Back to General

How much money do you need? 5 questions to figure it out

Khanh Nguyen
August 12, 2021
How much money do you need? 5 questions to figure it out

Illustration by Oleg Zodchiy

There is no magic number out there for how much money you need and it really boils down to what wealth means to you. 

It depends entirely on your life goals to decide how much money you need, whether it’s an enjoyable retirement, a dream home, health insurance, organic food, or traveling the world in a private jet.

Forget those numbers on the internet, have a look at these questions below to figure out one that works for you!


1. What does “enough” mean to you?

“Oh, I don’t need too much money, just enough”, but how much is enough? Start by making a list of things that you want but can’t afford yet. Then carefully research each goal and calculate its lifetime cost (i.e the total amount of money you’ll need for the whole lifespan of the goal). Think about how long each goal in your dream life will last and whether you need all the money at once.

For example, my list includes spending two months living in Europe every summer. This will require plane and train tickets, travel insurance, accommodation and food. If the yearly cost comes up to £5,000 and I plan to do it from age 25 to 35 (10 years), then I’ll need approximately £50,000 for this goal. It seems like a big chunk of money which I don’t need to stock all at once, so I can focus on earning enough for each year’s trip instead of putting pressure on myself to save up the entire amount.

This will help clarify what “enough money” is - a term that seems abstract at first - and give you a specific number to work toward and your time frame in achieving it.  

2. How much will you be able to set aside?

First, reflect on how much money you currently have, and how much you’ll be able to save each month. Then use a compound interest calculator* to see if you can reach the goals you listed for question 1 in a certain number of years if you were to put it in a long-term investment fund. If yes, great! Start setting aside a fixed amount monthly and you’re good to go. If the final amount turns out not enough for your goals, think of increasing your monthly contributions, or adjust your goals a little bit to make them more achievable.

(*) A compound interest calculator lets you input your initial investment/savings amount and number of years to let that money grow, and then calculates your final earnings.

        For example, I have £50,000 and I’ve estimated that I need £1 million in 15 years. I’ve used the compound interest calculator to see if that timeline is feasible and realised that I won’t be able to achieve such a large amount in such a short time. So I either have to boost my earning and contributions significantly, or to amend my goals a little bit.

3. What are your sources of income?

If employment is your only source of income and you don't have a savings account, it can be risky. Imagine you’re earning high salaries and living a fulfilling life, until one day, you retire or get laid off. The cash stops flowing your way and the big chunk of money you’ve saved gets eaten up by inflation. Not cool.

Here are some ways to boost your earnings: you can upskill yourself, or try to have different income sources so you’re not at risk when one disappears. Instead of completely depending on somebody to pay you, start building a portfolio and earning from your own investments, or set up a side hustle to let your money grow, even when you’re not working.

4. How much does your lifestyle cost?

This should be the sum of:

  • Your total debt (student loan, credit cards, mortgage, etc)
  • Bills and necessities (rent, wifi, food, insurance, transportation, etc)
  • Unplanned expenses (emergencies, one-time purchases, entertainment, etc)

Also think of how those costs may change over time, especially when your life stage changes.

Now add all the numbers you’ve calculated together, and the result will give you a clear sense of how much money you need for your desired life. Bear in mind to account for inflation that can increase your living costs by 2% a year.

5. What are your priorities in life?

The amount of money you have doesn't reflect the value of your life, it’s the things that you’re using money to boost your happiness levels that do. Wealth sounds great, but how about your loved ones, family, free time, flexibility and mental health? There are so many other things that add non-monetary value to your life. 

It doesn’t make sense if you are getting rich, but aren’t living a rich life.

"Instead of thinking about the amount of money that's predictive of happiness, think about what it is you're using money to measure that you think is going to give you some sort of boost in your happiness levels," - Amanda Clayman

Read our blog about financial independence/retire early.

Source: Brandon-Richard Austin        

Next topic
Quirk app logo

Get Quirk. It's free

Join the 30,000+ people in our community and start your journey to financial independence.

Scan to download Quirk
QR code to download the Quirk app