How To Know When You’ve Saved Enough, According to Ramit Sethi
Written by
Laura Beck
Edited by
Gary Dudak
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Many of us are continually saving, but how do you know when you have enough? Well, the answer is both complicated and simple, at least according to personal finance expert Ramit Sethi, author of “I Will Teach You to Be Rich” and host of Netflix’s “How to Get Rich.”
In a recent newsletter, Sethi offered insights into this common question and exactly how to apply it to your life. According to him, here’s how to know when you’ve saved enough.
Understand Your ‘Money Dials’
Sethi introduces the concept of “Money Dials,” which are the areas you’re saving for. He argues that knowing these can transform your relationship with money. “If you don’t know exactly what you’re saving for, how can you figure out what to spend it on? How do you know when you’ve saved enough and can move on?”
To identify your Money Dials, think about what you love spending money on. This could range from travel and fine dining to home improvements or supporting charities. By clarifying these priorities, you can better align your savings goals with your personal values and aspirations — and Sethi says this is key.
Recognize and Challenge Your Invisible Scripts
One of the key obstacles to feeling financially secure, according to Sethi, is what he calls “invisible scripts.” These are deeply ingrained beliefs about money that unconsciously influence our behavior. Some common invisible scripts include:
- “I’ll never be successful if I don’t go to college.”
- “I need to buy a house and stop renting. I’m throwing my money away!”
- “Money is tight everywhere. My company doesn’t have enough to offer me a raise.”
Sethi says these scripts can hold you back even when you have substantial savings. To make this point, he brings up a couple that pulls in $300,000 annually with half a million in investments, and yet still experience anxiety over a $50 purchase. Recognizing and challenging these scripts is something Sethi says we must do to have a healthier relationship with our finances.
Focus on Financial Freedom, Not Just Numbers
Rather than fixating just on a specific savings amount, Sethi thinks we should instead focus on achieving financial freedom. What does that mean exactly? Well, reaching a place where we can spend money without guilt or anxiety.
“Unless you change your feelings about money, the same anxiety will be there, whether you have $4,000 or $4,000,000,” Sethi wrote.
To move toward this freedom, Sethi thinks you should spend money on what you truly value, challenge your own limiting beliefs about money, share goals and dreams with your partner, and focus less on spreadsheets and more on building the life that you want.
Use Benchmarks as Guidelines, Not Gospel
While Sethi focuses on the psychological aspects of saving, it’s also helpful to have some numerical benchmarks. T. Rowe Price provides savings guidelines based on age and income. For instance:
- By age 35: Aim to have 1 to 1.5 times your annual income saved
- By age 50: Target 3.5 to 6 times your annual income
- By age 60: Shoot for 6 to 11 times your annual income
Roger Young, CFP at T. Rowe Price, said these benchmarks are meant to be guideposts, not strict rules. “The point of benchmarks isn’t to make you feel superior or inadequate,” he said. “It’s to prompt action, coupled with a guidepost to inform those actions, even if that means staying the course.”
Align Your Savings With Your ‘Rich Life’
Ultimately, Sethi thinks we each need to define what our own “Rich Life” is. What does it mean to you? Is it going out to eat and getting the appetizers and dessert, no matter the cost? Is it buying items when they’re not on sale? Is it going after a passion project without financial stress?
When you know what your Rich Life vision is, you can go after it. The goal is not to hoard all of your money in the bank, but instead to live a life that you love.
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