Norma Walton: How Much is Enough?

North American society promotes the concept that having money creates happiness.  Certainly having enough wealth to cover your basic needs is important – a roof above your head, sufficient money for food, a clean supply of water, basic clothing and a healthy environment.  A lack of those essentials will create misery.

money happiness

Once you achieve the above, there is value in considering how much more money you need.  Beyond covering your basic needs, below are some reasonable objectives that you may want to consider when you decide how much money you require:

  1. A reasonable spending plan: Charles Dickens proposed the theory that if your income is $100 per day and you’re spending $99, you will be happy.  If your income is $100 per day and you’re spending $101, you will be miserable.  That is wise advice.  If your expenses exceed your income, you will be constantly scrambling to cover your bills and will head into debt, which is stressful.  Focusing on reducing your expenses or increasing your income so that your income is greater than your expenses is time well spent.
  2. A plan to pay off existing debt: My grandparents’ generation saved their money before they would buy a car.  They saved their money to fund their vacation.  They paid off their mortgage as soon as they reasonably could and would have considered it baffling to refinance to pull out wealth from their house.  Debt often causes stress and tension in your life.  Debt sometimes makes you feel out of control of your financial situation.  Hence a focus on paying off debt will permit you to enjoy your money more as you pay the debt down.

    3d people - human character person carrying word "debt" on his back. Debt concept. 3d render
    3d people – human character person carrying word “debt” on his back. Debt concept. 3d render
  3. An emergency fund or line of credit: If you were to lose your job, do you have enough money to survive until you find a new one?  For some this amount will be one year’s worth of income savings; for others this amount will be a month or two.  It is prudent to have some money available if something happens that impacts your ability to earn an income for a period of time.
  4. A retirement fund: The Canadian banks focus on retirement planning.  They sit down with their customers to discuss how much you would need to save to fund a comfortable retirement.  They create charts and objectives for savings to try to get people thinking about where they want to be when they are ready to retire.  This is a good exercise for most people and helps people set goals for savings and calibrates their financial expectations for when they finish working.
  5. An insurance policy to provide for your dependants: If you were hit by a bus today, who would be in trouble without you around?  Think about the financial needs of your dependants and ensure that you have term life insurance in a sufficient amount to cover those needs.  Once you no longer have dependants who need your income to survive, you can reduce or eliminate that insurance.

piggy bank

Once you turn your mind to how much money is enough for you, you can review the above items and create a plan to ensure you have what you need.