Do you have a firm grasp on your “enough?” If so, you can go to the head of the class. Most investors struggle with this concept because we live in a “more is always better” world. Author Morgan Housel says, “The hardest financial skill is getting the goalpost to stop moving.” Yes indeed.
Financially speaking, having “enough” means that you have as much as you need to be satisfied. Enough money, enough wealth, enough stuff.
The core of understanding what “enough” means to you comes with the realization that an insatiable appetite for more pushes you to take risks that aren’t in your best interests.
WHY MONEY WON’T BUY YOU HAPPINESS
More money won’t necessarily bring you happiness, but some money will. You need some amount of money for broadly defined living expenses including gifts to family and charity. Beyond that point is where satisfaction or “enough” is reached.
The chart below illustrates how money satisfaction (utility) increases as your financial resources rise, but levels off after a certain point. The more money you have, the less useful each additional dollar becomes.
While the chart above shows a plateauing of satisfaction as income increases, there are some studies that question this finding. The key issue is exactly how you define satisfaction. Your overall life satisfaction tends to keep rising with increasing income assuming this translates into more freedom over time. Having greater control of time seems to be the main differentiator.
It’s crucial to understand the flow of money in your life – how much income you have and how it’s spent. Having a good handle on your money flow is the first step in finding your “enough” point; consciously deciding you have "enough" is the much harder second step.
HOW TO FIND YOUR “ENOUGH”
Before you can acknowledge your “enough”, you need to become crystal clear about your long-term goals. Without specific goals, you’ll just end up always wanting more and never become satisfied.
In my experience, clients especially struggle with comprehending “enough” during times of market turmoil and stress. The investing landscape today fits the stressful description since nearly every investment asset category has declined over the past few months.
Finding your “enough” allows you to create balance within your financial life between competing objectives.
Do you know what your “enough” is in terms of investment risk? You should take enough risk to accomplish your long-term goals, but not more. Think of investment risk in the way you think of the speed of your car. What level of speed do you need? How fast is “enough?” Start there.