How much money do you need to save?
The answer: enough.
What other answer makes sense?
OK. But “enough” to do what?
Enough to make you financially free during your working years and enough to make going to work optional as soon as possible.
Saving during your working years. Financial freedom does not mean the freedom to do anything you want with your money. A fish that is “free” to jump out of the water and flop on to the bank will soon die from that kind of freedom. Real financial freedom is the freedom to do the right thing, the effective thing, with your money.
So a financially free person is not living paycheck to paycheck, worrying what happens if the car breaks down or the roof needs repairing. A financially free person is not repaying money borrowed to buy consumable items that are gone much faster than the payment obligations are.
The key to financial freedom during your working years is saving.
Saving to make work optional. Some people want to quit work as quickly as possible. Others genuinely enjoy much of what they do day to day and find their work full of meaning and purpose.
But both groups generally share a desire to get to the place where working to earn an income is optional. Your work is optional when your assets are of sufficient size and composition to produce for you a lifetime of income, with no worry of running out of money.
So how much money to I save now to reach either goal?
Common sense and a bit of wisdom tell you that it is impossible to see into the future and predict how much money you’ll have at any given point in time. So you’ll have to decide ahead of time whether you want your estimate to be too high or too low.
Hint: no one has ever come back to me years later and complained, “You made me save too much money and now I have just too darn much!”
It isn’t enough to simply pick a dollar figure or a percentage of your income (10% for example) and decide that’s what you’ll save. You have to figure how much you have now, how long you count on working and what kind of return you think you’ll earn on the money during the time you can save it.
The value of an experienced financial planner simply cannot be overstated at this stage of the game.
No one has a crystal ball that can predict the future. But a good financial plan based on common sense and realistic assumptions can increase the odds that you’ll save just the right amount of money to meet your needs.
And that amount? Enough.