How Much Money Do You Need?

If you look at any list of the richest people in the world, you'll see quite a few billionaires on it. You've probably also heard stories about top actors or athletes negotiating multi-million-dollar payments. This can make you feel as though there's no way to reach those same heights of wealth. You might even start to think that there's no point in trying to save and build wealth yourself; you might as well just have fun and spend while you can.

But these kinds of thoughts are rooted in the idea that you can never have enough. Is that true? There can be a real freedom in figuring out just how money you need. With this knowledge, you may be able to stay at a job you really love rather than trying to climb higher on the ladder to something more stressful. You might even be able to retire early. The key is asking yourself how much will be enough for you and your loved ones.

Your Net Worth

You might start with an exercise in which you calculate your net worth. This means looking at how much you have in assets against how much debt you have. When you look at your assets, be sure that you review the value of everything that you own. You might have a retirement account from an old job that you forgot about. Some may not realize that their life insurance policy has value as well, beyond the benefit for beneficiaries.

It has become more common for people to sell their policy in a life settlement rather than surrender it or keep it until the end of their life. This is also sometimes called reverse life insurance, but they are two different things. You can review a guide that discusses how you can reverse your life insurance if you no longer need your policy. Be sure to also consider the value of such things as your vehicle, your home if you own it and any valuable possessions, including collectibles.

Your Spending Habits

Next, it's helpful to assess your spending habits. One of the easiest ways to do this is with an app that helps you track your spending, but some may prefer to keep track manually. A few months can give you a more realistic picture of your spending than just a couple of weeks. Be sure to keep infrequent or annual expenses in mind as well, such as property tax or gifts. Look over your spending and figure out what you need to be comfortable. The idea here isn't to cut your spending to the bone, but you may find places where you are wasting money that you'd like to cut out.

Conversely, you may find that you need more than you're currently making to be comfortable. If that's the case, try to arrive at a realistic figure. This means that while buying a private island might have to go in the long-term column, if you want to take your family on a cruise or splurge in another way, it's okay to include this.

The Long Term

This is really about the medium and long term. Essentially, you're looking both at where you'd like to be in five or ten years and further ahead to retirement, assuming that's more than five years ahead. If you're closer to retirement, don't despair, as you can do this exercise as well, even if you don't have much in retirement savings. Be specific about your future wants and needs. Again, remember that this isn't about scrimping and saving. If you'd like to spend your retirement traveling, figure out what you need to do, keeping in mind that if you're savvy, travel doesn't necessarily have to cost substantially more than day-to-day living at home.

An example of a medium-term goal might be sending a child to college, even if you don't cover all their expenses. You can start a successful investing journey and work with a financial professional if you prefer to help you calculate how much you need to cover medium and long-term goals, or you can find calculators online to help you determine this. What's important is that you come up with concrete numbers that include inflation and allow you to set a goal that will give you the chance to look at the figures one day and feel that you genuinely have enough.