how much money

How Much Money Do You REALLY Need?

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When I was younger, my goal in life was to become a millionaire by age 30. If I had a million dollars, I could do whatever I wanted whenever I wanted, live my dream life, have all the things! It would solve all of my problems!  As you probably can tell, I didn’t achieve that lofty goal. I did learn though, that a million dollars is just a number. It doesn’t give you any information on how much money you actually need. For some, it’s way too much, and for others, it’s not nearly enough. 

How Much Money Do You Really Need?

Wouldn’t it be great if we could answer this with a standard amount that works for everyone? You need exactly $909,876. Perfect, right?

Unfortunately, life doesn’t work that way. There’s way more gray than black or white. Everyone has different goals, aspirations, living expenses, and limitations, so what works for one might not work for another.


The question “how much money do you need” is also rather vague. It’s missing an important element: for what? How much money you need for a traditional retirement will be way different from how much money you need to feel financially secure. These two numbers will be very different than how much you might need for a mini-retirement or to retire early. It’s impossible to determine how much money you need if you don’t specify what you need it for.

So instead of giving you some general guidance, we’re going to break this down into the four most commonly asked questions and help you figure out how much you might need for a traditional retirement, to retire early, to survive a year, and for financial security. Like anything, specific numbers will depend upon your specific situation, but these guidelines should help!

How Much Money Do You Need for Traditional Retirement?

Standard convention dictates that you will need approximately 80% of your pre-retirement income when you retire. According to Policy Advice, the average income for Americans was about $52000 per year in 2019. Following the 80% rule, the average person would need about $41600 per year in retirement income. You can do the math based on your specific income to determine what the 80% rule says you will need each year.

However, the 80% rule isn’t set in stone. It’s just a guideline that will help you estimate how much you need while still pretty far from retirement. The closer you get, the better understanding you will have of what your bills will be like when you retire. With this understanding, you can create a better estimate of what your monthly expenditures will be.

how much money is enough

After you determine how much money you will need each month, you can determine how much money you will need in your retirement accounts to achieve that. This awesome retirement calculator, created by Jesse at the Best Interest Blog, will help you figure out exactly how much money you need to save to afford retirement.

 However, this calculator only considers one leg of the stool – your IRA or 401K retirement accounts. To get a better sense of how much money you will have in retirement, be sure to include all potential income sources. Some folks are lucky enough to still have a pension. Others may have a railroad or teachers retirement plan rather than social security. Still others might have multiple retirement accounts, ROTH IRAS, side hustle income, royalties, or a variety of other income sources. All of these things should be included in your calculations.

How Much Money Do You Need for Financial Independence?

Determining how much money you need to achieve financial freedom is a little trickier – and greatly depends on your goals. What type of FI/RE are you planning on? There’s such a wide variety of options out there that it’s impossible to determine how much you’d need to achieve it until you determine what you actually want. Do you want to Coast? A Fat-Fire lifestyle? Lean Fire? If you aren’t sure – take this quiz to find out what type of FIRE you are. Then head to the post that describes you’re chosen type of FIRE. Knowing what you want out of financial independence will give you a start towards determining how much money you will need to achieve it.

After you determine what type of FIRE you want, it’s time to determine how much money you will need. This is similar to your retirement calculations, but there are key differences. First, you can’t take any money that’s earmarked for retirement into account until you reach the minimum withdrawal age. So if you decide to retire early at age 45, you can’t count on your 401K, IRA, social security, or anything like that to fund the first 20 years of retirement.

If you are pursuing a more traditional form of FI, like lean fire, fat fire, or anything in between, you need to determine what you will need in your pre-retirement accounts and what you can make from passive income. A lot of people achieve FIRE with things like real estate investing or high-dividend stock holdings.  There are many ways to produce passive income, and all of these income streams can be included in your calculations.

Folks pursuing a passion fire or barista fire lifestyle can also take the income from their side jobs into account. Be sure to be realistic about what you are making – especially from the side hustles. You shouldn’t dive into a passion fire lifestyle with just the hope that you will be making money; you should have some proof that your passion makes enough money to fill in any gaps in your savings.

How Much Money Do You Need to Survive a Year?

Maybe you’re not worried about any type of retirement, but you want to know how much money you’d need to survive for a year without a job. This might be because you’re planning a mini-retirement or because you want to have enough in your emergency fund to ensure that you will be fine in the event of a sudden job loss. You might even want to have some FU money on hand in case you need to quit. How much money do you need for that?

