When considering your finances, do you know how to determine how much is enough for you and your family? For your future? Enough is a big and very important concept in personal finance. Some people feel that they need a kazillion dollars to barely survive and are still living paycheck to paycheck while on a sizable income. Others are perfectly happy living on much less.
The answer to this question is totally personal and your answer will be right for you just as my answer is right for me.
But before we can calculate anything, we need to consider a few things:
- What is the difference between a want and a need?
- Do we know how much it costs each month to cover our basic needs?
- What are our values and how can we intentionally spend towards them?
- Will your future needs be different than your current needs?
The difference between wants and needs
This seems so basic and yet we all seem to flounder on determining how items fit into each category.
Wants: The dictionary definition.
Have a desire to possess or do (something); wish for.
Needs: The dictionary definition.
Require (something) because it is essential or very important.
Now, there are some nuances to this that are particular to personal finance. Something to remember is that we all have finite resources – money – (although granted some are more limiting than others) that we need to decide how to spend. When you consider this, you logically should put your needs in place before even considering your wants. That’s not always easy to do.
Needs include: shelter, food, water, education and healthcare
Wants include: designer handbag, BMW, overseas vacation, restaurant meals
Needs keep us alive. Wants keep us comfortable.
How much does it cost to cover our basic needs?
I’ve been tracking our expenses for the past few years. Every single penny that gets spent is categorized and recorded so I am able to know very precisely how much it will cost to cover our needs. This isn’t always easy or simple though. If you’re moving to a new town then you may have to do some research to determine or estimate the differing costs of food and shelter.
As a single parent, it’s absolutely imperative that I know that I can cover our basic needs. The only way to do that is to know what they are.
I’ll use us as an example, monthly we spend:
| CATEGORY | MONTHLY |
| Rent (includes heat, parking, hot water) | $1,200 |
| Food (for me and a teenage boy) | $450 |
| Health expenses (dental, eyecare) | $100 |
| School related expenses (tutor, supplies) | $100 |
| Total monthly for needs | $1,850 |
This is actually close to the amount that would be earned on minimum wage where we live (British Columbia, Canada).
Now, of course we also have wants that improve our quality of life and some of them are more important than others to us and you would likely prioritize them differently. Note, I am rounding so that it’s easier to follow but our figures are very close to this.
| CATEGORY | MONTHLY |
| Internet | $50 |
| Cellular (for 2) | $50 |
| Auto expenses | $300 |
| Dining out | $100 |
| Travel and entertainment | $250 |
| Clothes and personal hygiene | $100 |
| Other | $150 |
| Total monthly for wants | $1,000 |
We live pretty frugally so these figures might seem low to you but remember, we are a single income family so we have to prioritize and have savings/investments if we are to have any amount of financial security or independence one day.
Are you already tracking your expenses or could you track them so that you can determine how much you need to earn to cover your monthly needs?
Can you see how much of your spending is going towards certain wants? Does your spending match up with your values and priorities?
What are your values and are you spending towards them?
I learned most of what I know about value-based spending and “enough” from Vicki Robin in her amazing book, Your Money or Your Life. They have a great book summary on their website here.
Some thought starters on this topic:
- Do you value active living and love doing things outdoors? Then how much money and time are you spending on cable and digital tv subscriptions?
- Do you value time spent with family and friends? Then maybe it’s ok to have a coffee budget for get togethers (you can still consider buying a $3 coffee instead of a $9 fancy coffee)
- Do you value a college education for your kids? Then maybe you could vacation closer to home for a few years instead of expensive overseas vacations and invest the difference to support your kids’ college fees.
- Are you trying to get fit? Then you could consider how much of your food budget is going towards junk food and how much towards vegetables. That would tell quite the story for most of us.
I hope that these thought starters have given you some ideas of where to look at your spending in your life to make sure that it’s value-based and intentional.
The great thing about this… it gives you freedom to spend (responsibly) on the wants that are important to you and not feel bad about it.
Will your future needs be different than your current needs?
Of course. But we can consider what we expect our expenses will be in the future to be better prepared for it. When people decide to get married, they take a year or so to prepare, saving money along the way to cover the cost of the wedding (I hope). It’s the same case for your future.
Here are some areas where I expect my costs to change over time:
- Food – I have a teenage boy in the house. He eats a lot! So my food costs will go down considerably once he moves out in a few years.
- Transportation – I love road trips so I expect my transportation costs to increase over the next couple of decades, then to reduce once I get older and less confident to travel. I’ll need to replace my car at some point too and have already saved enough to buy a new one in cash.
- Clothing – Once I leave the workforce, business attire will officially leave my wardrobe. Yay!
- Health – Health costs will increase as I age. My son will leave the house and start paying for his own but then my aging body will have increased needs. Grateful to live in Canada where this isn’t as big an issue as it is in the US and other countries but the costs will still be there nonetheless.
So, if the question is, “how much is enough?” then I hope that you’ve been left with some tools and some things to consider when determining just what that magic number is for you. you will find yourself in a pretty wonderful place once you have determined how you are spending your money, how much of it is on wants and needs, how you can adjust to increase your savings and spending on that which you value.
It sure beats putting your head in the sand and hoping that your money will just figure itself out.
There is a bigger conversation around “how much is enough for retirement” that we will tackle in another blog post. There is an answer to this and it might not be as much as you think… and it’s totally achievable.
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