The Money you make is a symbol of the Value you Create.”
-Idowu koyenikan”
MONEY!
Our lives revolve around it and we all want more of it day in and day out.
In today’s fast-paced and materialistic world, the question of how much money is truly enough has become increasingly elusive.
Many of us find ourselves chasing after wealth and financial success.
We are driven by societal pressures, personal aspirations, and the allure of a comfortable lifestyle.
But, have you ever wondered what is end-goal of chasing money?
Maybe you can say it is for becoming financially secure. Imagine, what is the point of being financially secure and waiting at the doorstep of death?
Yes, you can pay your hospital bills with that money. But can you buy the truly meaningful experiences that you lost?
On the other hand, it is also not about having a life full of rich experiences but struggling to pay your bills in the end! The goal is to achieve a balance between both. But how?
In this article, we delve into the thought-provoking question: How much money is truly enough in life?
We will explore the aspects that contribute to our financial needs. Ranging from basic necessities to long-term goals and aspirations.
We will also do a calculation about how much money we may need to save in our life, depending on our lifestyle and other socio-economic factors.
Knowing Your Life’s Monetary Needs
We will understand through an example, why is it good to know the amount of money we need in life.
Imagine going on a road trip without knowing where you want to go.
You drive around aimlessly, not knowing when or where to stop. It feels like you’re stuck in an endless loop, driving on different roads without making any progress or feeling a sense of achievement.
The same applies to your financial journey as well, right?
Clarity In Goals
Now, think about a different situation. You decide on a specific place you want to reach on your road trip. You mark it on a map and enter it into your GPS.
Having a clear goal gives you a purpose and direction.
As you drive towards your destination, you can see how far you’ve come, how much distance is left, and estimate the time it will take to get there.
This clarity and focus make you feel good about the progress you’re making and give you a sense of fulfillment along the way. Now what is the analogy we can draw from this instance and our financial life?
“We need to fix a certain goal and calculate the corpus to accumulate and then start working on it.”
Don’t Get Stuck In The Endless Cycle
Studies show that when you have actually put a metric to a goal and maybe even written it down, you are more likely to achieve it.
What happens if we don’t understand our financial needs?
We lack a defined endpoint or goal to strive for. Which can result in a perpetual cycle of work solely for the sake of earning money. We may feel compelled to keep working and accumulating wealth without a clear purpose or understanding of when we have attained enough.
What We Loose by Chasing Money?
“By not knowing the amount of money we truly need, we risk sacrificing our work-life balance”.
The absence of a financial endpoint can leave us feeling trapped in an endless cycle of work.
The primary motivation becomes earning more rather than fulfilling our true aspirations and enjoying the fruits of our labor.
Dalai Lama On The Mystery Of Man
The “Dalai Lama”, when asked what surprised him most about humanity, answered…
“Man”!
But why?
Because he sacrifices his health in order to make money.
Then he sacrifices money to recuperate his health.
And then he is so anxious about the future that he does not enjoy the present;
the result being that he does not live in the present or the future;
he lives as if he is never going to die, and then dies having never really lived.”
-His Holiness The Dalai Lama
So true Isn’t it?
NO. One size doesn’t fit everyone!
It is important to remember that there is no one-size-fits-all answer to the question of how much money you need in life.
Your financial needs will be different from your friend’s financial needs.
The amount of money someone needs in life can vary greatly depending on their individual circumstances, lifestyle choices, and personal goals.
The best way to determine how much money you need is to create a budget and track your spending for a month or two. This will give you a good idea of your current expenses.
Once you know your expenses, you can start to estimate how much money you will need to cover them in the future.
How Much Do you “ACTUALLY” need in life?
Well, If you say 1 Crore or even 10 Crores.
Yes! It is possible.
But, We need to have a definitive number here and not say that I need to have everything possible in this whole world.
You cannot own all of the money in the world. Could you?
Is it possible to put up a figure of what amount of money we may require in our lifetime,
Let’s understand this with an example.
Consider an average Indian Family with an expense of about 1-1.5 L per month.
Let’s do the math step by step
Step 1: List out your expenses:
List out all your monthly expenses and calculate them for over a year.
