0:00 Who are you? And where are you going? What do you want? Hello and welcome to People Making Money. I'm your host, Kevin Bemel, and I'm here every Wednesday at 10 a.m. Pacific time to talk about uh job hunting and being an employee, starting and running a business, and building wealth. So, the whole financial side of our lives. And today I'm going to be
0:35 talking about the math of enough. This is uh I'm doing sort of a rotating cycle right now between those three topics. This is uh the wealthb buildinging topic and I you know it it it's it's interesting it I came to understand this through the sort of iterative process of of goal setting and and and being dissatisfied with the progress in my life and and those sorts of things. And I realized that
1:10 the human nature is such that if we don't have a defined target. So life becomes pretty frustrating. um especially when it's a a target like wealth where no matter where we turn uh I guess unless you're a long Musk who I think is at this point the wealthiest person in the world there's always somebody wealthier than you and there's always somebody who has you know better toys or or whatever a bigger house right and while it's human nature perhaps to envy
1:46 such things uh it's very corrosive to to our well-being, to our emotional outlook and stability. And so I think we have to think carefully about what it means for us as individuals to be wealthy or to be content with our financial situation. I think it's reasonable to conclude that not everybody necessarily wants to be wealthy at least in the way that that concept is is generally perceived. Uh on
2:24 the other hand, I think that a lot of people want to have uh sufficient resources so that they're not they don't they're they're relatively free from financial worries that they're able to provide for their families and themselves that they're able to, you know, pursue the kind of lifestyle they want to pursue. And for most of us, that's not a billion dollars. It's not $100 million. Um, it's it's probably somewhere in the seven to
2:59 maybe eight figure range, right? And and for most of us, that's actually pretty doable. So when I was in the United States Navy, one of the things I was looking at and I I used to do a lot of financial counseling with sailors and marines, which may seem strange because I was a chaplain, but my philosophy was if uh you know, if a if a young person was freaking out about, you know, paying the rent or buying food or whatever, they're they're not going to be interested in
3:34 talking about anything uh you know, religious or spiritual, right? So we need to sort of start with the foundational elements and for someone who joins the military and stays to the point where they earn a pension, right? So that pension in a way is is the equivalent of having about a million dollars or so in the bank or in in not in the bank these days but in in investments. And I I showed a number of
4:10 them how you know by doing certain things they could actually become a millionaire just just being in the Navy or being being in in any of the service branches. uh you know making a reasonable advancement. I think you had to become at least an E6 in order for it to work out that favorably. So you know if if we if we work hard if we're prudent about investing and such then that that goal is it's very attainable. Is eight fig of an eight figure net worth attainable for most of
4:46 us? I don't know that that's I that's a different question. I haven't I haven't delved into the likelihood of of reaching it uh for you know for a wide group of people. What I can tell you is that um having a 10 figure net worth in the United States puts you in the top 1% of people in this country in terms of net worth. somewhere around 10, 11, 12, $13 million, somewhere in that range puts you in the sort of, you know, you hear about them all the time, the vaunted 1%. And,
5:25 you know, by today's standards, I don't know, that doesn't sound like a whole lot. uh you know when we talk in terms of billions and companies are worth trillions of dollars and such uh you know a poultry 10 million doesn't sound like that much but on the other hand it's it's a lot and it's more than you know 99% of people in this country have in terms of their net worth. Now that's all there's also an age factor to that. So, you know, for people who are in their 30s, you can be in the top 1%
6:01 by having a net worth of maybe$1 to2 million, something like that, right? So, but by the time you're, you know, my age, you need to be in that, you know, eight figure range. So, the question really boils down to what is enough, right? And for some of us it may be six figures. For others of us it may be seven. For others it may be eight. And for some people I I I think you know for someone like I I mentioned Elon Musk. I'm not sure there is a number that that is enough. I think you know he wants to
6:37 be the wealthiest person in the world and so that means becoming ever more wealthy. Um a as I've I haven't mentioned this in a long time. This is not a show for people who want to be, you know, Elon Musk or people in that ilk. Okay? This is a show for regular people who are seeking to live uh good lives, sat lives of satisfaction and and don't want to spend essentially every
7:12 waking moment focused on making money. That's why the the name of the show, People Making Money, is is a little bit tongue andcheek. Uh because it's really about putting that in the right context. I shouldn't say the right context. I think it's about putting it in the context of our lives that's appropriate for each of us. That's I think that's the the better way to express it. So, I have a few as is, you know, my practice on this show. I have a few thoughts on on this topic and that that I want to share for you share with you. So first of all,
