how much money is enough

How Much Money Is Enough (Find Value, Get off the Hedonic Treadmill, And Start Saving Today)

Do you ever feel like you never have enough money? You’re not alone. Now, sometimes there’s not enough left at the end of the month. But sometimes, we’re stuck in the rat race without a plan.

The hedonic treadmill is our tendency never to be satisfied with what we have today. It’s the quick return to normal after a pay raise or new purchase. The endless cycle of lifestyle inflation where our demands and expectations rise in tandem with our income. The result…no permanent change in our lives or happiness.

So, where is the happy medium? How much money is enough? 

We need a certain amount of money to reach a foundational sense of security. It’s this point where you have enough money to buy a higher quality of life. So keep reading, I’m going to tell you exactly how much money is enough for you and how to make it stretch for long-term happiness. 

What is enough money?

First, we have to break down what enough means. Are we talking enough money to pay your bills? Enough money to go on vacation? Enough to retire? Enough annual income? Enough wealth? What is enough for your household? 

Enough is the point where you’re not worried about money. It’s the point where you can cover emergencies. Where you live comfortably, preferably debt-free. You have a high standard of living and enjoy life.

Income is just a tiny piece of our financial puzzle. So while we may come up with a figure that tells us how much money is enough, many other factors may influence your financial well-being and life satisfaction.

Enough can be determined by your life goals and rate of saving. Not the dollar amount but your percent of savings and investing. It’s not necessarily the rate of return that matters, but your ability to save and invest. It’s stressful when you can’t pay a bill. Or invest. Or go on vacation when you want.

How much money is enough?

You may have heard that $75,000 is enough money. Kahneman and Deaton found that life satisfaction and emotional well-being went up as income increased. However, beyond $75,000 a year, life satisfaction and emotional well-being didn’t continue to rise significantly. 

Image Credit: High Income Improves Evaluation Of Life But Not Emotional Well-Being

With 2022 around the corner, $75,000 today isn’t the same as $75,000 more than ten years ago. Today, that number would be closer to $97,000. But is that enough money?

Not necessarily. Someone earning $60,000 in one part of the country could have enough, while someone else earning $150,000 does not. It depends on their needs, wants, desires, and lifestyle.

When most people say they don’t have enough money, they’re thinking in terms of not having enough cash to pay their bills, cover an emergency, save or invest, and do the extra things they want to do. So they’re referring to enough money in their day-to-day lives to feel financially satisfied. So, you have to do a little work to figure out how much money is enough for you. How much do you need?

I think we can agree that $97K is “enough” for anyone to survive and have enough. The problem is we sometimes want more, and that’s ok.

How much money do you need to make?

It’s a tricky question, and I’m here to tell you that only you have the answer for you. Most people can make six figures work and work well. But they still need to budget. Because you’ll always want or need more. You can read countless stories of couples who make more than $250K and still live paycheck to paycheck. The problem (or not) is that with more money, you’ll probably spend more money than you’re bringing in if you don’t have the right money habits in place.

When it comes to annual income, 62% of those with a yearly income between $30,000 and $49,999 say they’re behind on saving for retirement. This number only decreases to 57% for households earning between $50,000 and $79,000. More than 90% of households earning more than $80,000 said they had enough savings for retirement.

Enough money varies from person to person and place to place. It’s dependent on your lifestyle, health conditions, personal preferences, and many other personalized factors. However, as a general rule, it’s about 50/30/20 rules. It’s like 50% of the income can be used for the necessities like grocery, home rentals, education, and health expenses; 30% can be used for having fun like dating, outing, traveling, and any other sort of personal attractions. Likewise, the remaining 20% can be an investment.

How much money is too much?

Is there such a thing as too much money? Maybe. It depends on your mindset. If you’re looking for money to make you happy, you might be disappointed if you have “too much.” 

It could be a little too much if you live in fear that people want to take it, or you define yourself by an amount of money. Jack Bogle pointed out in his book Enough that Bernie Madoff earned more than $100 million a year but still didn’t have enough. He wanted more, and it ultimately led to his demise.

Of course, these situations highlight more of a problem with one’s state of mind, not money.  

What’s Next?

It’s not really about an amount of money. It’s more about cash flow and how much money you keep, which leads to enough satisfaction. Moreover, today, it’s really about the financial independence that money can bring. 

It’s about not living paycheck to paycheck. It’s about your ability to invest, do what you want, pay your bills, and avoid bad debt.

Forming good financial habits and a budget is vital for money management. Let’s discuss some of the aspects that can be helpful.

