Money Management: How much money is ‘enough’ to live a comfortable life? Know what experts say – how much money is enough for a decent and gracious life
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‘enough’ means how much money
The word ‘adequate’ is a bit difficult to define. It is a moving target. It depends on individual circumstances, personal goals and values. What is sufficient for me may be insufficient for you. Some people think that this amount is sufficient for their basic needs like food, clothing, shelter and treatment of diseases. Others wish to acquire more wealth for various purposes such as starting a business, maintaining or gaining dominance, or passing it on to the next generation.
how to money management
Now we come back to the main issue. When you get ‘enough’ money – and that number could be a few lakhs, a crore, or even a thousand crores. so what would you do? Depending on the nature of this income, you will have to pay your taxes. There is no way to escape the taxman. If the income is from ancestral property then it can be tax-free. But most of the income is taxed from one degree to another. And if you do receive a life-changing amount, it’s important to seek professional advice on how to minimize your taxes and manage your money. Taxation is a very complex business. Paying the correct tax helps in avoiding scrutiny from the tax department in future. The amount left after paying taxes is also ‘sufficient’, but still you need to take expert opinion on how to manage that amount.
What is the method of early retirement
When you have had ‘enough’, a vigorous state of FIRE ensues. It means ‘Financial Independence, Retire Early’. It is an activity and lifestyle choice that involves achieving financial independence. Which gives the retiree the freedom to pursue other aspirations at a relatively young age. The amount needed to earn a FIRE depends on individual circumstances, lifestyle choices and desired level of financial independence. According to a popular thumb-rule set forth by proponents of the activity, you need to have saved 25 times your annual expenses to be able to FIRE. For example, if your annual expenditure is Rs 6 lakh, you need to save 25 times this amount, which means Rs 1.5 crore. To make sure the money never runs out, you need to withdraw it at a rate lower than the rate at which it is growing. For example, if money grows at 6% per annum and you withdraw 4%, the money will keep growing.
what to do with the rest of the money
Being rich is one thing. Staying rich is a completely different matter. There is always a strong desire to spend everything. See the example of lottery winners. In 2009, an in-depth study of Florida lottery winners took place. It concluded that winners of between $50,000 and $150,000 were almost penniless three to five years after winning. Despite having funds, did not repay his unsecured loans or even buy property. Due to which he remained rich for a long time. When you have money, there is a strong urge to spend it on your immediate desires. But a diverse use of that money – some for immediate needs, some for later gratification – is ideal.
what keeps you rich
When you have ‘enough’ money, how you spend it depends on your aspirations and where you are in life. For example, if you are young, you can use it to set up a business or buy a house. If you are a middle aged person, you would think about the higher education needs of your child. If you are an elderly person, you must be thinking about your financial legacy. These are all essential decisions related to how you spend that money. If you have acquired FIRE, you can think of withdrawing for the next two to three years, while leaving the rest to compound in the securities markets. Where is the question? We have seen over the decades that stock market indices like Sensex have beaten inflation by a wide margin and helped investors get rich. Hence, looking at their track record, index fund investment for long term can be a right decision for long term growth. Land property can also be a good investment. Other forms of diversified investments such as bonds, gold and bank deposits will help you achieve your goals. Remember that even when you earn low returns on large sums, your real returns are huge.
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