7:49 we need to define enough as a number not a feeling. If we're going to rely on our feelings to determine what is enough, we're never going to get there. Okay? It's it's again it's the nature of it is it is human nature, right? So we can figure out mathematically what is enough if we c if we understand what we want out of life. Right? And
8:24 what's enough for me is different than what's enough for you or then is different than what's enough for my older sister or my mother or my friends. Each of us, we have a an image of our life. We have responsibilities to other people hopefully. And what it takes to fulfill those responsibilities to give us the kind of life that we seek is different. Right? For some people,
9:01 international travel first class all the way is really what they seek. That person has that the math of enough is higher than it would be for someone who really enjoys, I don't know, hiking, being in nature, um and and they they don't particularly like traveling far from home. Uh so, you know, is is one life better than the other? I don't think so. Because I think if you took the person who liked being in the outdoors and hiking and such and told them, you know, we're going to send you all over the world to stay in five-star
9:37 hotels and and and eat at fancy restaurants, they'd kind of be like, no thanks. And for the person who likes doing that to say, "Hey, we're going to let you spend, you know, eight weeks out of the year hiking through, you know, Sequoia National Forest," they're going to be like, "Why?" Right? So this is why understanding what we want in life is is so important. And and and by the way, just I haven't talked about this for a while, but that's really the essence of the three pillars of attainment. It helps us to understand all the different aspects of life and
10:13 and figure those kinds of things out. What kind of relationships do we want? What kinds of pursuits do we want to pursue? what how do we want to identify ourselves? Right? Those are the three pillars and then within each one of those there are realms to break down each pillar into smaller pieces to to you know better understand them but it all aggregates together. Okay. And and when we've when we've answered
10:48 the questions like uh you know what kind of what kind of family life do I want? What kind of friends do I want to have? What is my relationship with God? Right? When we figure that out, that has that will have an impact on what we conclude is enough. Right? So, if we have families scattered all over the world, for example, and we want to have close familial relationships with the members of our family, traveling to those places costs money. Okay. Um, now maybe we're not going to
11:25 travel anymore. We're going to do it virtually. But let's let's let's be honest. Meeting with people virtually is not the same thing as meeting seeing them in person, sitting down to a meal, going to some kind of event with them. Just sitting and talking with them face to face. That is different than virtual. So for someone who has figured out in terms of their relationships what they want and family is the top priority that's the top realm there on the on the relationships pillar and and their family is on you know four continents
12:02 right so the math of enough for them is higher than someone who has a very small family and and all all the members of their family live within driving distance. Right. Okay. And and those are the kinds of things we want to figure out. Okay. All right. So, what we need to do then is calculate the cost the annual cost of of the lifestyle we want both today and then adjusted for the future, right? Because there's there's inflation. So, um I I was looking at
12:40 something the other day. Um, someone who makes $100,000 today back in 1989 would only have had to make $37,500. Okay, that's how much inflation has impacted uh incomes over the last uh what it's been 50 years or so. Not quite 50 years, 45 years roughly. Okay. So, 45 years from now, if if you know, if we need
13:16 $100,000 for the lifestyle we want to lead right now and and we're, you know, you're in your 30s, well, 45 years from now, you're going to potentially need a lot more than $100,000. You may need, who knows, 250, $300,000, right? So, as you look at the math of what is enough, have to make sure we're planning for the future, right? Okay. So, once you figure out what you want for your lifestyle, I'm just going to use
13:51 that figure of $100,000 because it's just it's an easy number to work with, right? So then uh we need to look at okay how much wealth do I need to accumulate in order to generate that kind of income. Okay. So let's assume you can get a 4% return uh after tax return, right? Well, I'm sorry, a 4% return. Let's say you need $100,000 pre-tax today. Okay. So,
14:26 if you think you know it's sustainable to get a 4% return on whatever accumulated wealth you have, okay, obviously that wouldn't include equity in in your house because you're not getting a return on that, but a 4% return on your investments. So, you'd need $4 million today. Pardon me. Sorry. Um, no. Sorry, gave you the wrong number. So, if you have um $2.5 million today invested at 4%, that will give you
15:04 $100,000. Okay? If you think you can get only a 3% return. Okay? So, then you need more like 3,333,333. Okay? And a 3% on ter return on that each year would give you about about $100,000. Right? So, but that's what you need today. So, then how by how much does that amount have to grow in order to still give you the equivalent income whatever it is 10 20 30 40 years
15:42 down the road. Right? That's that's how you can arrive at a number mathematically and now you have a goal to shoot for. Right? So, uh the key thing is to distinguish then between your your baseline needs and your aspirational wants. Right? So your baseline needs may be shelter, food, transportation, health care, maybe you know education for your children. Okay?