On average, it costs Americans about $45,000 to live for one year. However, that doesn’t mean this number is right for you. If you live in a high cost of living area, you may need more money. You also may have additional debt, like student loan debt or high-interest credit card debt payments, that you need to include in your yearly costs.

To determine how much money you need to survive a year, write out all of your monthly expenses, and multiply by fifteen. Why fifteen when there are only twelve months? Well, you want to give yourself a buffer and ensure you have at least three months’ worth of living expenses put away in an emergency fund. It would be better to be on the safe side and have six months, but you don’t need that much unless you actually plan on not working for a year or more.


Remember that your monthly expenses aren’t just bills that you have to pay. Be sure to include your food budget, a “fun money” budget, a clothing allowance, and any other small things you generally buy throughout the month.

 Next, write out anything that you might pay quarterly, annually, or at odd times throughout the year. Many people pay their car insurance premiums every six months and their property tax bills annually. These are things you need to include in your yearly totals.

Add all of these numbers together to determine how much money you would need to survive for a year.

How Much Money Do You Need to Feel Financially Secure?

This is the most important question of all of these. How much money is needed to feel financially secure? And the answer, of course, is: It depends.

The amount of money you might need for financial security depends on a variety of factors. These might include your expenses, your risk tolerance, and your income potential. Some folks feel completely secure making forty thousand dollars per year. Others feel like they are teetering on the brink of disaster while making six figures.

The two things that will help most people feel financially secure are having a fully-funded emergency savings account and maxing out a retirement account. The emergency fund should have at least 6 months’ worth of expenses, which will give you peace of mind that you can weather most storms. The maxed retirement account will ensure that you are financially secure in your golden years when you no longer want to work.

How Do You Get Enough Money?

Now that you know how much money you need, the important question is how do you get there? How do you get enough money to retire early, to survive for a year, or even just for financial security?

The great thing about this question is that the answer is the same regardless of your financial goals. To get enough money, you need to save more money, make more money, pay off debt, and invest.

Save More Money

There are thousands of ways to cut costs and save more money. You can use an app like Trimto find savings on subscriptions and services, cut costs at the grocery store, ditch cable, and do a ton of other things to save money on living expenses. There are ways to save on small things that can add up over time and hard-core ways to save big such as geoarbitrage.

The great thing about saving more money is that almost everyone can find small things in their budgets to cut to help them achieve this goal.


Make More Money

Sometimes, saving money isn’t enough. After you pay all of your bills, there just isn’t anything left to cut. If this describes you, then maybe it’s time to look into making more money.

There are a few ways to accomplish this. You can negotiate a raise at work, take some classes to improve your skills and get a better job or start a side hustle.


Making and saving money is essential, but getting that money to grow is also a huge component of getting “enough.” My favorite thing to invest in is Vanguard’s Total Market Index Fund. It comes with instant diversification and has low maintenance fees. It makes investing easy for the novice and folks who don’t want to spend a lot of time on it.


Pay off Debt

The final thing you can do to make sure you have enough money is to focus on paying off your debt. The beauty of paying stuff off is that it lowers your overall expenses. Imagine how much less money you would need each month if you weren’t paying down student loans or making massive payments to high-interest debts. Imagine how much you’d save if you didn’t have a car payment or even a mortgage.

Paying everything off might not be feasible for everyone. Use the snowball method to pay off the smallest amounts first, and work your way up from there. You will soon find yourself with less overall debt, making it easier to save enough money for what you really want in life.

How Much Money is Enough Money?

Everyone wants to know how much money is enough. And as you’ve seen here, that’s highly variable based on your individual situation and financial goals. Hopefully, this helped get you thinking about how much money really is enough for you and helped you get on track to start saving it!

5 thoughts on “How Much Money Do You REALLY Need?”

  1. Melanie, I love the blog! This was such a useful post. I’ve seen similar number that show the average American spends $40k of annual expenses. I hope to lower that number (Lean FIRE) by cutting down on things we don’t need! Keep up the great work!

  2. Knowing why you’re working and saving so hard is important for daily motivation. Everyone should think about their “number” so they have something to work to and they’re not spending any more time on the hamster wheel than necessary.

    Great post, Melanie!

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