My friend has a net worth of $2.5 million. He’s 35 years old… And, at his pace of earning and saving (I estimate his earnings at $300k a year), he’ll likely have $5 million by the time he’s 43. And then $10 million at age 50… I point-blank asked him the question recently, “How much money is enough?”
I tried again.
“How much money is enough to never work again? I mean…do you have a number in your head, that once you get to it, you’ll stop working and live a more relaxed life?”
He smirked a little, head to the side, then gave his head a slow shake…
“You know what? I just love what I do. I like staying busy, and I can’t really ever see myself slowing down. To me, it’s just fun, it’s interesting, and by staying in the game I’m always learning something new. I like that.”
The response sounded good… but I couldn’t help but think about what he was sacrificing to continue his torrential work-life patterns of 70+ hours a week.
His wife was stressed, his kids (there’s 3 of them) were semi-ignored, and there was always an unnecessary project list on the horizon. It just didn’t seem right.
So this begs the big question…”How much wealth is enough?”…
How Much Money Is Enough Money…? The Many Questions to Be Answered…
When we talk about how much money is really enough in life, the conversation can be split into two – between income and net worth.
- First, how much income is enough? How much of a yearly income does it take to really be happy?
- And then second, how much total money is enough? Is there a certain net worth number that should put you at ease and make you stop working so hard for the almighty dollar?
- How much money is enough to be happy?
- How much money is enough to live comfortably?
One the net worth side, we’ll cover these questions:
- How much money is enough to live comfortably? (talking nest egg instead of income this time)
- How much money is enough to never work again?
- How much money is enough to be set for life?
As always, I’ll give you my response for what I believe based on my recent research and my life experiences. But, I want to hear from you on this topic as well! Be sure to read through the post below, AND THEN LEAVE YOUR COMMENTS at the bottom! I’d love to hear your take!
How Much Money Is Enough to Be Happy?
A fairly famous study was performed in 2010 by Princeton researchers Daniel Kahneman and Angus Deaton. It found that the ideal income for happiness occurred at $75,000 a year. Beyond that level of income, happiness didn’t increase significantly at all.
Remember though, that was back in 2010. Everything has gotten a bit more expensive since then.
Sure enough, another study was done in 2018 by Purdue this time, and the optimal income for families to be “happy” was $95,000. And actually, they found that when you start to get over $105,000, happiness levels went down.
Shouldn’t more money always equate to more happiness?
Not when more money means longer hours, more stress, more travel, less flexibility at work, etc. etc.
So how much money is enough to be happy?
If someone can earn $95,000 and have a fairly carefree life outside of work, this has proven to be the optimal situation.
Make money, spend time with family, have time for your fitness, make time for friends, etc. Spending time in each of these areas creates happiness. It’s not all about money.
Want to read more about this? CNBC actually sums it up quite nicely in their post, From the ‘perfect salary’ to keeping up with the Joneses…
How Much Money Is Enough to Live Comfortably? (Your Yearly Income)
If you’re earning just $30,000 a year, you’re obviously not living comfortably.
At this low salary, you’re likely:
- Renting a room (instead of owning or renting a space on your own)
- Cramped in your space
- Always thinking about bills
- Continually stressed, week in and week out
If there were a perfect summary for discomfort in life, the above would be it.
So at what salary can you start to live comfortably?
If the optimal amount of money to earn each year is $95,000 (for happiness), how much money is enough to live comfortably?
The consensus says that if your household income is better than the median level for the nation, you’re beginning to live comfortably. Currently, the family median income in the U.S. is $79,900.
So, if you’re earning $80,000 or more, you’re living comfortably.
Now, instead of living a stressed life, you’re:
- Living in a house that you can call your own
- You likely have adequate space to move around a bit – maybe even a sprawling yard so you can entertain once in a while!
- You’ve got a savings account and rarely think about upcoming bills
It’s the beginning of a great life! $80,000 is the ticket to living comfortably as a family.
How Much Money Is Enough to Live Comfortably? (Your Nest Egg For Retirement)
It takes an income of $80,000 to live comfortably in the United States.
If you want to bump up from ‘comfortable’ to ‘happy’ with your income, you’ll likely want to target a yearly salary of $95,000.
The above is a good summary if you’re just thinking about yearly income, but what about from a net worth perspective?
What lump of money is enough to provide comfort for your future retirement for decades to come?
We already discovered that the ideal ‘comfort’ income per year is $80,000. So what size nest egg would we need to withdraw $80,000 a year?