16:19 Those kinds of you know daytoday needs. Okay. uh aspirational wants maybe things like travel uh you know I don't know in endowing a a a scholarship uh you know philanthropically uh I I you know having having a boat to you know to sail around in uh driving racing cars uh owning horses right all of these we don't need to have those things to live, but they they they are
16:57 oftenimes the kinds of things in which we engage that makes life better, more enjoyable, right? So, distinguish between those. So, maybe you need $100,000 to meet your baseline needs and then you need another whatever the number is, $25, $50,000 a year for your aspirational wants. Okay? So, now let's just say you need $150,000. Okay. So, at at a 4% return on your investments, now instead of needing $2.5 million, you need $3,750,000.
17:33 Okay? Or or in round numbers, $4 million. All right? So, again, we can figure all that out. And now we've got a goal. Okay. Uh All right. So, so that that's number one is is we need to understand what kind of life we want and then we need to figure out what is the annual cost of that baseline needs, aspirational wants and then we can figure out from that what some people call the freedom number. That's the amount of money you have invested that's giving you a return
18:11 uh off of which you can live. Okay. So it's very powerful to have a finish line even though most people don't set one. Okay. Uh the reason is because without a defined enough the game becomes infinite. There is there is no finish line. You're always running and that's exhausting. And and the other thing is I if if you've ever been a runner, right, you you know, one of the one of the
18:47 great things about knowing how far you're going to run each time is as you get closer to the end, you can get kind of a jolt of energy to push you over the finish line. Okay? Whereas, if you just you're just out running until you drop, uh you you know, you never know when when things are going to end and there's there's you you're not able to pace yourself. You're not able to tell if you're making progress, right? So, again, it just becomes kind of a an an infinite uh
19:25 situation and you wear yourself out. So the other problem with an infinite game or an infinite situation is that um you know it it sort of encourages unnecessary risktaking right. So on the one hand it can burn you out because there's no end to it. On the other hand, since there's no limit to what you're after, sometimes you say, "Well, hey, I can make this big gain by taking this risk." Um, but but of course, anytime
20:02 taking a risk can lead to a big gain, it can also lead to a big loss. That's what that's what risk is all about, right? There's no such thing as a safe big gain. I I know people talk about them and all of that. that it only means that the the investment hasn't been investigated thoroughly enough to understand what the downside risks are. The and the downside risks oftentimes it could be that you're locked into the investment and you're not able to get your money out when you need it and that can be a risk
20:38 especially if you if you need the capital, right? So there's things like that and wi without that that goal without that limiting factor um it becomes very tempting to jump into investments that are riskier than what what otherwise would be prudent. Okay. So the other thing having a clear finish line or a clear target does is it changes behavior. Okay. from accumulation to preservation. Right now, that can sometimes hold us back. If
21:15 we're so afraid of ever losing any money that we're not being sufficiently aggressive in our investments, we may never get to our goal, depending on what it is, right? So, there needs to be a balance between accumulation and preservation. And of course, as we get older, you know, well, as we're younger, accumulation probably is going to take precedence, but as we get older, eventually preservation is going to take precedence because we don't have the time to recover from a mistake that we
21:52 had when we were younger. Okay? So in the end to not have a finish line oftentimes leads to uh dissatisfaction rather than security. So take the time to figure out the finish line and then understand the powerful tool that you have developed for yourself. Okay, let's take a quick break and we'll come back for more. When life brings unexpected changes, managing inherited property shouldn't
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23:06 All right. Next. So, the marginal utility or usefulness of money tends to decline and in and sometimes sharply. So early dollars buy us freedom. Now I want to qualify what that freedom what I mean by freedom. What it mean what it typically buys us is more choices. Okay. Um more options. Okay. I've talked
23:43 about optionality at least a couple of times um in in this season's worth of shows. Okay. So, uh, for example, when I've talked about having your own business, so that doesn't necessarily help you build your income and wealth faster. What it typically does is it gives you greater flexibility in how you handle your life. Because if you want to take an afternoon off to go watch, you know, one of your children plays play in a, you know, sporting event or something, you can. It's your business. you can do whatever you want, right?
