. Investing is often perceived by people as difficult or impossible in their situation. I don\u2019t see it this way. When you\u2019re saving for the future, investing in the stock market will help you tremendously. Here are 5 simple steps to start investing your first dollar today<\/a>!<\/p>\n When you want to know whether or not you have enough for financial independence, you should know how to calculate your Financial Independence (FI) number<\/a>.\u00a0<\/strong><\/p>\n When I want to be financially independent and have $1,000 monthly to live on, I will apply the rule of 25<\/a> \u2013 also known as the 4% rule. That rule states that you need to have a portfolio of 25 times your annual expenses, so you can withdraw 4% yearly from your portfolio to live on.\u00a0<\/p>\n This means that you need to have a big nest egg to cover your expenses in this way. This means I would need a portfolio of $12,000 * 25 = $300,000.\u00a0<\/p>\n Most people base their enough on their current standard of living. Like: \u201cI live in a big city now, paying $2,000 in rent and having a total of $4,000 monthly expenses. When I reach that $4,000 in monthly expenses, I will be financially independent\u201d.\u00a0<\/p>\n This reasoning may not be so waterproof, simply because your standard of living may change.\u00a0<\/p>\n You can reduce your expenses. You can move to a cheaper place to live, resulting in lifestyle deflation<\/a><\/strong> and having lower monthly expenses.\u00a0<\/p>\n Or you can increase your expenses. You can inflate your lifestyle<\/a><\/strong>, go out to eat with your friends weekly and spend $100, or develop a sweet spot for expensive cars. There\u2019s no way you can live on that $4,000 anymore.\u00a0<\/p>\n There may be other reasons for your spending increasing. For example, you can decide to start a family or decide you no longer want to live with roommates<\/a>.<\/strong>\u00a0<\/p>\n Increased spending is not a sin, and it\u2019s definitely not always a bad thing.\u00a0<\/p>\n While numbers can be a great way to track, it is not the end all be all. When you\u2019re fixating on the numbers, you may miss out on other things. The 25x your annual expenses in a goal, not the holy grail.\u00a0<\/p>\n While the numbers are an important part, it\u2019s how you feel that determines whether or not you have saved enough money.\u00a0<\/p>\n It\u2019s not about having an X amount of money in the bank. It\u2019s about having freedom in your mind. The freedom to do what you want to do, without having the fears that would come up when you\u2019re working your 9 to 5.\u00a0<\/p>\n When you\u2019re deciding how much money is enough<\/strong> for you, know that you\u2019re not only deciding about money<\/a> but also about the time it takes you to get to that money. The higher your amount of money is, the longer you will take to reach that number.\u00a0<\/p>\n If you determine your priorities, you know where you can spend your money to make you happy. The goal is to maximize your happiness and spend money<\/a> on things that give you joy.\u00a0<\/p>\nBut How Much Money Is Enough?<\/span><\/h2>\n
Determining Your Priorities<\/span><\/h2>\n
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\n<\/figcaption><\/figure>\nWhere To Start?<\/span><\/h3>\n
Having Enough For Financial Independence<\/span><\/h2>\n
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\n<\/figcaption><\/figure>\nDon\u2019t Fixate On The Numbers<\/span><\/h2>\n
So, How Much Money Is Enough?<\/span><\/h2>\n
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