There’s actually a really simple formula for this:
Ideal nest egg = (ideal yearly income) x 25
So, if you want $80,000 a year in retirement, take that number times 25. That’s $2 million.
To live comfortably in retirement, put $2 million in your retirement account and draw $80,000 a year. Boom, simple right?
Well, the math is simple… Getting the $2 million might take some work. 😉
How Much Money Is Enough to Never Work Again?
When people ask me how much money is enough to never work again, I hear them saying this:
- I don’t like my job
- I want to do what I want to do (even if that’s nothing)
- And, I don’t care if I have to live simply for the rest of my life to achieve it
In other words, they want to retire early, but if they need to live on a below-average wage for life, so be it. They just want out.
- As we stated before, the median wage in the United States is $79,900 right now. So, that’s higher than we need to be.
- The poverty level is $26,500, so we certainly don’t want to go that low. After all, you still need to eat, have shelter, likely have a car…and be able to pay all the bills!
Based on the two numbers above, I think $50,000 is a good number to target as a yearly wage. Now, how much do you need in your nest egg to support this? How much money is enough to live off of?
We’ll simply use the 25x formula:
Nest egg = $50,000 income x 25 = $1,250,000
So how much money is enough for a lifetime? I’d recommend you save up $1.25 million and live simply for life.
Sound like too big of a dollar amount to save up? If you want to live on less, you could commit to living on $40,000 a year and only save up $1 million instead.
Want to live a pretty good life? Want more than ‘just enough’ and more than just ‘living comfortably’? If you want to ratchet it up a little and “be set for life”, how much should you have in your nest egg?
To be “set for life” I’d say that you’d want to have enough in your nest egg so that you have a “happy wage” for life. In other words, you’d want an income of $95,000 a year for decades to come.
So how much money is enough to be set for life?
Net income to be set for life = $95,000 income x 25 = $2,375,000
So yes, in order to retire well, you’re going to have to save a bit more – nearly $2.5 million. But, it might be worth the extra few years of work to bump up your retirement salary another $10k-$15k a year. But, it’s your call!
How Much Money Is Enough to Live a Luxury Life?
What if though, you want even more? What if instead of just getting by in retirement or even ‘being set for life’, you want to live in luxury?
- How much salary a year do you need to ‘live in luxury’?
- And, how much then do you need to have in your nest egg to maintain that luxury lifestyle?
According to my buddy Sam at Financial Samurai, you’re rich if you earn $500,000 a year (and that’s regardless of where you live!). If we continue to use our same formula for how much money is enough to live a luxury life, we get this:
Net worth for luxury life = $500,000 income x 25 = $12,500,000
So there you have it. If you want to live in the lap of luxury, you’ve really got to sock some money away. Either that, or put together some big assets that produce $500,000 a year!
That was a lot of calculating, but what does it really all mean? How much money is really enough?
First off, do you need to live in luxury to have enough? Certainly not, I’d take that one off the table.
Should you earn more than just ‘getting by’? I would think so. Scraping by from month to month isn’t fun, and I certainly wouldn’t recommend setting yourself up to do it for life.
For me, ‘being set for life’ sounds like a great sweet-spot to be in.
This means that you’re earning the optimal wage to be happy, $95,000. And, your nest egg sits somewhere around $2,375,000.
With this amount of money, you can live freely without thinking about bills from month to month, and you didn’t have to work your life away to get to this amount (especially if you started early). If I were to target a retirement dollar amount, I’d shoot for $2-3 million.
Money Isn’t The Only Important Thing In Life…
The cool thing about targeting a ‘set for life’ amount of money is that you can keep all the other important areas of your life in check.
If you truly want to be happy, you’ve got to think about more than just money. That’s only one of many areas in life that you should pursue for enrichment.
Other areas of importance beyond money are:
- Fun (extracurriculars)
If you don’t have friends, if you don’t have your health, if you’re never having fun, but you have 100 million dollars, do you think life is going to be amazing? Nope…far from it.
Instead of focusing your entire life on money, do what’s needed to accumulate an optimal amount for you, then spend the rest of your time in the other important categories listed above. Do this, and you’ll be much more likely to find happiness in life!
How about you? How much money is enough in your book??
AUTHOR Derek Sall
Derek has a Bachelor's degree in Finance and a Master's in Business. As a finance manager in the corporate world, he regularly identified and solved problems at the C-suite level. Today, Derek isn't interested in helping big companies. Instead, he's helping individuals win financially--one email, one article, one person at a time.