Before I turned into a total money nerd, I would say that my only real financial goals were to simply to save as much as possible and retire comfortably someday. I definitely didn’t know what it would mean to have enough or even about the concept of financial freedom.
Don’t get me wrong, saving as much as you can is a good thing. But, how do you find the balance between improving your life now and creating the life you want for the future if you don’t really know what that would take anyway?
Certainly, you don’t want to reach your golden years and have them be more like silver or bronze years. Neither do you want to be a cranky old miser that hoards money but simply can’t enjoy it for fear of running out.
The key is to determine exactly what it means to have “enough” to meet your financial goals, which should really be determined by your life goals. My theme for the year is “enough”. As such, I’ve thought a lot about what enough really means for me when it comes to my personal finances. I’ve also calculated what enough means for me.
Having Enough To Retire
My retirement plan reflects both my personal retirement savings and a scaled down estimate of how much we expect to receive for Social Security income (because while I’m confident that it will be around in some form or another, I believe it’s likely that the benefits will be decreased).
For me, this is by far my largest quantifiable goal, yet the most difficult to really determine. I can estimate a projected retirement budget to my best ability, but do I really have any idea how much I’ll be spending in 25-30 years? Nope. Do I try to do it anyway? Yep.
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By calculating an inflation-adjusted budget and estimating my life expectancy during retirement (a task equally simple to determining the budget), I can come up with a lump sum number that I need to save by retirement age.
This is my “enough” to retire number.
It’s not perfect, but the beauty of a dynamic financial plan is that I can and will adjust it with the best information I have each year.
By calculating this number for myself, I was pleased to find that my current retirement contributions were more than sufficient to reach my set goal. Better yet, I had previously thought that I would need to increase my regular contributions, so this freed up extra savings for other goals. And even better yet, it freed up brain space to be able to worry about other things.
Having Enough For College Education
It’s no coincidence that I listed my retirement goals first, as you’ve likely heard the saying about prioritizing for retirement and college. And it’s true: you can borrow for college, but you can’t borrow for retirement.
If it’s your first go-around in determining how much to save for your kids’ education, you may have sticker shock. While inflation has been increasing about 2.5% annually for the last 30 years, tuition at 4-year public colleges has increased at a rate closer to 5% per year.
Personally, I plan to fund a large portion of my kids’ education, but probably not the full amount. I want them to have some skin in the game so that they are motivated to do well in school. I believe that a large portion of my success in college was attributed to having to work hard and pay my own way. My kids will be expected to apply for scholarships, get a part-time job to help cover their living expenses and possibly take out some loans.
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To calculate how much I expect to need to have saved to pay for my kid’s education, I researched the current tuition rates at public colleges in my state (Michigan) and adjusted it to reflect a 5% expected annual increase in tuition. This allowed me to determine the lump sum needed based on my current savings and the years remaining until college age for each child.
This is my “enough” to fund college number.
Because the time horizon is so much shorter than for retirement, I wasn’t as pleasantly surprised with this calculation. I ended up needing to make a plan to increase my monthly contributions to bridge the gap. Doing so has resulted in me not having to worry about the rising cost of education and whether my kids will be able to go to college.
Having Enough For Today
My thoughts around having enough and gratitude prompted me to make an “ideal” budget for myself. The result? I discovered that with the exception of a few small items, spending more on things wouldn’t make me any happier than I am now. In line with a recent study, I definitely concur that buying more time is really what makes me the happiest. But, even outsourcing my least favorite household tasks wouldn’t cost a significant amount, nor would it be really essential to my well-being.
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To calculate my monthly cost of living with my ideal budget, I added up the total of all of my expenses on a monthly basis, including those extra expenses that would make my life just a little bit easier. I eliminated some expenses as well that were not adding value to my life.
This is my “enough” to live comfortably today.
Now, this doesn’t mean that if our income drops significantly or we have to make major changes in our status of living that we won’t be happy. I truly believe that we have the ability within us to be happy despite our circumstances.
Absolutely, I recognize and appreciate that I have this privilege when there are many others that very simply don’t have enough for the basics of life, let alone the comforts. We should all do what we can with our own resources, and help others when we have an abundance.
This exercise is simply to help set goals to work toward to achieve your ideal financial life.
There are many other situations you can calculate your “enough”. Do you have adequate life insurance or disability insurance? Is your emergency savings enough to carry you through temporary loss of income?
The worst thing that you can do for your personal finances (and not only just your money!) is have the mindset that you always need more before you will be happy. Find out what you really want, not what society is saying that you want. Then figure out how to get there and eliminate the rest.
Knowing my enough numbers has allowed me to quantify my goals and celebrate my progress. It has given me the freedom to pursue things that I really care about and to actually spend more money in many cases.
Have you calculated your “enough” numbers? How has it had an impact on your life?
Great post! It’s important to go through these exercises to clarify goals and help build a plan. We really need to establish targets – even if they are estimates that might shift.
Oh, and yes, knowing my “enough” number has had a huge impact. Because of going through these types of exercises I confirmed three years ago that I could retire right away if I wanted – so I did! 🙂
I love that you took such quick action on your goal! I tend to lean too much toward the “one more year” syndrome, which isn’t a good thing!
Such a great post, Kathryn! “Find out what you really want, not what society is saying that you want.” – This is so key!
Once we knew what would be ‘enough’ by doing some calculations (instead of continuing to guess) we felt so much was possible. We then developed a plan to achieve it and so far it’s working wonderfully. Yes, there are adjustments to be made as life doesn’t always go as planned, but it’s so much easier to fine-tune a goal that’s actually ‘written down’ than one that’s still swirling in your head.
I had a similar experience – I realized how much was possible and that was the start of my motivation to really get started. Love it Amy!
We plan on doing the same for our kid’s college education. We already opened up a 529 for our one year old and plan to contribute every year until he graduates from college and if he wants to attend college we plan to cover not all but more than half of his college expenses. We want him to cover the rest of the expenses by working part time during college so he can get some work experience in and know how it feels to earn some dough.
I haven’t pinpointed the exact percentage, but am currently aiming for about half (we have 9 years for our oldest, so plenty of time to change our plan!). I love to hear how others are planning for college. Thanks for sharing!
Oh man! I think I’ll be reading through a lot of your other posts in the next few days. This was such a timely read for me. Finding my “enough” has been something I have struggled with. But I love your perspective to find MY enough, not what everyone else says I need. Great read!
Thanks Krystal! I struggled with this as well in the past!
You’re absolutely right it is tough to project expenses and income for retirement which is decades away. But you have to try! I just try to keep my numbers conservative and project from there. But it is definitely a good feeling to know that you are indeed saving enough for a happy retirement.
I like to use conservative numbers as well to ensure confidence that my plan is achievable. I definitely don’t want to be disappointed in the future that I didn’t save enough because I was way too aggressive with my projections.
knowing my enough number has been freeing, motivating, and discouraging. I know it’s attainable but why is it taking so long. Mostly it’s freeing to know while it may take 10 years, it certainly doesn’t need to take 30 years! Enough is a far smaller number than a million dollars. All money fantasies seem to start with if you had a million dollars… what about if you had enough to be financial independent….
Knowledge is definitely power when it comes to money. Many people can reach financial independence with well less than a million dollars.
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