How to Know When You’re Saving Enough (Without Waiting for a Magic Number)

Understanding 'Enough': Redefining Financial Confidence and Goals

In this episode of The Retire Early Retire Now podcast, host Hunter Kelly, a certified financial planner, delves into the complex concept of 'enough' in personal finance. He discusses why defining 'enough' is crucial yet challenging for high-income earners and offers a framework for determining when saving more ceases to add value. Hunter explores the subjective nature of 'enough,' the shifting goalposts in financial planning, and the importance of structure, flexibility, and understanding in achieving financial confidence. He also addresses the trade-offs of continuous saving and encourages listeners to reframe their approach to financial goals by focusing on how to better deploy resources once foundational savings goals are met. The episode emphasizes that once you reach a financial position where saving more is optional, the focus should shift to enhancing life quality and achieving a balance between present enjoyment and future security.

00:00 Welcome to The Retire Early Retire Now Podcast
00:16 The Deceptive Question: Am I Saving Enough?
01:32 Defining 'Enough' in Personal Finance
02:37 The High Income Earner's Dilemma
04:05 The Pitfalls of Chasing a Magic Number
06:52 The Importance of Financial Flexibility
10:03 Testing Your Financial Plan's Resilience
14:24 Understanding Financial Trade-offs
16:54 Shifting Focus: From Saving More to Deploying Resources
19:51 Conclusion and Final Thoughts

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Transcript

0:00

And welcome back to The Retire Early Retire Now podcast, a show where we help high income earners make confident financial decisions without sacrificing their life along the way. If You're New Here, my name is Hunter Kelly and I'm a certified financial planner and founder of Palm Valley Wealth Management, and I spend my days working with families. Who are doing really well financially but still feel quite unsure And today's episode is built around one deceptively simple question, how do I know I'm saving enough? Because here's what usually happens, you start off saving intentionally. You build momentum, you increase your income, you're doing all the right things, and instead of feeling more confident, you feel more pressure. The finish line keeps moving. The goal post keeps shifting, And you're left wondering if you're ever allowed to ease up. Most people assume the answer to this question is a number. Is it 1 million? Is it 5 million? Is it 10 million? But if that were true, you would've already felt relief by now. Today we're going to talk about why that relief never comes And how to replace the idea of a magic number with a framework that actually tells you when saving more actually stops adding value. But before we jump in, if you're liking this podcast, please share this with a friend and leave a five star review on your favorite podcast, Synap. It helps people find this podcast so they can help themselves either retire early or retire now. So let's start off why Enough is so hard to define. I. The word enough sounds simple, but it's one of the hardest concepts in personal finance in my opinion, because enough isn't objective enough is subjective, right? Everybody has different lifestyles. They're doing different things. They have different goals. They have different purposes in life, and so enough means different things to different people, and so it depends on. What your income is, how stable it is, how predictable your career is, how early you want flexibility, whether that's retirement or slowing down or changing your career. How much room for error you need, to be able to sleep at night, right? So how much cash you want in your bank account would be, a simple way to put that versus investments and risk and all of those sorts of things. And what kind of life are you trying to support? Do you want a more lavish lifestyle? Do you wanna be more simple? What does that look like? High income earners struggle with this more than most people because they have that option. And so if they haven't had discussions about what they want this money to do, what they're trying to achieve, this can be very difficult. Because high income earners, make more money. The stakes often feel higher, right? Maybe they do have a little bit more room for error because of their income, and things of that nature, but they feel more pressure because the dollar amounts are larger, right? So when you make 250,000, 400,000,$600,000 a year, mistakes feel more expensive. Lifestyle expectations are much higher, right? there's more to quote unquote, lose. And so instead of filling clarity, people default to, Hey, we'll just save more. That's the safer option. But saving is not always the same thing as being safer. Sometimes saving more is just avoiding the harder question, what is this money actually supposed to do for us? again, we talk about this a lot. Like you're not just earning money to earn money. What is this money ultimately, going to be a tool for? Is it a early retirement? Is it changing careers? it. And is it paying down debt? Is it buying a house? Do you wanna slow down? What are all the things, that you want this money to do? This question is a hard one to answer, especially after you've kind of done the no-brainers, right? You're saving properly, you've paid down debt. you've