A couple of weeks ago I received this email from a reader named Katy:
So I have a question that’s been eating at me. When it comes to savings how do you know when enough is enough? How can you figure out when to relax?
Right now I’m in the process of saving as much as possible, but I find I feel stressed out about the money I have saved and worrying that I won’t have enough. That is how I came to the question of how do I know when I have enough anyway? I’m not sure what the goal I’m looking for is. I imagine other people probably wonder the same thing.
P.S. Keep up the good work, your site is incredibly helpful to us and I’ve hooked a bunch of my friends and family on it too.
It’s impossible to know when enough is enough if you have no savings goals. So, the first place to start is with setting some financial goals. Goals like:
1. An emergency fund
2. Down payment on a house
3. Future car purchase
5. College funding for your kids or grandkids
6. Any other short or long-term purchase that will require significant money
Once you know what your goals are, it’s relatively easy to know if you’re on track or not to meet those goals. The exception of course is retirement, which can be tricky to figure out since it is usually decades away. Although it is far from perfect, one place you could start is with a simple retirement planning calculator I put together. Like I said, it’s not perfect, but it will give you some idea of how much you need to be saving in order to meet your retirement goal. Once you have some sort of goal, you can analyze your progress on a yearly basis to see whether or not you’re on track to meet that goal and make adjustments as necessary.
What about you? How do you know when enough is enough? I’m sure this reader would appreciate your input.