How much is enough?
This post is part of the Financial Freedom Guide series
How much money do you need per year to be happy?
Many people I've asked this question initially react with very high numbers, often $100,000 or more. If you reacted the same way, consider these benefits of Financial Freedom:
While your current budget (hopefully) includes saving for Financial Freedom, you will no longer need to save towards this goal once you achieve it. All additional earned income becomes discretionary.
Many countries privilege investment income with lower tax rates than salaries and wages. Married US taxpayers, for example, can make more than $100k in annual investment income and pay zero taxes. So you may no longer need a high salary to meet your more modest after tax needs.
Financial Freedom also means location freedom. You don't have to live in San Francisco or some other expensive hub city for career purposes. Many nice places on the planet offer luxurious housing (coming soon - subscribe to encourage us to hurry up) for $1,500 a month.
Great healthcare (coming soon - subscribe to encourage us to hurry up) is affordable or even free at point of care in many countries. Global Health Insurance (coming soon - subscribe to encourage us to hurry up) with coverage anywhere outside the US won't set you back more than a couple thousand dollars a year. If you have to be in the US, your lower early retirement income may now (ironically) qualify you for subsidized healthcare from the ACA marketplace. You will also have more time to actually stay healthy - none of the stress, good sleep, time to work out, eat slowly and healthy. Your body will repay you handsomely.
Commuting, expensive coffee, work lunches, fancy cars or clothes for appearances sake, and/or dry cleaning for your J-O-B? Nope.
Childcare? Do you really want to hire a nanny when you can actually be there for and raise your kids yourself rather than be a gainfully employed absentee parent?
Are you sure your kids need to attend fancy private school when you can simply move to where great schools are cheap or free? Also check out my article on How to afford college for your kids (coming soon - subscribe to encourage us to hurry up).
Want to go travel? Now that you have all the time in the world to go gallivanting, how about slow traveling? Fly during the middle of the week in the off season, live in apartments or negotiate long-term stay rates in nice hotels (coming soon - subscribe to encourage us to hurry up). Better yet, put your stuff into storage for a couple years and put that rent money towards experiencing the world (like we are)!
If you boil it all down and are smart about your choices, you’ll find that in most circumstances $30-50k per year will provide a very comfortable lifestyle for a couple, even with kids. Don’t forget that the vast majority of people on this planet, even in “wealthy” countries, live on considerably less - and in many beautiful parts of the world (e.g., Thailand, Bali, parts of Eastern Europe) you can live like a king on that kind of budget.
But there is another reason why you may want to be smart about your spending:
Your spending impacts your Financial Freedom journey twice
The less you spend now, the more you can save and invest, getting you to your Financial Freedom goal faster (and making it that much easier to commit to it)
The less you spend later, the smaller your nest egg can be to achieve Financial Freedom - remember, it's what you want to spend times 25!
Assuming you invest your savings at an annualized return of 7.2%. Notice how saving and investing the traditionally recommended 10-15% of your income may enable you to achieve Financial Freedom in your 60ties (if you start in your 20ties) but won’t cut it for achieving Financial Freedom early in your life.
As you can see, spending too much makes achieving Financial Freedom much, much harder, ironically making it less likely that you will have the sustained commitment to pursue Financial Freedom at all. Life is short and it's questionable you will be able to pursue a singular goal with discipline for more than a decade. Perhaps that’s you. It’s not me.
So do what any high achiever has ever done:
Break your journey into several smaller, more achievable steps
Get out of bad debt (coming soon - subscribe to encourage us to hurry up)
Save up an emergency fund (coming soon - subscribe to encourage us to hurry up) to cover 6 months expenses and gain basic financial security
Invest your first $100k - woohoo!
Save enough to be able to retire a bit earlier than most, say, by age 55. Remember our Alice example, who by age 25 had already secured early retirement
Reach basic Financial Freedom. Perhaps that’s enough so that you could work a more relaxed job half-time and still meet your financial needs. Or it's enough to cover all your living costs someplace nice and cheap like Thailand or Bali
Achieve full Financial Freedom - you've done it!
Pursue your passions and perhaps accidentally end up with more money than you know what to do with! Good for you. Start giving.
A note of caution about overly ambitious goals
By which I mean any initial after-tax spending goal substantially above $50k a year. Know that spending more money is easy. A bigger house, a bigger car, a bigger yacht, a bigger private jet. Plenty of people spend fortunes - millions of dollars - every year. But there comes a point at which more money doesn't make you happier, perhaps the opposite. Your lifestyle standards increase and your happiness level just resets. Satisfaction comes from knowing what is enough, not wanting more. It's called Financial Freedom for a reason - freedom to pursue your passions, spend time with your loved ones, and invest in your health and well-being.
“Wealth consists not in having great possessions, but in having few wants.”
If you enslave yourself to make more and more money, work your health into the ground, don't spend time with family and friends, lose your peace and privacy, or pursue a money-making "passion" that you know deep down has lost its shine to you a while ago, will that bigger yacht really make you happy? Or will you keep treading the hedonistic hamster wheel to be seen a "success" and drown your doubts in alcohol, drugs, and oblivion like so many "successful" people do?
It doesn't even need to be so dramatic. Many people who start with a goal of, say, $1M end up upping that to $2M (definitely more comfortable), then $5M (questionable), then $10M (yeah no), then $20M, and so on. All in the pursuit of some elusive bigger financial baller-ness. Want $25M? Well you better get ready to spend at least $1M every year or you're guaranteed to get richer every year. It's a snowball that can quickly weigh you down. Meanwhile the so-obsessed waste decades of their most energetic, creative, and healthiest life years climbing some corporate ladder or otherwise working themselves into the ground. Only pursue this path if you don't actually crave Freedom but power and fame - or if you genuinely love doing what you do at the expense of everything else you could spend your life exploring.
But what about life's major expected and unexpected expenses?
Your parents may need expensive old age care, your kids may want to go to Harvard and without financial aid, or you may end up with massive million-dollar healthcare bills. Well, all you need is:
Go back: What’s your number?
