How much money is enough?

Wealth alone doesn't guarantee happiness, but if you can identify your deepest desires, you can create a plan to get there. Here's a 4-step formula to help you reach your financial promised land.

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By Brent Kessel, MSN Money

Compared with a homeless person on the street, you're probably relatively wealthy. You probably have a warm home, some food in the fridge and comfortable clothes.

But you probably don't feel rich. If you were truly well off, you figure, you'd be able to afford that new flat-screen TV. Or a new car. Or maybe one more dinner out each week.

"Just a little bit more" is how John D. Rockefeller famously answered the question, "How much money is enough?" But if you're always chasing more, you'll never be able to enjoy what you have. What's 'enough' to you?

So how do you know when you have enough money to make you happy? I believe there's a four-step formula you can use to calculate your "enough" number, get smarter about reaching it -- and enjoy it once you're there.

But first, some background on the money-happiness relationship (or lack thereof). Over the past several decades, studies have shown, economic growth in almost all developed societies has brought only a very modest rise in subjective well-being.

Take the United States: Richard A. Easterlin, an economics professor at the University of Southern California and a former Guggenheim Fellow, has done extensive research that "found no significant relationship between happiness and time over a period in which GDP (gross domestic product) per capita grew by one-third, from 1972 to 1991." Slide show: See 4 things getting cheaper

"Two economists, Andrew Oswald at Warwick University and David Blanchflower from Dartmouth, found that there's no improvement in happiness in either the U.S. or Great Britain as income rises," Easterlin explains. "If you follow a single person over time as they move from lower income to higher income, you find no increase in their happiness."

Similarly, Eric Weiner notes in "The Geography of Bliss" that America -- "the wealthiest nation in the world" -- is "three times richer than we were in 1950, yet no happier."

Talk back: How much money do you need to be happy?

And the phenomenon isn't limited to America. In 1958, Japan had an average per capita income of about $3,000. By 1989, Japan was one of the wealthiest nations in the world, but there had been little discernible change in subjective well-being (a mere 3% increase over 30 years).

You might protest that these figures are societal averages: Surely the most affluent members of society feel like they have enough? But I've spent 13 years as a certified financial planner, and my financial-planning firm, Abacus, works with many high- and ultrahigh-net-worth individuals -- and I can tell you emphatically that money does not buy happiness. What money buys

In fact, in a study of members of the Forbes 400

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"richest" list, the world's wealthiest individuals rated their satisfaction at exactly the same level as did the Inuit people of northern Greenland and the Masai of Kenya, who have no electricity or running water.

So with that in mind, let's go back to that formula.

I like to say to my financial-planning clients that they can have anything they want; they just can't have everything they want. To figure out what's really financially enough for you, you have to first be honest about your deepest desires.

At a primitive biological level, our species has survived because of our desires -- primarily the desires to feed, house and protect ourselves, and to mate with others. But nowadays, this instinctual wiring gives us the same physiological urges whether we're shopping for food, a new stereo or a pair of designer shoes.

There are millions of people for whom there truly isn't enough money -- people who have to choose between paying the gas bill and buying groceries, for example. By no means to do I intend to make light of their plights. But for the vast majority of people in developed countries, it's the aforementioned feeling of desire without discernment that so often leads to the sense of "not enough." 'I was told I as selfish'

Go through these four simple steps to find out how much is enough for you.

Step 1: List your top five goals or desires.

In contrast with the hundreds or even thousands of cravings and urges you feel each day, your deepest desires may include benefits to others and not solely to yourself, may be characterized by patience rather than a childlike urgency and may carry a sense of profound importance: "I yearn to do or have this before I die in order to feel truly fulfilled." You may wish to begin by listing all the desires you can in 60 seconds and then select the five which most fit this definition.

Step 2: Put a price tag on each goal.

If your deepest desires include things like buying a home, you (or your financial planner) can fairly easily convert that goal into a monthly or lump-sum financial requirement. But if your goals include states of being -- such as a desire to work half time and spend more time with your kids or volunteering for a cherished cause -- you'll need a replacement income source.

For these types of desires, list the amount of annual income you'd need to replace. Our rule of thumb is that you'll generally need an investment portfolio equal to about 20 times your annual withdrawals. So if you're hoping to have your investments cover $25,000 a year of expenditures, for instance, you'll need to have or save $500,000 to cover it.

Step 3: Calculate your "enough for life" number.

By adding up the total of all the lump sums needed, you can calculate how much is enough for you to achieve your deepest desires.

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Step 4: Create a financial plan to get there.

If your financial net worth exceeds your "enough for life" number, great news: You can stop worrying and live the life you most want to live. I don't mean to be glib, but if you know you have enough to take care of your deepest desires, as well as your basic necessities and retirement savings, it may be time to stop chasing each extra dollar. Instead, solidify your sense of abundance by sharing your good fortune with others, through philanthropy (or just plain old-fashioned generosity).

For most people, of course, your net worth won't actually be sufficient -- yet. You'll need to set up an automatic savings plan and invest it each month to allow you to reach your goals. A fee-only financial planner -- that is, one that doesn't make a commission on the investments he or she recommends -- can help you figure out how much to save each month, what accounts would be best for your situation and what an appropriate investment strategy would be for your time horizon. (Check here and here for resources on fee-only financial planners.)

Or you can visit MSN Money's Savings Calculator.

If one of your deepest desires is affordable now without sacrificing your other financial responsibilities, buy (or start) it today. The positive momentum will help you achieve your other deepest desires.

One additional thought about your financial plan: Most investors don't earn enough from their investments. In fact, one of the largest mutual fund companies in the country studied its clients' returns and found them to be less than half of the stock market's returns over a recent 30-year period. Why? Often, it's because overly emotional investors frequently sell stocks or funds that have performed poorly in the hopes of replacing them with assets that will earn higher returns. More often than not, these moves lead to excessive trading, expenses and taxes. Further, the very act of selling one's "losers" and buying recent "winners" is a way of selling low and buying high -- the exact opposite of successful investing.)

After following the four steps above, you should aim for investment returns that allow you to fully fund your deepest desires, rather than creating an overly aggressive portfolio which aims to pay for all your fleeting whims. My book, "It's Not About the Money," has more tips on how to put your mind over your investments in order to have "enough."

And remember: More money won't lead to more happiness unless it's tied to your deepest desires. So don't measure your investments' returns against your friends' boasts. Stick with established stock market benchmarks, keep the end goal in sight and, once you get there, know how to recognize it and enjoy your dreams.

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Published July 14, 2008