How much wealth is enough?

One of the most difficult questions to answer is how much wealth is enough? Many of you might be surprised to find such that a job that most of us will not take as the first option has the potential of generating a seven-digit monthly salary. According to the 7th Pay Commission, the minimum pay (recommended) for an entry-level government employee is raised to Rs. 18,000 per month from Rs. 7,000 earlier. If you start working at the age of 23 till 60 years and receive an annual increment of 5 per cent every year, he will retire with an annual income of Rs. 1,09,465 and would have earned Rs. 2.33 crores in cumulative wages over his career. This is the minimum that he will get, however, he may get promoted in between, another pay commission and a substantial increase in his salary, and all this has the potential of increasing his salary considerably and cumulative income by the same proportion.

So is this enough, it depends. Wealth is a relative value. What may be wealth for you may not be for others. There are different studies that have tried to arrive and understand at what amount is exactly enough. To arrive at the right number you have to answer some questions.

· What kind of life do I want to live?

· What is my mission?

· What does the perfect day look like?

· What truly makes me happy?

· What do I want as my legacy?

Once you know the life that you want to live you just need to figure out how much money it would cost to live that life. This is how you can arrive at that figure.

· What is your life expectancy?

· How much do I need in order to take care of my family's basic needs?

· What is the minimum amount of money I need each month to live the life that I want?

· How much money do I need to help others?

 Once you have figured out the answers to the above question you need to punch in those numbers in Excel to arrive at the wealth you would need.

 Let us take an example to understand how we can drill down to a Financial Freedom Number. Let's assume that Mr. X requires Rs. 4,50,000 for basic financial need, Rs. 1,50,000 for Semi-luxurious financial needs, Rs. 1,00,000 for current lifestyle needs and Rs. 50,00,000 for Luxurious Financial Needs. On filling in these numbers you get to a figure of around Rs. 6.1 crore, which is your required wealth.

Following are the assumptions:

· Current Age is 30

· Expected age to attain financial freedom is 40

· Life Expectancy is up to age of 85

· Inflation Assumed for Basic Financial Needs & Current Lifestyle is 8 per cent

· Inflation Assumed for Semi-Luxurious Financial Needs is 10 per cent

· Inflation Assumed for Luxurious Financial Needs is 15 per cent

· Return on Investment is Assumed is 10 per cent