checked the box of helping, fund your kids' college. All the things that, if you look at Dave Ramsey and, the Money Guys Show and like all these big, financial talk shows, all the things that they say to check off, which are great, they're awesome. They work, they help people tremendously. But once you get past that point, it can be hard to say. What is this money really supposed to do for us? And so hopefully I can help you give some clarity, to that today, right? And so saving can often be, a substitute for competence. So here's a pattern I often see. Someone hits a milestone. They're maxing out their retirement accounts like I spoke about earlier. they're crossing a net worth threshold, whether that be 250,000 or 200 or 2.5 million, whatever that is in their brain. They're reaching a savings rate that they thought, was aggressive at one point in their life, but now they're easily hitting that. And instead of relaxing, they immediately raise the bar. The goalposts are moved further back. And you can see this a lot in people that want to retire and can retire. They say, Hey, I need$5 million or$10 million. Once I get there, I retire. And they get to that point and they'll say, oh, I just need to work another six months or another year. so it, there's a common theme here, right? You just keep moving that bar farther and further away. And so why? Because the discomfort they feel isn't about savings. It's about uncertainty, right? anxiety, maybe it's the way they grew up around money. and so people want to feel secure. They want to have that peace of mind that I'm gonna be able to have this lifestyle and this money for an extended period of time, maybe the rest of their life, right? And so saving becomes a way to manage your anxiety. If I save more, I can't mess this up. If I've saved more, it'll be a little bit safer. I'll feel a little more secure. if I save more the future me will figure it out. That works for a while, certainly, right? especially early on when you, when you only have, A few thousand dollars and you are like, oh, if I have 10,000, when I get to 25,000, I'm gonna feel more secure. Certainly, right? That's gonna give you a level of peace of mind, but at some point that trade off will start to deteriorate, that'll work for a while, but eventually saving stops solving the problem and starts creating, more tension or more uncertainty, around, Hey, am I actually using this money the way I want to use? So that's when people start. sacrificing their experiences, their health, their time with family, enjoyment of the present. There is a this fine, this fine trade off, this fine balance between saving for later and enjoying now. Right? shoot, I find myself doing all these things that I've been talking about, right? saving more to feel a little bit more safe. and trying to strive to have that balance of doing things now, enjoying time with my family, living a little bit more, as far as spending money, but also knowing that I do have more long-term goals of retiring at some point. helping my kids go to college or get established when. When that time is right for them. And these are all things that, that I go through as well. And it's a common theme that I see, clients that work with me go through as well. we wanna make sure that we are intentionally having these conversations about values and goals and purpose. so that, when we are saving, we know why we're not just saving to get to a number. Right? and so why does this magic number always fail you? Let's talk about the obsession with numbers. One numbers are easy to measure, right? We know when we hit a million dollars, we know when we get to 25 times our expenses. We know, when we're maxing everything right. It's easy to measure. But here's what I've learned after years and years of doing financial planning for clients. Numbers don't create confidence, at least not always. Understanding does. So having a good plan, understanding those numbers and what they can do for you will give you that confidence. Numbers can't tell you how flexible your plan is. Numbers Can't tell you how flexible your plan is or how exposed you are to risk, or how resilient your cash flow is. How many levers you can pull if life changes for whatever reason. Right? When life throws you curve balls as it constantly does. That's why two families. With the same net worth can be completely different or can feel completely different. so the structure of your plan matters just as much as the number that you quote, unquote, are trying to achieve. Right. So again, if you have two families, they have a net worth of a million dollars. One can feel very good because they have, flexibility within that million dollars. The other, may feel trapped because of the way that million dollars is structured where they can't get to it or whatever it may be, locked up in their house with equity. Or at least the vast majority of it, or in your, their retirement accounts and they're still in their forties, whatever that may be. Right? the difference isn't necessarily the number, but it's the structure beneath that plan and how they got to that number. So if your confidence depends on hitting a number, that number's always gonna move, right? or that number may look different for different people. And so we wanna make sure that. the plan, the structured plan makes most sense for you. And so the first thing that you want to do is test your, What is your