As I was talking with my daughter Kavya about the importance of making a living doing work she loves, and saving and investing well, she asked a question that trumped me. I was not prepared for it.
“How much is enough, Papa, to live a happy life?” she asked.
Kavya’s question reminded me of a recent post I did about my talk to a group of friends. The focus of my talk was on a few important questions I have tried to seek answers to at various stages of my life, and that have helped me tremendously in choosing a path that, when I look back at, I am glad I chose.
One of the questions that I talked about was – How much is enough?
My answer to that question was a philosophical “not much,” and I gave my reasons for the same. I shared this thought with Kavya too, though I’m not sure if I could explain it well to her.
So she asked, “But how much money is that much money that we need to feel comfortable money wise?”
Well, moving away from philosophy, the question Kavya asked me – about clearly defining how much money is enough – is pretty important.
It is a quantitative question for sure. But, on a deeper thought, the question’s qualitative nature is what makes it special.
It is about how money makes us feel comfortable, and how much of it we need so that we don’t have to worry about it, and so that we stop chasing it at some point in our lives.
As per a survey from Charles Schwab, Americans say it takes an average net worth (assets minus liabilities) of US$ 1.4 million to be “financially comfortable.” That’s around Rs 10 crore. Now, while this won’t be the right number for Indians, given the low cost of living here compared to the US, Rs 10 crore of net worth sounds a good number here too.
Of course, just having sufficient or too much money/net worth, like Rs 10 crore, doesn’t guarantee happiness or feeling of financial safety and comfort. I’ve known people with less than Rs 2 lac annual income and family to feed who live happy and satisfied. And I’ve heard first-hand accounts of a lot of people with Rs 20 crore annual income who suffered from depression.
So, money certainly does not buy you happiness. But importantly, you still need enough of it so that you stop worrying about the lack of it.
Now, when I asked this question to a group of friends (most around forty years of age), one of them replied, “I need Rs 20 crore to feel financially comfortable. That would buy me a good retirement home in my hometown with enough left over to provide annual income for the rest of my life.”
Another friend quoted a figure of Rs 40 crore. “I could then send my son to the US for higher education, and buy a large family home, and invest the rest to be able to fund my household expenses without any active source of income.”
The third friend did not give me a number but his rule of thumb, “Looking ahead from my age of 40, I think I would need 40x of annual expenses as my liquid net worth when I retire, plus 50% extra for expensive pursuits like foreign holidays etc., and zero financial liabilities.”
If I go by this third friend’s thumb rule, if his annual expense is Rs 12 lac, he would be aiming for around Rs 7-8 crore of liquid net worth by the time he retires at 60 or when his active income stops coming in. Which is not a bad number and is closer to the Rs 10 crore number mentioned above.
Now, one thing is sure here. There is no one right answer to this question of “how much is enough?”
But one can certainly arrive at an approximate number using a thumb rule like my friend did, or factors like current age and life expectancy (the longer you will live, the more you will need), current annual household expenses (higher it is now, higher you will need in the future to maintain your lifestyle), number of dependents, expected inflation in household expenses (prices are rising, and will continue to rise), and current and future financial liabilities.
Of course, even the answer that you get from using these variables would be a pure approximation, but it should give you some idea of where you want to reach, money wise.
Imagine entering the Mumbai or Bangalore Marathon only to find they have made a key change. There is no finish line. How will you train for such a race? You couldn’t. How will you know if you’d won the race? You wouldn’t. Thus you need finish lines. Answering the money question of how much is enough will help you know where that finish line could be.
When I quit my job to start Safal Niveshak in 2011, I had two years of annual expenses as backup savings (around Rs 7 lac, mostly in the form of my wife’s jewellery) and zero financial liabilities. I thought that was enough for me to feel financially comfortable then.
In fact, I could gather the courage to quit just because we as a family stopped to ask this question – how much is enough?
We continue to live a frugal lifestyle, but we also spend on experiences and things we enjoy as a family (just returned from a trip to Legoland and buying some Lego toys). Life is too short to save and invest everything for the future, and not spend in the present. You must strike a balance, however.
My advice to my daughter is to get rich just once in life and then stay there – rich enough to not worry about money (though I still need to give her the exact amount) and stop chasing more riches then.
She needs to have ample in her kitty, but only that much that allows her the privilege of coming off the hedonic treadmill (if she ever decides to get on one).
What about you?
If you have given it a thought, how much money is enough for you? How much would you need to feel financially secure?
Please share in the Comments section of this post. Your thoughts may help others who are confused.