MT4 | How Much Should You Save For A Comfortable Future?

A few years back, my wife and I sat down for one of our impromptu money talks. You know, the kind where she tells me that I need to stay at work so we can pay off our mortgage and I beg to be allowed to stop so I can have fun playing music and goofing off. “Face it, Amit, your music is not going to help us lead the lifestyle that we want!”

Now I’m all for facing the music, but I ventured that we might actually be well on our way to achieving the life of our dreams without needing to grind away till 60. Right?

She gave me the look of debt. You know, the kind you give someone when they make it seem like that massive mortgage means nothing. The look – of debt.

“Are you crazy?” she said. “We just have X saved away. And most of it is in this apartment.”

Well, she didn’t say X. She gave me a number. But I don’t want to tell you.

“Umm, no, it’s in the bank”, I ventured.

“No, you doofus. I mean it’s all stuck as a down payment on this place. And anyway, we only have X, We need Y.”

Y. A number beyond my wildest dreams. Needing working years that were well and truly in my worst nightmares.

I tried and failed to do the math.

Stack overflow. Too many zeroes.

“Y? Why?”

And then she gave me an explanation. A pretty good explanation actually, but her ideas were quite different from where I thought we needed to be before we could stop working for money.

That’s when I realised. We all have such different ideas of how much we need. How much we think is right for our future lifestyle.

The real question is – how much is enough?

Discussion Topics: How Much Should You Save For A Comfortable Future?

• Which is better? Wealth maximisation or setting financial goals?
• There are a few critical Needs that all of us should plan for
• Everything else is a Want – you should plan for what makes you happy
• How much do you need to save for each goal?
• And how much do you need to set aside for Financial Freedom?
• And since we’re on the subject of financial goals – how much should you leave your kids?

Transcripts: How Much Should You Save For A Comfortable Future?

Hi, everyone, welcome to another episode of MoneyTok, where we help make personal finance and investing simple and accessible through both my own experience. I’ve been doing this for about 20 years now. This show is about money and wealth creation. And we talk about so many ways of making money, bought retirement planning about stocks, bonds, gold, real estate, crypto, so many kinds of things.

Which is better? Wealth maximisation or setting financial goals?

There are two ways for you to approach your wealth planning. One approach is to maximise your future wealth to the extent feasible with your risk-taking desire and ability. Another way is to establish goals and plan your finances in such a way as to achieve them over the desired timeframe.

The first is the way most financial planners and banks approach your finances, but I believe it’s too open-ended and subject to a number of flaws that you can learn more about in this part of the episode. I prefer the latter – goal-based investing.

There are a few critical Needs that all of us should plan for

There are five Needs I advocate that we should all work towards before anything else. These include protection via an

1. Emergency fund
2. Financial freedom
3. Paying off debts
4. Owning a fully-paid home
5. Saving for your kids’ education.

Everything else is a Want – you should plan for what makes you happy

Examples of Wants could be paying for your kids’ wedding (this is likely more a Need in a place like India), vacations, a lumpsum to leave your family when you pass on, and more fun stuff like owning a vacation home, a boat, a country-club membership or whatever. Just make sure the list isn’t insanely long or you’ll never be able to stop working.

How much do you need to save for each goal?

Once you have your goals listed, you need to determine the timeframe by which you need to achieve the goal. As an example, if your kid is 10 and you are setting aside college money, you would expect to need it in 8 years. And you may want your emergency fund to be in place in the next 12 months. And perhaps you’d like to have paid off your debts within 5 years. And so on. Just make sure the timeline is realistic.

In addition, you need to know the current cost and estimate expected price increases over a period of time before you need the money. For example, if 4 years at Harvard cost (gasp!) $300k today, and college fees in the US have been rising by 3% on average each year, you’d need to set aside $380k 8 years from now. Calculations are available on the sheet linked on the CrazyTok Resources page.

And how much do you need to set aside for Financial Freedom?

That’s the several million-dollar question. The answer is entirely dependent on how you see your Financially-Free lifestyle and when you want it to begin. There’s a lot to discuss here – and it’s pretty exciting!

And since we’re on the subject of financial goals – how much should you leave your kids?

Now this varies widely by family. But in my personal opinion, I’d gift my kid a solid education to get him a pedigree so he can get a head start in life. To be honest, this is the very definition of privilege but the world is unfair and I’d rather not take chances with his life.

For anything else, I really love Bill Gates’ advice – leave your kids enough so they feel they can do anything, but not so much that they could do nothing.

In other words, I’d love to leave him enough so he has time early in life to figure things out and earn a fair living that secures his future but which also makes him happy.

UP NEXT

In the next episode, we’ll discuss how to actually set up your financial plan so you maximise your chances of success. This is where you get to actually plan out the life of your dreams – but also suffer a dose of realism that may make you rethink what you truly want and need.