How Much Money Do You REALLY Need? Here’s the Hard Truth

While planning your financial future, you’ve likely asked yourself how much money you will need. It’s a simple question, but unfortunately, we often stop there and don’t explore the more complex questions we’re trying to answer. 

How much money do you need for….?

The last part of that question is as variable as the amount of money you need. The truth is, to figure out how much money you need, you first need to determine what you need the money for. 

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 precisely $909,876. 

Perfect, right?

Life doesn’t work that way. 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 too vague for a numerical value.

It’s missing a crucial element: for what? 

How much money you need for a traditional retirement will differ 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 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 on your situation, but these guidelines should help.

Let’s get started. 

How Much Money Do You Need for Traditional Retirement?

Standard convention dictates that you need 80% of your pre-retirement income. According to Policy Advice, the average pay for Americans was about $65000 per year in 2022. 

Following the 80% rule, the average person would need about $52000 per year in retirement income. You can do the math based on your specific income to determine what the 80% rule says (.8 x yearly income = how much you will need per year in retirement).

The 80% rule isn’t set in stone. It’s a guideline that will help you estimate how much you need. The closer you get to retirement, the better your understanding of your bills will be like when retirement. With this understanding, you can better estimate your monthly expenditures.

How Much Money Do I Need in Investments to Achieve my Desired Retirement Income?

After you determine how much money you will need each month, you can determine how much you will need in your retirement accounts to achieve it. This incredible retirement calculator will help you figure out exactly how much money you need to save for retirement. The calculator takes factors such as current age, current nest egg, expected retirement age, and annual spending in retirement into account for retirement planning. 

However, this calculator only considers one leg of the stool – your IRA or 401K retirement accounts. To better understand how much money you will have in retirement, include all potential income sources. 

Retirement Income Sources

Most Americans will be eligible for some social security payments in retirement. The total amount depends on various factors, including your salary over the years and the number of years you worked. Stay-at-home parents who don’t have enough of their own social security credits may be eligible for spousal benefits. 

You may have additional sources of income in retirement. Some folks are lucky enough to have a pension. Others may have a railroad or teachers’ retirement plan. Some might have multiple retirement accounts, ROTH IRAS, side hustle income, royalties, or other income sources. 

Be sure to account for income from all these potential sources when determining how much you will need to save. 

How Much Money Do You Need for Financial Independence?

Determining how much money you need to achieve financial freedom is trickier and highly dependent on your individual goals. 

What Type of FIRE?

The first question you should ask yourself is what type of FIRE you are pursuing. There are so many options that it’s impossible to determine how much you’d need to achieve it until you determine what you want.

Coast Fire allows you to keep working, knowing your retirement is secure. Lean Fire is about being as frugal as possible to live cheaply without needing work. Fat Fire, Passion Fire, Barista Fire, Slow Fire, and the traditional Fire that started the movement are all valid options. 

If you aren’t sure – take this quiz to find out what type of FIRE you are. Knowing what you want out of financial independence will give you a start towards determining how much money you will need to achieve it.

FIRE Goals

One final aspect of early retirement to consider is what you plan to do. Although the type of FIRE can give you a general idea, it’s important to drill down and consider what you really want to do when you aren’t working. 

Those who wish to explore exotic locales need to consider travel costs, while FIRE seekers planning to homestead on a paid-off property may not have as many expenses. 

How Much Money You Need for FIRE

After you determine all of your FIRE goals, it’s time to determine how much money you will need. Financial Independence calculations are similar to traditional retirement calculations, but there are key differences. 

First, you can’t take any money earmarked for retirement into account until you reach the minimum withdrawal age without paying steep penalties. 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.

How Much Do You Need in Non-Retirement Accounts?

You can determine how much money you need in your pre-retirement accounts with the same calculator we used before. Simply input the age you expect to start withdrawing from your retirement accounts or drawing social security in the box for “expected lifespan” and your expected FIRE age in the “retirement age” box.

The calculator will tell you how much money you need in non-retirement accounts to fund your life from when you quit working until you can access your traditional retirement savings. 

Making Money in Retirement

Traditional brokerage accounts aren’t the only way to fund financial independence. Many achieve FIRE with things like real estate investing or high-dividend stock holdings.  There are many ways to produce passive income, and you can include these income streams in your calculations.