The ideal plan may look something like this. Do include all your future expenses so that we can accumulate a corpus. This list may vary from person to person depending on your goals.
Current Spends(Per year) | |
Family | 350000 |
Health | 50,000 |
Household Needs | 350000 |
Insurances | 50,000 |
Travel | 50,000 |
Utilities | 200,000 |
Loans | 1000000 |
Other | |
To be Planned | |
Kid1 Future Education | 10000000 |
Kid2 Future Education | 10000000 |
Up and Above(Additional Assets) | |
Residential property | 5000000 |
Misc | 1000000 |
Step 2: Take into account Inflation:
Take into account the retail inflation for all your spending. Though the inflation is around 6% annually, different components have different inflations. So let’s incorporate this as well.
Family | Health | Household Needs | Insurances | Travel | Utilities | Loans | Other | Kid 1 Future Education | Kid2 Future Education |
6% | 8% | 8% | 0% | 10% | 10% | 0% | 6% | 6% |
Step 3: Make Future Growth projections
Now that we have the amount we spend per year and the average inflation, let’s extrapolate this until the age we may expect to be alive which is around 80- years.
For instance, we take the family needs calculation upto 80 years
So a family spend of about 3,50,000 now may require a whopping 54 Lakhs when we are at 80 years of age.
You may ignore the calculations of Loans once the tenure is over and likewise, keep your insurance constant as it is going to be fixed for every year.
Similarly compute all the future values of all the components, sum them up and you will have the corpus required at the end of each year.
You may ignore the calculations of Loans once the tenure is over and likewise, keep your insurance constant as it is going to be fixed for every year.
Step 4: Tax and Investments.
After computing the corpus, take into account the taxes you will have to pay and also the investment returns.
Compare this with the total corpus required and you will come to know if you are on the right track to financial freedom.
This calculation also helps in doing a reality check on where we stand in our financial journey.
Now what if you don’t accumulate your corpus by the deadline for the goal?
Now you have an estimate of how much is required for each goal and also the period required to achieve the same.
But what if you feel your target may not be possible to achieve? Let’s see an example
Consider a scenario where you are 30 years old and aspire to retire by the age of 45. After careful calculations, you determine that you need to accumulate around ₹3 crores within a timeframe of 15 years.
However, upon analyzing the numbers, you realize that achieving a compounded annual growth rate (CAGR) of 20% appears to be on the higher side, considering historical equity returns.
In such a case, it is prudent to adjust your saving and investing strategy.
But, what do we do?
Don’ts: Investing in riskier instruments:
Since you found out that you need to grow by 20% on average, do not go for riskier investments. Do not take any undue risks just for the sake of accumulating your corpus.
You might lose out on all the accumulated money by such investments, let alone your peace of mind.
Do’s: Increase your investments:
In order to address the possibility of not achieving your target, one viable option is to focus on increasing your savings and investments. Rework your plan.
See if you can allocate some additional investments for this goal and look to increase your earnings to accommodate your goals.
Move Forward….
If you find it possible to invest more money and work towards reaching your desired goal, then you can confidently move forward with your updated plan.
This approach provides you with more financial flexibility and improves your chances of successfully achieving your goals.
Get Richer by avoiding this Money Mistake
Reassess your goals:
But just in case you have maxed out your investments and you should take a cautious approach here.
It is advisable to re-evaluate your goals and find contentment with the amount you would accumulate within the specified timeframe. Instead of aiming for aggressive growth, consider a more realistic compounded annual growth rate (CAGR) of 12% for equity investments.
Calculate the projected net amount you would accumulate based on this conservative approach.
“The ultimate goal in our investment journey is not solely centered around achieving the desired corpus. It is equally important to prioritize a sense of tranquillity and mental well-being throughout this process”.
Contentment and The Art of Letting Go:
By consciously choosing to embrace the concept of “Enough” and placing emphasis on safeguarding the accumulated corpus, we can establish a foundation for a more secure financial future.
This approach allows us to find contentment and satisfaction in the progress made and protects us from the detrimental effects of constant greed and unnecessary risks.
Happiness in the equity market comes from being content with your investment choices and staying focused on your long-term goals, rather than constantly seeking higher returns -Warren Buffett
Safeguarding Your Wealth: Inner Doubts and Answers
- What next, after Achieving financial freedom?
