How Much Is Enough? Everything You Need to Answer The Biggest Financial Questions


Almost every time we talk to people about how much money they need, it’s some variation on that single word. The amount that everyone seems to think will give them true financial freedom always seems to be around double what they have right now.

Of course, you probably already understand the basis of lifestyle inflation. When you’re a graduate, you feel like you just need a little more to pay off your car and go on a holiday each year. When you have kids, maybe enough means paying off your mortgage.

When you make your first couple of million, enough is paying off your new, bigger mortgage and sending the kids to the best private schools. When you’re a billionaire, enough is when you can finally afford to buy a football club. It never ends.

And to a certain point, there’s nothing wrong with that. It’s important to continue to have drive and ambition throughout your life, regardless of your financial situation. But what if it’s coming at the expense of other parts of your life? What if you’re already wealthy, but you're working every hour of the day because you feel like you’re not quite there yet.

Well, at that point, we’d argue that you’re probably no longer just being financially prudent or responsible; you’re just working off incomplete information.

Because while almost everyone feels like they need a little more, very few people know exactly why and exactly how much. That’s what we’re going to cover.

How much is enough?

That’s the question that really needs to be answered. And while most people will have a broad, fuzzy picture of what they are working towards, very few get down to the granular, nitty-gritty details.

And that’s what’s needed. To really know how much money you need to gain financial freedom, you need to decide what a financially free life looks like to you.

Right down to the types of hotels, you’ll stay at on holiday, the standard of restaurants you’ll eat out at and how often, the brands of clothing you’ll buy and how often you’ll refresh your wardrobe. 

And, of course, you need clarity on the big things too. How much would your perfect house cost? What sort of car do you drive? You aren’t necessarily going to be able to get 100% accuracy on these; it’s a forecast after all, but providing your best guess estimate will be a great place to start.

And while you should be ambitious and optimistic about what this all looks like, you also need to be realistic about the fact that the loftier your goals, the less likely it is that you’ll achieve ‘financial freedom.’

So the first set of facts you need to get straight is what your ideal life looks like and how much it’s going to cost you.

You can use a table like this:

Initial costs vs Ongoing costs

The benefits of quantifying your financial freedom

There are a huge number of benefits to doing this, even before we’ve calculated how much you need to achieve it. By listing out all of your future lifestyle aspirations, you create a set of specific goals and objectives to work towards.

Now, you can work towards financial objectives, which means you can fund your ideal lifestyle. If you’re selling your company, you’ll know the absolute rock bottom lowest offer you would accept.

Secondly, if you have a partner, then it provides an amazing opportunity to align these objectives. Maybe there are things you’re working towards because you think it’s what they want when actually they’re not that bothered. It could mean you’re closer to financial freedom than you thought. 

>>>Read more about couples' finances here.<<<

Or it could mean you're further away, but at least you’ll know and be able to plan accordingly.

Bridging the gap between now and financial freedom

So you know what your current financial position looks like, and you’ve got a picture of what you want your future financial position to look like, you need to bridge the gap between the two. And this is where most people go wrong.

For example, your ideal lifestyle might be expected to cost you £100,000 a year, but your current asset base would only support an income of £60,000. You’ve got some ground to make up. But the problem is that you won’t even know how much ground until you’ve completed some proper projections and calculations.

This is why many people think they always need more. They don’t understand exactly what they’re aiming for, and most importantly, they don’t know exactly what asset base they need to achieve it. 

>>>Want to find out more about your own asset base? Use our free financial planning tool.<<<

The calculations that go into a complete cash flow projection are much more complex than most people expect. Yes, there are rules of thumb, like the 4% rule, which states that a drawdown of 4% from a portfolio is sustainable for the long term.

So a £1m portfolio could support an income of £40,000 p.a. based on that rule of thumb. And while this is a fine place to start, it misses a huge amount of the picture. Here are just some of the aspects that aren’t taken into account with broad estimates.

  • Tax position - Whether your assets are held in tax-free wrappers like ISAs or in taxable accounts will have a big impact on your drawdown

  • Income sources - Does financial freedom mean you aren’t working at all and therefore bringing in zero income? Or is there still income from sources like board positions?

  • Spending patterns - It’s unlikely that spending will stay the same year in and year out. Some years you’ll spend more, other years you’ll spend less.

  • Rising costs - We’ve seen in recent times how much of an impact inflation can have on our finances. Building in a buffer for higher inflation is incredibly important to make sure your financial plan is robust.

  • Pension income - Are you calculating benefits into your figures?

So rules of thumb can get you started, but how do you take this to the next level? Look, we’re not here to hold back information. The aim of our content is to provide you with the tools and ‘behind the scenes’ financial planning information that most businesses save only for their paying clients.

That’s why we created the free projection software within our app. It provides a fantastic guide to your own personal financial freedom. We’re building and improving on this all the time, but to get the most detailed projections possible, you need specific cash flow modelling software.

Of course, that’s something we can help you with too. So if you want to really bridge the gap and understand exactly ‘how much is enough,’ make time to speak with us.

The outcome

Once you go through this process, you’ll have a roadmap that shows you exactly where you’re at in relation to your objectives. You’ll know whether you’ve actually already hit them and reached financial freedom - and you’d be surprised how often people are already there without even realizing it.

Alternatively, you’ll know how much more you need in order to get there.

Trying to manage your personal finances without this in place would be like trying to manage a company without a business plan and forward projections. Investors and shareholders wouldn’t stand for that sort of management, and neither should you when it comes to your personal finances.

Once you have all the data and information, you’ll know exactly how much you need to achieve financial freedom instead of always aiming for “a little bit more.” 

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