Create SMART money goals

You don’t know how much you need if you don’t have goals. Make sure your financial goals are simple, measurable, achievable, realistic, and time-bound. Set a goal for your emergency fund, sinking funds, and retirement fund. Here’s a retirement calculator that you may find helpful.

Remember, your savings rate is more important than the rate of return. Your ability to make enough money to put some of it to work for you is essential to your financial well-being.

Create a budget

Now that you have some goals, it’s time to create a monthly budget. You have to be the one to manage your money. This will help you determine exactly how much you need and what is enough.

First, calculate your income. Next, calculate your living expenses. Now, all you have to do is spend less than you make. And don’t forget to pay off debt and save at least 20% in your budget.  

Learn to track your income, expenses, and investments. Budgeting is a must. No matter what your income.  It helps to prioritize where your money goes. It will help you decide how much you can afford to spend on the extra things. Or how much more money you need to make to get what you want or need in life. A budget puts you in control of your money. 

Build an emergency fund

According to a Bankrate survey, fewer than 40% of people have at least $1,000 in an emergency fund. That’s when you don’t have enough. Strive to have at least three months’ worth of living expenses in a high yield savings account. Make a plan to set up automatic withdrawals from your checking account to fund this very important emergency fund. Being able to pay for an emergency without stress or worry will change your life.

Buy assets and start investing

Planning for tomorrow puts you in control. It gives you power. Use assets to build wealth without you having to do the heavy lifting. It’s never too late to get in the game. Build a diversified portfolio and let the power of compound interest start as soon as possible.

Start with employer-sponsored plans like a 401K, 403b, or Health Savings Account. Max out the matched contributions (this is free money), then fund your Roth IRA. If you still have extra money, open a taxable brokerage account to invest in low-cost index funds or exchange-traded funds (ETFs). There are so many ways to save. 

Start a side hustle

If you don’t have a side hustle, start one today. You have something of value that no one else in the world has. Use that power to make money for you. With the extra cash that passive income brings in, you can pay off debt, invest, and build wealth. Being work optional is nice. And can only help you on the journey to enough money for life satisfaction. 

Practice good money habits

Bad spending habits will leave you broke no matter how much money you have. So keep these good habits in mind to help you maximize the amount of money you have in your wallet:

  1. Maximize cash-back from sites like Rakuten, etc. Cashback leads to discounts on shopping and overall savings on every qualifying purchase you make. At first, it may not seem significant. However, accumulated savings can be massive.
  1. Use your credit card rewards. Credit card companies offer incentives such as cashback, travel miles, etc. Just be sure you can pay off the balance every month. 
  1. Cancel unused subscriptions/memberships. Dig through your bank statements. Do you have some subscriptions or memberships that you’re not using? Paying for unused subscriptions or memberships is wasteful.
  1. Practice delayed gratification for big purchases. Delayed gratification can do wonders to sustain long-term financial security. Most of the time, you’ll discover, you didn’t want what you thought you did. So your decision to purchase shouldn’t be based on emotions or keeping up with the Joneses. Instead, look for things that bring value to your life—plan big purchases and vacations with sinking funds. 
  1. Avoid bad debt. Keep bad debt like credit card debt, personal loans, car loans to a minimum. The quicker you can get out of debt, the less you have to pay the banks. This means more money you get to keep.
  1. Minimize account fees/late fees. Make sure to pay bills on a timely basis. Paying bills on time is easy to follow basic financial management principles, including planning, monitoring, and controlling cash.
  1. Learn how to save and pay yourself first. Start saving now. Make yourself a priority. Make retirement savings a priority. At least 20% of your monthly income should be saved or invested. If you don’t know where to get started, learn. Ask someone. You may not want to retire, but building a nest egg and being work optional is a great goal.

Final Thoughts

So that’s it. My take on how much money is enough. You probably have enough if you make the projected $97,000 that science tells us is optimal. But you might not. You need to calculate your cost of living and make a budget to know. 

It’s not about living a frugal life. What’s most important is your ability to keep your money worries and stress low. So get your finances in order, and strive for financial freedom.

If you’re worried about money, make sure you have enough and aren’t wasting what you do have. Focus on forming good money habits, saving for the future, and finding value in the things you want. What do you think is enough money? Comment below.

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Theresa is a personal finance blogger. She writes content for busy professional women to take control of their money and investments. She enjoys reading, traveling, cooking, and writing. Her work has been featured on GoBanking Rates, Your Money Geek, Savoteur, the Corporate Quitter, Thirty Eight Investing, and more.