enough number, right? Or your, or what is the enough test, right? And so this is a way that you can test how flexible your plan is or how, changeable your plan is. So instead of asking, have I hit a million dollars or$2 million or$30 million, I want you to ask yourself, have I built enough structure that saving more. No longer materially improves my future. Right? So that is enough, right? once you start hitting this phase where, even if I save another a hundred thousand dollars over the next few years or whatever it may be, is that materially gonna change? Anything about my future. And if you're that to that point where, hey, maybe it doesn't, uh, you're starting to reach Hey, maybe I have enough. Right? So one of the things that you want to look at is capacity. Can your plan survive real life, right? are you saving at a rate that supports your goals without perfection? So if you, your bonus isn't as good next year if your expenses go up for whatever number of reasons. Inflation or addicts expenses. Because if you have kids, you know, expenses come outta nowhere. motivation dips. So maybe you're not working as hard'cause you're burned out a little bit. Market underperformance. Does the plan still work? the thing that you wanna look at here is when you're running this capacity test, are you being conservative with some of these numbers like market performance, like. Your bonuses and things of that nature. And if you're being more aggressive, if you know your bonus rage is from 50 to a hundred thousand and you're running all your, your projections at a hundred thousand, that doesn't leave you a lot of room for error because what's the odds that you hit it every time? Now, if you do, then that's great. but if it's more likely that you won't, then let's be realistic with ourselves. Right. Number two, optionality. Do you have levers to pull? Optionality is the ability to change direction without blowing up the plan. people have, different reasons for wanting optionality. there are many things that you may want to do or end up having to need to do because the life changes, right? So can you do those things for me? work. For me, the things that I want optionality in, is being able to work a shorter day every time my wife has to work at the hospital, right? So she's a nurse and her days are long. So I wanna be able to have the optionality to pick my kids up at 1:00 PM and work a shorter day twice a week, right? I want to be able to retire at some point, right? I wanna be able to coach my kids' baseball team right now. I wanna be able to take extended vacations with my family. so these are all things that I'm either doing or working toward. Right? And so does your plan allow you to have those optionalities? So some examples may be, take a step back from work, right? Or. Say no to certain things at work, absorb a transition or maybe start a business or buy back time if you need to, whatever it may be, right before you have this traditional thing called retirement, right? And so does your plan allow you to do that. Now we talked about different ways of how to get there through, the three bucket strategy and all those things, but if you look at your situation. Can you, can you actually achieve those things of optionality in your plan, right? So if your wealth is locked behind, age restrictions to retirement accounts and things of that nature, you may have wealth, but you're not very flexible. Number three is margin. So the next part of this test would be margin. How much room for error does your plan actually have? If your returns don't meet the expectations that you have for your portfolio, timing doesn't match up, or your saving behavior didn't match up, is there room for error or you are you having to be a hero every year with saving and investing, to make sure that you retire on time or meet whatever other goals that you have? Number four. next thing you wanna look at is trade-offs. And I think this is one of the most important things. This is the crux of what financial planning is to me, right? It's all about trade-offs, right? If I save this money versus spend this money, what is going to happen, right? If I invest this money versus, spend this money. What is going to happen, whether I put it into a brokerage account or a retirement account? What is the trade off, right? Do you know what saving more costs? You, right? If you've gotten to that point, right? This is the most overlooked piece. Like I said, this is what financial planning is to me. What does saving more actually cost you? Is it time with your family? Is it energy? Is it health? Is it experiences? so looking for that from that lens of saving, what does that cost you, right? There are all kinds of different trade offs in, in financial planning. some things are goal-based, right? Like purchasing, like a car or a home versus not, saving versus not, right. Spending that with on a vacation or saving that for later. Or even something more technical in financial planning, like doing Roth conversions. So we pay those taxes now on that money versus later and what's the trade off there, right? And if you can have a grasp and understanding of those trade offs that you need to make within your financial world, then just having that understanding right away is going to make you better financially, because you're gonna weigh those. Those decisions properly, right? You're not just making a willy-nilly decision, Hey, I'm