It is a huge milestone!
When you reach this point, earning becomes optional, and your main focus shifts towards safeguarding your hard-earned corpus for the end goal and finding peace of mind.
Now, to effectively protect the accumulated corpus, it’s advisable to invest in non-stock market instruments that offer minimal or no risk.
2. What is it Important to safeguard your wealth?
Imagine you have achieved your financial target of accumulating ₹1 crore. However, driven by a desire for even greater wealth, you decide to invest the entire amount in the stock market, hoping to make substantial profits.
While there is a chance that your investment may yield positive returns, there is also a constant fear of losing your capital.
3. How can GREED trouble you? Now, let’s look at the case of Rajat Gupta, a millionaire investment banker.
Despite his already significant financial success, Gupta was envious of billionaires and took increasingly high risks, and was involved in insider trading during the 2008 crash.
Ultimately, this led to a substantial penalty, resulting in him losing everything he had worked so hard to accumulate.
4. What can you learn from this life example?
Gupta’s story serves as a reminder of the importance of being realistic about our investment goals and being aware of the risks involved.
It is wiser to prioritize capital preservation and choose investment strategies that align with our risk tolerance and long-term financial objectives.
While the temptation of higher returns can be strong, it’s important to resist it. Instead, your primary objective should be capital preservation rather than aggressive growth.
4 Threatening Financial Situations: How Well Prepared Are You to Face These?
5. Where to invest the corpus?
Well, you can move your accumulated corpus to debt funds or some fixed-income securities like post office deposits or even fixed deposits with reputed banks.
These investments generally offer stable returns and come with a much lower level of risk compared to other investments.
Finding Our Financial Fulfillment:
Imagine you and a couple of your friends embark on an investing journey.
Each of you has different goals, desired corpus amounts, family backgrounds, and risk appetite.
One of your friends may choose investments that generate higher income and even achieve a higher Compound Annual Growth Rate (CAGR) than you.
However, it doesn’t mean you should try to replicate their strategy and put all your investments into high-income assets.
Ideal Money And Game Theory by John Forbes Nash Jr.
Have you seen the movie ‘A Beautiful Mind’? there is a scene where “John Forbes Nash Jr” played by actor “Russel Crowe” sits in a bar checking out girls along with friends and suddenly the spark of game theory encapsulates him. What a truly beautiful scene showcasing his genius!
He argues that ideal money is the one that has a “purpose”.
Lecture by John F. Nash Jr. Ideal Money and Asymptotically Ideal Money
Another lecture of his on ideal money
“Ideal Money and the Motivation of Savings and Thrift” by John F. Nash, Jr. Ph.D.
FOCUS ON YOURSELF; NOT OTHERS:
Instead of constantly trying to keep up with what others are doing, it is more beneficial to focus on your own financial goals and dreams.
By setting realistic targets based on your unique circumstances and priorities, you can develop a personalized investment plan that suits your needs and available resources.
Once financial freedom is achieved, the significance of money diminishes.
However, some of you may still indulge in flaunting your wealth to enhance your social standing and continue pursuing more money.
Having enough money is truly enough.
After attaining financial freedom, the focus should shift away from the relentless pursuit of wealth. Instead, it should be directed toward leading a fulfilled and meaningful life.
True happiness and contentment are not derived solely from the accumulation of wealth but from experiences, relationships, and personal growth.
The journey toward financial freedom is personal, and each individual has unique circumstances and aspirations.
By staying true to your own goals and values, you can find fulfillment and peace of mind in achieving your financial objectives.
Freedom and independence are invaluable.
Family and friends are invaluable.
Being loved by those whom you want to love you is invaluable.
Happiness is invaluable.
Happy Investing!
Interesting and useful information.
Thanks
This article delves into the modern obsession with money and the pursuit of wealth. It raises thought-provoking questions about the ultimate goal of chasing money and whether it leads to a meaningful life. It emphasizes the importance of finding a balance between financial security and rich experiences. The analogy of a road trip highlights the significance of setting clear financial goals for a purposeful and fulfilling journey, rather than getting stuck in an endless cycle of accumulating wealth without direction.