According to the Charles Schwab 2021 Modern Wealth Survey, Americans need an average net worth of $624,000 to feel financially comfortable. This is great news! You don’t even need to be a millionaire to feel comfortable! This shows that being rich is a mindset, rather than a dollar figure.
What’s even more interesting is that this figure is actually down from 2020 numbers from what Americans need in order to be financially comfortable. Which was $934K. As someone with a net worth around the $400,000’s, I can confirm that a net worth of $624,000 will make me feel quite well off.
That’s a 50%+ increase in order to get there! I can only imagine what that feels like. I know once I get there, I’ll want more but it feels really good to envision that sort of net worth in my life. That’s when I can safely withdraw ~$24,000 without feeling stress. That’s $2k per month plus my regular salary, sign me up!
Will $624,000 make me feel financially independent? Absolutely not. I need something close to $1.5 million in order to make me feel financially independent. However, comfort is a separate and different story from being independent. It’s what makes me worry less about being able to put food on the table.
It’s what makes me worry less about being laid off because I can stand on my own two feet, if push came to shove. It gives me the leeway to dust myself off and keep going. It’s good to be financially comfortable because it allows you to take more risks later down the road.
What Does it Mean to be Financially Comfortable?
Financially comfortable does NOT mean financially independent because financial independence means that you no longer need a steady paycheck to fund your day to day lifestyle. Financially comfortable means that you have just enough money so that you don’t feel stressed out about your life.
If you suddenly got laid off and lost your income, then you are still able to stand on your own two feet. You’re not wealthy beyond your wildest dreams but you’re not stressing out where the next dollar is going to come from. You can put food on the table and pay for your necessary life expenses such as rent, insurance, and the like.
You still need to work for living but you’re not exactly poor that you need to get a second job just to make ends meet. Debts don’t faze you. That’s what it means to be financially comfortable. Not so rich that you don’t need to work a day in your life.
But not so poor that you’re stressing out where your next meal is going to come from. There’s no money stress in your life. I am close to feeling in such a manner but I’m not there yet. I hope to be there in the next 2 years and be financially independent on the next 6 – 10 years.
It’s freeing to be in my situation currently. More so because I LOVE my current job. I wouldn’t have any other job because I’m in a challenging role where I’m growing my career and intellectual curiosity. It’s going to propel me for success and be financially stable.
How Much do You Need to be Financially Comfortable?
This all varies between person to person. Everyone is different and so what’s financially comfortable to one person may not be financially comfortable to another. This is when you’ll have to put in your own subjective reasoning on what’s financially comfortable for you.
A good rule of thumb is to have a net worth of $624,000 in order to be financially stable and secure. Remember that the average net worth of Americans was $748,000, according to Fed’s survey in 2019. The median net worth was a lot lower at $121,700.
Whatever the number is for you, find out what the number is. Then try to strive for that number. It doesn’t seem possible until it is. It all starts with having a good paying job, saving and investing as much as you can, and looking at the long term.
Personally, the cited figure of $624,000 will make me feel financially comfortable. There isn’t a lot of things in life that I want. I don’t need to be a multimillionaire in order to have my financial needs met. I’m starting to feel financially stable with a net worth of $400,000.
Am I there yet? Absolutely not. I’m still at the mercy of my landlord if I decide to live in a rental over the long term. There are so many people who have power over me, it’s a little daunting. However, once I’m financially comfortable, I have the power and flexibility in order to move. Which is when I’ll feel happy.
How do You Know You Are Financially Comfortable?
So how do you know you are financially comfortable and stable? For one thing, you have the leeway to SMASH that social share button and post to your favorite social media! Your friends will be shocked at what it takes to be financially stable and this is valuable information for them.
If anything, please share for me. So with that said, let’s go into the concrete details on how you know!
1) $20 Spending Doesn’t Faze You
$20 is a lot of money. In some parts of the world, that buys dinner for an entire month. When a $20 spending doesn’t faze you, that’s when you know you’re financially comfortable. These days, I feel so much pain when I have to spend $20. It’s even more painful that that’s a more common expense than you think.
Inflation has gotten through the roof. If you want to go outside to do something, everything just seems to cost $20. Free events are existing less and less these days. Therefore, when this level and amount of spending doesn’t bother you in the least, that’s when you know you’ve made it to be financially secure.
Whether it feels that way or not, $20 is a lot of money. What $10 used to buy has to be bought with $20 now. If this level of spending truly doesn’t bother you, even after knowing and understanding just exactly how much this money is, then you are well off and doing quite well financially.
2) You have no Debt
This is another sign of being financially comfortable. People who are financially stable doesn’t have any debt, maybe besides their mortgage debt. They have no need to fund their lifestyle on a credit card or a personal loan because, well, they already have the money to fund their life already.