just gonna go buy this truck, or Hey, I'm just gonna go buy this new house, or take this suspense of vacation, not knowing the ramifications of it. But if you've done the trade offs and you know, like, Hey, if I buy this house, I may have to work two or three more years later on down the road. Well then if you're okay with that, then so be it. Like go do it. Right? But if like, ah, I don't really know that I wanna work two or three more years, and you make the decisions not to buy that house. That's a good decision too, right? knowing these trade offs, that's what financial planning is. Now, there are technical things within financial planning that you need to know, like how to run projections and tax planning and how to build a portfolio that, that meets your risk and, and all those sorts of things. Uh, but ultimately when you're making these decisions. Uh, there, there are trade offs and we gotta understand what those trade offs are. So what changes when you're actually saving enough? Here's the shift nobody talks about. Once you're saving enough, the question is no longer, how do I save more? It's, how do I deploy these resources better? Right? So once you're. Hitting your savings goal once you've paid down your bad debt and done all these things that all the big financial guru talk about, that might be spending to reduce friction in your daily life. So shoot, hire a cleaner. Babysitters daycare, cutting back on work for a spouse to take care of the kids, or homeschool what, whatever that may be. saying yes to, vacations with friends and, and things of that nature. Improving the quality but not the quantity of your life. This isn't lifestyle inflation. This is just employing that extra cash that you know, that now my financial future is taken care of and we can start to live. A life that, that means a little bit more to us, right? So it's more intentional, than it is, being irresponsible or trying to keep up with the Jones. So money has a job and those jobs change over time based off of where you are in your financial world. And so that job for that money up front may be, Hey, I need to save and pay down, down as fast as I can. Right? And at some point. It switches to, Hey, I've done those things. Now this job for this money is to make my life a little bit easier. Gimme more options, or whatever that may be. Right? another question you could ask yourself is, what problem would saving more actually solve? Like if you had 10,000 more dollars or 50,000 more dollars or a hundred thousand more dollars, what is that actually gonna solve if your answer is vague? and then you say, I don't know, or It feels safer, or That's what I'm supposed to be doing. This is a sign right. Saving without a defined problem is not a strategy, it's a habit. And habits don't adapt on life changes. if there's not a reason for the saving, like why are we saving? It doesn't mean you shouldn't be saving. It just means, Hey, do we have a purpose? Do we have a job for this money? And, and we want to be able to use this money as a tool. And if we are using this tool for the wrong job, we need to redeploy that tool for the correct job. And then that, that may not be saving or investing. It may be, increasing the quality of your lifestyle, or it may be saving because we know we have, A fault in our plan or we want to do other things later on down the road. So these are just questions that you need to ask yourself. And again, this is not me saying you need to go spend frivolously just saying, Hey, relax, ask these questions. What is my goal? What is my purpose? What is this money supposed to be doing for me? And if those things align and we have our financial future taken care of. Let's start to find that balance between living now and saving for later. so if you've been waiting for a number to give you permission to live, that's probably not coming enough isn't a number, it's a position. Enough structure, enough flexibility, enough margin, enough understanding, and I think understanding is probably the biggest, important part there. Yeah, once you've reached that position, saving more becomes optional. It's not mandatory, right? and so we talk about Coast Fire. we spend a lot of time at that toward the end of the year. So if you, if you're unsure what that is, coast Fire is just making sure that you have enough in your retirement accounts that, hey, I don't have to save as aggressively moving forward and I'll be okay long term. And so this is kind of what we're getting at here is. Hey, once we've reached this optionality, this flexibility, this room for error savings, not necessarily. So urgent anymore, right? It's, it's more of, Hey, what do I want my quality of life to be? And that's when money finally starts doing what it's supposed to do. Support the life that you're already living or want to be living, right? If you want help figuring out whether you're saving enough for your specific situation, that's exactly what I do. at my firm, Palm Valley Wealth Management. If this episode helped reframe how you think about saving, I'd appreciate it if you shared, this podcast episode with a friend, leave a review on your favorite podcasting app. As always, this is educational. It's not personalized advice. Please do not make decisions solely based on this podcast alone. Please, seek professional help when making decisions about your situation. So thanks for listening, and we will see you next week.