How much savings should I have to feel free?
How much savings do you need to feel free? Once you start thinking about financial independence you are bound to start thinking about this question.
A lot of people will say you need 25x your annual expenses. Others, due to low predicted stock market returns and ultra low bond yields going forward will suggest even more, swapping 25x for 33x or even greater. However, I think, in many cases, this is the answer to another question. How much you need to be financially independent.
Though without doubt related, for a lot of people feeling free is a totally different mindset to being financially independent. What many would describe as true financial independence means never working again. No matter what life throws at you, you don’t have to work and while I’m sure you’ll feel pretty free if you have enough money to do that, I’m also sure most people will start to feel free way before they reach that stage.
In all likelihood, paying off your mortgage will let you feel some serious freedom, but in most cases it won’t mean you can stop working.
I like to look at the problem in stages. In other words stages of feeling free depending on how much money you have tucked away.
Personally, I think there are 5 stages to feeling free requiring ever more increasing savings. So for me how much savings should I have to feel free probably starts with a lot less that you think.
This is a big topic, so this article is broken down into two parts. In the first part we’ll cover the initial stages of feeling free and explain why you don’t need complete financial independence to feel free.
In the second part we’ll look at how much savings you should have to feel true financial independence.
Stage 1 – six months of savings
There’s no doubt about it, being stuck in a job you hate can be severely detrimental to your health. If that’s you then please first take some solace from the fact that you are not alone. According to research by Gallup, only about 15% of the global work force like their jobs. This leaves a whopping 85% who don’t.
So aiming for 6 months expenses to provide the peace of mind that you aren’t actually stuck in a job you hate has got to be worth it’s wait in gold. And just to be clear, this is 6 months must pay expenses not a typical 6 months.
This is a mistake a lot of people make when they are budgeting for time without income because they fail to recognise work costs money! Let me explain.
First of all there are a whole host of work expenses that you can instantly cut the minute you leave your job. I’m talking about the obvious things like transport costs and lunches out and it doesn’t stop there.
To be honest, some people in so called ‘high paying jobs’ could take a severe payout and still be in the money. I could write another article devoted to this topic entirely, but people are often surprised how much of their weekly expenses are actually spent on things related to the job of work they do. Don’t go to work then don’t need two cars. Don’t have a second car then don’t need to pay for fuel, insurance, and maintenance. Don’t need the suits and ties. Don’t need the briefcase. Don’t need to buy that expensive coffee in your morning break and so on and so forth.
There are also less obvious costs associated with work that can be even harder to spot. Those Friday nights on the town you need to release work pressure. The weekend shopping sprees to blank your mind and the private physio to put right all your repetitive strain injuries can all be put on hold for six months when the real source of the problem isn’t there anymore. And let’s get one thing straight, it’s probable you only need these things to get you through your painful working days anyway.
Depending on what kind of job you have, 3 months expenses required for going to work probably equate to 6 months when you don’t. And for those a little more eccentric, the world is your oyster. I mean, how far are you willing to take it? Are you willing to rent a smaller apartment? Are you willing to move in with friends while you get yourself on your feet? If you own your own house are you wiling to let a room or two out? These kind of things can really move the needle.
And I suppose it’s worth pointing out that 6 months is my idea of how long it would take me to take a break, recuperate and then find a new job. Others may need longer, but even more likely, some would need even less time. It will all come down to what kind of person you are. 3 months life expenses might do the trick for you.
Stage 2 – X No. years savings
For the next stage, you take that savings for six months idea and build on it. Imagine having a bad day at work knowing you had enough money put away to sit on a beach for a year or two to relax and plan your next move.
You don’t need to go anywhere but it is an idea worth exploring because in many cases you may need even less money if you are willing to change locale. There are plenty of places in Asia and South America where you can live on a fraction of what you do back home. We are talking less than £1,000/month for a pretty luxurious life. That job you hate has got to be a lot easier to stomach when you know you could be sat in the sun for year tomorrow if you wanted.
Of course, this is just an option, you don’t have to move. Once your family has three or more mouths to feed, these kinds of things become harder to do. Not, impossible, because the more you travel around the globe the more you come across people doing just this. But without doubt definitely more difficult. Relaxing in your own home for a year certainly beats doing a job you hate.
And whilst I appreciate employers don’t like potential employees that have sat on their rear doing nothing for a year, they do appreciate job candidates that have used their time constructively. Just be creative. Combining morning sunbathing sessions with afternoons studying online free courses related to your next job in the afternoons. If you’ve got the wherewithal to get years of savings together, I’m pretty sure you can get creative with your C.V.
Anybody who has enough money to survive without work for one year will almost definitely feel free and the more years worth of money you have the more freedom you will have.
