How Much is Enough?

This is my fourth post on finances — which means this is an important topic in my mind.

I live in an affluent community, and so finances, deals, stocks, IPOs and such can easily turn up in a conversation.  Much of this musing is just that, so be assured that I don’t receive brilliant stock tips every week, nor every year for that matter.  Would be nice, but tisn’t the case.  And I most assuredly don’t receive insider information, so please don’t send the Feds my way!

What does come up from time to time is a discussion of “how much is enough?”  This is generally amongst folks in their 50s or 60s, at or near the peak earning power of their long career.  And the question is over how long their (usually pretty consuming) effort will be needed in order to have enough to enjoy life (and perhaps a Tapas Life) after their long career without money problems.  The layer under this is a desire to not run out of money during one’s life and, especially, not to become a burden to one’s adult offspring.  This is quite understandable, to be sure.

It’s hard to know the answer to “how much is enough?”  You’re free to have a peek at some of my earlier finance-related posts or any of a host of websites attempting to help you with this question.  I won’t try to tackle that here.

What I do see, is that often, the goal line keeps moving.  At first, X is enough.  Then as that is approaching, 1.5X, maybe 2X.  Maybe 10X!  To be sure, for some this might merely be the result of an underestimation that became clearer over time.  On the other hand, it seems that, for some, this is a necessary goal to keep alive, a raison d’être, a tool for continuing one’s work identity indefinitely.  If one were to declare the goal met, that would be admitting that work was now for pleasure and enjoyment, and no longer a needed source of funds;  or because that is the only identity one has.  Or one might simply decide to end their long career.  But this brings with it an armload of uncertainty compared with the predictability of going to work every day — especially after having done that for 30-40 years.  This entire blog routinely talks about the many aspects of this post-long-career life, and how new and different they can be, how much thought, experimentation, and effort they may take;  as well as the terrific opportunities that abound.  It might be easier, for some, just to raise the “how much is enough” target.

Money, it turns out, is only especially gratifying up to the point where one is comfortable and free of worry.  After that, it doesn’t improve one’s happiness.  What improves one’s happiness beyond this point, is social connection (friends and family) and doing something meaningful.  Plain and simple.

Something to consider as the “how much is enough” vortex swirls.

 

 

More on Finances

My two bits here may be useful to you whether your long career is filling your days still or is in your rear-view mirror.

I advocate making a spreadsheet of your broad categories of income and of spending.  This will work best if you are conservative;  which means that you’ll count income modestly, as though it’s going to be a bad year, and you’ll count expenses as though bills (expected and unexpected) will just keep piling up.  Because then you won’t get caught short very often.  If you’ve got a lot of savings, this is less of an issue.  But if you plan conservatively, you are less likely to need to dip into your savings very often.

On my income spreadsheet, I have earnings from work and earnings from investments.  One day, I expect I will also have income from Social Security — and that day is still in the future.  My work does not yield a steady income, so I have to estimate about how much I might earn over the course of a year, and I do this conservatively.  My wife’s income is pretty steady, and therefore easy to estimate.  Our investments are somewhat predictable, and so I just note what I believe they will earn.  By the way, I don’t count any earnings from the Stock Market (I also don’t have much invested in stocks).  If some accrue, well, that’s good.

On my expense spreadsheet, I have our Residential items (mortgage, insurance of all related types, taxes, gardener, cleaning person, security system, utilities, and a few thousand a year for deferred maintenance, which over the years eventually gets spent (just put on a very overdue new roof, e.g.).  Also, Communications, which includes cable, cellphones, internet, and home-phones.  And Medical:  medical insurance, dental insurance, deductibles, copays, and prescription copays.  Cars, including insurance, service, gasoline, taxes, and depreciation (I just divide the cost by 10, roughly the number of years I keep a car — equates to about 170K miles).  Other insurance:  Life Insurance, other property insurance, Long-Term Care insurance (if I experience an incapacitating stroke that nevertheless leaves me alive for another 25 years, I don’t want to bankrupt my family).  Charity:  tally up your giving.  Vacations.  And lastly, general spending, which includes food and drink and entertainment, postage, clothes, gadgets, whatever.

Here’s the trick:  Your estimated income, less taxes you’ll pay on it (federal and state (and city, if you live in NYC) income tax, FICA, Medicare, AMT, etc.), has to be more than the sum of the expenses.  Otherwise, you’ll be depleting your savings.  If you have tons of savings, this may be fine.  But if you’re 60 (like me) and aren’t in the famous “1%,” you might want to consider watching your spending so you don’t outlive your savings!  Or, get out and earn some more income.  By the way, if you want to leave an inheritance for your children and/or grandchildren, then you should reduce what you view as your “savings” by that amount.

If you don’t know what the above picture looks like, and you’re not rolling in dough, then you are exposed to money problems in the future.  That’s why I advocate filling in this spreadsheet and seeing where you are and where you will be after your long career — and to the best of your estimation, 20-30 years hence.

Better a little bit of spreadsheet work than flying blind financially.  If you don’t like spreadsheets, get a financial consultant to do it for you (you’ll still need to provide the data, of course).  Just make sure it’s one who promises not to offer you any investments, but rather one who works on an hourly fee basis.  As noted in an earlier post, I’m not a financial advisor and am not seeking any business.  Nor do I make any guarantees that the above is comprehensive or that it will work for you in your particular circumstances.  Just passing along the common-sense tool that I’ve used to be as sure as I can be that I’m being responsible in planning for our future.

Hopefully, you’ll find it helpful.