When you don’t need or have to use debt in order to fund your lifestyle, that’s when you are financially stable. Your expenses are taken care of by your salary or other income generating means. There’s no need to pay off any loans either for furniture, cars, or anything of the kind.
If you do have debt, you have business debt that you can pay off with the funds generated from the loan. When the debt makes more money than the interest rate it takes to have the debt, then you are making some smart financial decisions and are on the way in order to be financially free.
3) You have at Least a 6-Month Emergency Fund
So many people neglect their emergency fund. In the 2020 and 2021 equities boom, many people were using their emergency fund to trade and invest in stocks. That’s the most irresponsible thing you can do! Emergency funds are used for emergencies. It’s not to try and make more money.
If you have a six month emergency fund, then you are financially comfortable. You have the means to cover your life for the next six months should something happen or occur. There’s no need to take on debt in order to fund your life in the meantime. You can just tap onto the emergency fund and stand on your own two feet.
A $1,000 car trouble expense is an example of an emergency. Or maybe you got in a car accident recently (that’s me) and you need to tap into the funds in order to purchase transportation. People don’t think bad things happen until it does. Bad things ALWAYS happen.
Financially Comfortable is Just the Beginning
You just found out you are financially comfortable with a $624,000 net worth. Hurray! That’s amazing news and I’m very happy for you. However, don’t stop there. It’s just the beginning. The snowball effect is just starting to happen. Now is the time when things are going to snowball in a bigger way and in a much faster way.
That’s when six figure increases to net worth used to take 2 years. But now they only take 1 year. Or even better, a couple of months. It’s amazing just how fast compound interest works. You don’t want to give up just as you’re about to strike some major gold.
It’s time to get to the next level. There’s no reason to stop at $624,000 when all it takes is just six more months before you reach $724,000. And so forth and so forth. Too many people discount just how much of a rainy day fund they need. We’ve been spoiled rotten by the long lasting bull market.
When hyperinflation and/or a prolonged bear market happens, you’ll wish you worked just a little bit harder. Don’t retire with the minimum amount that you think you’ll need for the rest of your life. You need a margin of safety. There’s always something unexpected that’s going to put a tailspin on your plans.
Having a large enough margin of safety that goes beyond being financially comfortable isn’t a bad way to go. Too many people want to reach the minimum FIRE number necessary in order to reach their goals. That’s not the right way to live. Working a 9-5 isn’t as bad as some people make it out to be.
What’s the Next Level of Being Financially Comfortable?
The next step from being financially comfortable is to be financially independent. These days, you’re not trying to make and retain more money because you want to make more money. You’re trying to make more money because it’s become a necessity.
Financial independence is when you have all of your expenses taken care of by your various income sources that you have. It can be in stocks, real estate, cryptocurrencies, and the like. The income generated from these sources pay for all of your living expenses and then some. Doesn’t that sound like the life?
You don’t have to lift a finger to make any more money. All you have to do is sit back and watch the money roll in while you literally do nothing all day. That’s the next level from being financially comfortable and financially stable. Financial independence is when you work because you want to work.
Financial independence is when you pursue projects that interests you, instead of pursuing projects that’ll put food on the table. It’s when you have choices. Plenty of people live life because others dictate them to do so. Not on their terms but on someone else’s terms.
That’s not a good spot to get into. Your life should be yours and yours only. Someone else shouldn’t dictate what you need to do with your time and the like. You are worth more than to be someone else’s passive income source. You are your own human being with your own ambitions and goals.
Get to a Place of Being Financially Comfortable
The first step, however, is to be financially comfortable. You don’t want to be so financially dependent on others and by taking on debt that you’re not your own person. There are many things you can do in order to be financially stable and comfortable. The number one thing you have to do is save as much money as you can.
Save and invest as much money as you can so that your investments start paying you the money to fund your life. Instead of the other way around. Then you can look into optimizing the process by getting a good credit card, negotiating cable bills, and the like.
However, the first and number one important thing you need to do is to get the savings and investing rate up. That’s what’s going to make you independent from someone else’s money. That’s when you’re going to get to a point where you can feel like you can take on a fair amount of risk.
There’s never been a better time to be financially comfortable. Financial literacy is available at our fingertips and are available for the masses to learn from. Money isn’t the most important thing in the world. However, that doesn’t mean that it’s not important.
It’s such an integral part of our lives that it’s more important than ever to be financially comfortable. Once you get there, it’ll just be smooth sailing into the sunset and life will be much more enjoyable without the money stress. You definitely don’t want stress to affect you over the long term.