Stage 3 – the power of choice
Next up is having enough savings to give you the power of choice. For me, this is where things really get interesting and for me this stage has the potential to change your life immeasurably. I’d almost put this step above financial independence in terms of the feeling of freedom you achieve.
To see what I mean, please just take a minute for a little contemplation. Imagine having the power to choose a job you actually want rather than one you need. What job would you do and why?
People who say they’ve no idea what they want to do, are often surprised by how easy it is to come up with an alternative career just by closing their eyes for a moment and thinking about it.
I’ve never come across someone who doesn’t imagine doing something totally different from what they currently do. Granted, you aren’t guaranteed to come up with something practical, and I guess there will be people who just can’t put their finger on what it is they should be doing. But even for them this would be a pretty neat power to have. Not quite as good as x-ray vision or flying but a super power non the less.
If you can’t think what you should be doing, there’d be nothing to stop you trying out all kinds of different careers if money wasn’t holding you back. I think it goes without saying that most people would rather work as an animal trainer than an accountant or a as video game tester than an actuary. I bet this includes most accountants and actuaries too, so why do they keep doing these jobs? We all know the answer. I’ll sum it up in three words: Money Money Money!
Most people find themselves in jobs by chance rather than choice and for many by the time they’ve realised their choice of work was wrong, it’s too late to change. That’s because most career changes don’t come to fruition without a sizeable pay cut. And the thing is, according to a study by the thinktank the Royal Society of Arts most people are only just getting by as it is with 70% of the UK workforce “chronically broke”.
If you are “chronically broke” a lower paying job is off the menu!
So stage 3 of savings should be having enough money to choose a job.
Essentially, you have enough money saved up to supplement a lower paying job that you want to do rather than having to do a higher paying job that you hate!
If you’ve got enough saved up to bridge the gap between the job you want and the job you hate, you are good to go and to be honest for a lot of people that’s just about all the financial freedom you’ll ever need to feel free. At the end of the day, if you are doing a job you love you never need stop.
In some cases, having enough money so that you can do that job you hate part time even makes sense. At least, you’ll have more time to spend doing things you actually like doing in your free time.
So how much money do you need? That’s a lot more difficult to answer. Comparing one man’s current and dream job with another’s will lead to large discrepancies in monetary value that would be impossible to cover here. However, as a starting point we can take a look at the National Living Wage.
The National Living Wage
At the time of writing, the National Living Wage (which applies to workers over the age of 23) is £9.50. My back of the serviette calculations suggests that’s about 18k for a full time job. So let’s say you need 21k to lead a moderate life in the UK (read this if you are interested to see why that might be a good ball park figure). You’ve a 3k shortfall. Let’s round that right up to 25k to account for tax & national insurance, leaving with you with 7K per year to find yourself if you were to swap your current job for another one that payed the National Living Wage.
You can then apply a similar approach to the expenses approach we discussed before. Save 7K and you can do your job for a year. 14K has got you covered for two years. 70K for 10 years and we could max out at 175K (or 25X). This should see you right for the for the foreseeable future as long as you are invested wisely (We’ll cover this in a bit more detail in Part 2).
I’m no expert on careers but if you are looking for some inspiration here’s a list of jobs I’d rather do than be an accountant (sorry accountants!).
16 jobs I’d rather do than be an accountant
- Voice Over Performance Specialist
- Painter
- Guitarist
- Landscape Gardener
- Underwater Acoustic Scientist
- iPhone App Game Tester
- Restaurant Chain Food Taster
- Craft Beer Brewer
- Floral Design Practitioner
- Coffee Roaster
- Yoga Instructor
- Safari Expedition Driver
- Dog Trick Trainer
- Horse Whisperer
- Hotel Room Tester
- Colourist
Now I appreciate, having never actually done any of those jobs, I might be missing something here. One or two of them might actually be totally awful. Unless you do one you’ll never know. The point is this, I’m pretty sure there is a job out there for everyone. One that you don’t need to dread. One that doesn’t give you butterflies in your stomach on Sunday night. It might not be one you absolutely love, but I’m confident everyone can find a job they at least enjoy some of the time. There’s nothing like removing financial incentives to put a little clarity on the matter.
The old cliche what would you be doing if money wasn’t an issue can become very real very quickly if you focus your mind on it.
How much savings should I have to feel free? – The bottom line
I think it’s pretty clear that you don’t need to be financially independent to start to feel free.
There’s nothing like having some savings stashed away to enable you to feel free. For me, from the three stages we looked at here, one stands out:
- Six months of savings
- X years savings
- The power of choice
Having the power to choose what job you want to do will be a defining moment in your life. In many cases, far more impactful on your life than reaching financial independence.
The vast majority of people who reach financial independence still do something to earn money anyway. The difference is, they are doing things they want to do rather than have to do.
That said, in part two, we’ll look at how much money you need to be financially independent.
