Why do you want money?! To most people that sounds like a pretty silly question: we want money to buy things!
The truth is people want money for different reasons and for different times of their lives. Some want to save for a wedding, buy a house, get a degree, save for children, go on a vacation, pursue a hobby, take a sabbatical, enjoy semi-retirement, or retire early.
What Makes Us Happy?
It is worth remembering that your money is only as good as the happiness it buys you.
Experts on happiness like Dan Gilbert from Harvard note that “the relationship between money and happiness is surprisingly weak.” They go on to suggest that consumers should:
- Buy more experiences and fewer material goods.
- Use their money to benefit others rather than themselves.
- Buy many small pleasures rather than fewer large ones.
- Eschew extended warranties and other forms of overpriced insurance.
- Delay consumption.
- Consider how peripheral features of their purchases may affect their day-to-day lives
- Beware of comparison shopping
- Pay close attention to the happiness of others.1
Time is Money and Money is Time
In Your Money Or Your Life Vicki Robin and Joe Dominguez suggest that for many workers, money is something we choose to trade our life energy for.
Money is something we choose to trade our life energy for. Our life energy is our allotment of time here on earth, the hours of precious life available to us. When we go to our jobs we are trading our life energy for money. […]
Our life energy is more real in our actual experience than money. You could even say money equals life energy. So, while money has no intrinsic reality, our life energy does — at least to us. It’s tangible, and it’s finite. Life energy is all we have. It is precious because it is limited and irretrievable and because our choices about how we use it express the meaning and purpose of our time here on Earth.2
Do You Like Your Job?
For most people, after they’ve built up the money for their shorter term goals the primary reason to acquire money is for the freedom it provides.
A Gallup poll found that in 2015, 68% of workers were not engaged in their job and that number has been relatively consistent at least since 2011.3 It’s no wonder why people are looking to acquire enough money to retire or find a more satisfying albeit lower paying job, often referred to as “semi-retirement.”
The only way to build a nest egg capable of supporting your retirement is to save more money than you spend and put that savings to work through investments to provide passive income—income you don’t need to work for—to grow or sustain your nest egg through the remainder of your life.
How Much Do I Need To Be Completely Free?
“How much money do I need to have saved before I can safely retire?” This question has been answered by a reputable study by three professors of finance at Trinity University called the Trinity Study. It says that you can withdraw 4%, adjusted for inflation, of your nest egg each year and have a greater than 96% chance of your nest egg lasting at least 30 years.4
If you are looking for a much longer retirement of 40+ years, the safe withdrawal rate falls down to as low as 3.5%, the point at which your nest egg is almost certain to sustain itself indefinitely. This means that once you’ve acquired 1/.035 or about 29 times your yearly expenses you can retire at any age and be confident you will not outlive your savings.5