"Really, how much is enough?"
~ J. David Stein ~
Motivation Monday - Richard's Insight
The difference between need and want is something I discuss quite a lot with my mentees.
We might want a yacht moored in Monaco, but do we really need one, or are we happy to have a small boat or a couple of weeks a year sailing instead?
We might want to be a multi-millionaire but if it means long hours away from our family, will we really need it?
Don't get me wrong, there are some real game-changers out there that seem to be destined for great things and greatness and I am not about to kill anyone's dreams that's for sure.
This is why I talk about having 'Elastic Goals' when I am mentoring people. The idea is to have a baseline goal, which is 'enough' and also a stretch goal with is the 'dream' position. The aim is to absolutely ensure we hit our baseline 'enough goal' (need) whilst setting up actions and plans that can also allow us to press on towards our stretch 'dream goals' (wants).
In terms of how much is enough...here is something to consider...this comes from what is known in investment cirlces as the 'safe withdrawal limit'. Think of a drawdown pension - this is where you don't buy an annuity but instead take income each year (the drawdown) in such a way that the fund should not run out before you do (i.e. you die). OK, morbid as that sounds, we should consider this. The safe withdrawal rate will vary a little based on a few things, but believe it or not the safe withdrawal rate has been determined to be 4% of the total asset value to safely survive the vagaries of the markets.
Putting aside whether you can 'beat the market' or not, say by going for high yield property investments for example, let's just use the concept to illustrate the point.
Let's say you annual income goal is £50,000. Using the safe withdrawal rate at 4%, this would imply requiring a net asset value of £1,250,000. The maths is 50,000 / 4 * 100 in case you want the formula. Of course, you can substitute your own income OR net asset value to work out one or other as you wish.
In the real world, people might have income from employment (part-time or full time) and / or a pension (state or private) alongside their savings and investments. So, the actual level of net assets might not need to be as high as £1.25m after all. If you want to understand a little ore about this idea, then visit this blog post that I wrote on the subject a while ago and also drop me a line if you want a nifty spreadsheet that I created to help work out 'The Number' as I like to call it: http://www.thepropertyvoice.net/whats-the-number-how-much-is-enough-to-retire-on-normally-or-even-early/
Most of all, consider how much really is enough...it might not be as much as you think. It may also allow you to have a lifestyle that you might find extremely satisfying as a result, rather than working yourself into an early grave just to leave behind a few quid to your loved ones...without you there to enjoy the time with them!