Folks pursuing a Passion fire or Barista fire lifestyle should also consider the income from their side jobs. Being realistic about your earnings is essential, especially if you are pursuing Passion Fire. 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 the 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. Maybe you’re planning a mini-retirement or want 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 if you need to quit. 

How much money would you need?

On average, it costs Americans about $56,000 to live for one year. However, that doesn’t mean this number is correct 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.

Calculating Your Yearly Expenses

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? 

It’s critical to give yourself a buffer and ensure you have at least three months’ living expenses 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 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 you might pay quarterly, annually, or at odd times throughout the year. Many pay car insurance premiums every six months and property tax bills annually. These are things you need to include in your yearly totals.

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

Thriving vs. Surviving

There’s a difference between living and surviving. Our calculations assume you have money available for the year and don’t want to cut back on anything you’re currently enjoying

However, reality often bites us when we least expect it. To determine how much money you need to survive rather than to live and thrive, take a hard look at the budget you just calculated and figure out where you can make cuts in times of hardship. 

Perhaps you could sell a car, cancel streaming services, or move to a cheaper place. Look for places where you could cut your spending now, so if an emergency arises, you have a plan for adapting to it. 

How Much Money Do You Need to Feel Financially Secure?

Financial Security is vitally important, but it means different things to different people. The amount of money you might need for financial security depends on various factors, including your expenses, risk tolerance, family obligations, and 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 six months’ worth of expenses, giving 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 critical 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 regardless of your financial goals, the answer is the same.

Acquiring enough money for anything involves four fundamental pillars: saving money, making money, investing money, and paying off debt. 

Save More Money

There are thousands of ways to cut costs and save more money. You can use an app like Trim to 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 to cut from their budgets. These savings can go into retirement funds or bank accounts to help fund your goals. 

Make More Money

Sometimes, saving money isn’t enough. After you pay all of your bills, nothing is left to save.  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 for a better job or start a side hustle.

A side hustle is a vital part of many FIRE plans. Passion Fire is built with the idea that you will make money post-retirement, so the sooner you can start, the better. 


Making and saving money is essential, but growing that money is also critical to getting “enough.”

You should start with your employer’s 401K plan if they offer one. Most companies match employee contributions of up to 5%, essentially doubling your investment if you get the entire match. 

If your employer doesn’t offer a 401K, consider starting an individual retirement account (IRA). Ensuring a secure traditional retirement is the first step toward overall financial security. 

Once you’ve fully funded your retirement accounts, you can start investing for the rest of your financial goals. There are thousands of ways to invest, but the simplest is putting your money into a well-diversified index fund. 

My favorite 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 much time on it. 

Pay off Debt

The final thing you can do to ensure you have enough money is pay 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.

What Should I Do First?

Everyone has an opinion about whether you should first save, invest, or pay off debt. 

They are all wrong. 

The only person who can truly answer that question is you. The correct order depends on your financial goals, life goals, and priorities. 

The only “rule” applying to most people is that emergency savings should come first. A single emergency can derail the best plans if you can’t handle it. Make a small emergency savings of three months’ living expenses your top financial priority, and then focus on your personal goals. 

Prioritizing Based on Life Goals

If your life goal is to retire early, you should focus on shoveling as much money into investment accounts and debt repayment as possible. Due to the magic of compound interest, time is one of your most valuable assets when it comes to investing. The longer you wait to start, the more money you will need to invest overall. 

However, if your primary objective is to buy a house in a year or two, you may not want an aggressive investment portfolio. The stock market is highly volatile in the short term, so if you need access to your money in 3-5 years, you should focus on saving rather than investing. Those looking to purchase a home may also want to pay off debt for a higher credit score

Ideally, you should use a triangle approach, where you set aside money for all three each month. It doesn’t have to be an equal amount; you can put more towards your top priority.

For example, let’s say you have an extra $100 each month for your financial goals. Your top priority is getting out of credit card debt. It might be smart to put $50 towards your debt while putting $25 each towards saving and investing. With the triangle method, you are funding all of your important goals but putting the most money towards your top financial priority.

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 individual situations and financial goals

Take a deep dive into your own lifestyle and goals to determine the right answer for you.

5 thoughts on “How Much Money Do You REALLY Need? Here’s the Hard Truth”

  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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