24:18 Whereas if you work for someone else, you may need their consent to do that, right? Uh but uh for most people, having their own business won't necessarily mean that they're going to make more money than they would have made working for someone else. But there is a lifestyle decision there. And for people who value freedom, i.e., you know, the ability to choose unhindered by a boss. Um, giving up some income ma may very well be be a m may may very well be a
24:56 good tradeoff. That was certainly the case for me. That's why except for when I was in the Navy, I've almost always had my own businesses um in in my professional life. Okay. So, first dollars by freedom, later dollars by convenience. So, I was talking with a friend of mine and he was telling me uh recently his his uh uh sister and and brother-in-law got got a dog um a a a particularly it's a particular type of guard dog. I don't remember the breed. And I'm kind of like, wow. I mean,
25:33 how is she going to handle that dog? That was the question I asked him. And he said, yeah, I mean, the dog is it's very strong. It's like 65 pounds, pure muscle. And I I said, "How is she even going to get it to go to the vet?" And he said, "Well, you know, she'll just probably hire someone to take it to the vet." Right? So, uh, you know, that's convenience to have a dog like that for the reasons that they want the dog, fine. Uh, but to be able to, you know, hire someone to take your dog to the vet. Most of us are not going to do that. We don't have the money to do that. This particular person does, and they can buy that convenience,
26:11 right? But there's there's a certain decline in marginal utility between freedom and convenience. Okay? And so just because we have more financial resources does not mean necessarily our life gets better. Okay? It may get better and then it may kind of taper off and it may get more convenient but not necessarily better per se. And
26:46 you know I I think for you know some people don't like hearing this but the fact of the matter is having wealth does not make life problem free. It's just a different set of problems different set of challenges. What wealth does is it gives us resources to solve problems, but it doesn't take the problems out of our lives. The problems of someone who has little or no wealth are, you know, perhaps existential in the sense that, yeah, I can't afford
27:21 food or healthcare or whatever. And and they're very real. But people who are wealthy can also have existential problems. Okay? they can have dire health care problems that no amount of money is going to solve. Right? So I think I think we we need to stay aware of that because the the envy of wealth is is very uh damaging to our psyches. Okay. So uh a as we accumulate money each additional dollar tends to deliver less
27:57 and less real life improvement. Okay. Uh the fact of the matter is somebody like an Elon Musk has more money than he could ever spend even if he stopped working at this moment. Well, I mean his wealth is tied up in his businesses. So maybe that would cause his wealth to decline. But the reality is someone who's got multiple billions of dollars, that's more wealth than they could hope to spend in their lifetime. If they make another dollar on top of the, you know, the two billion they already have, that
28:32 is not improving their life, not in any material way. Okay? And someone who makes who has $2 billion who makes a half a billion dollars that half a billion dollars is unlikely to be improving their life in any material way. Okay. This the same is is is true if we just you know scale it down by a couple of zeros for most of us. Right. For most of us if we have you know $2 million is 200 I'm sorry if Yeah. If if we have $2 million, is $2 million, $10,000 really
29:09 going to materially improve our lives? No, it's not. Now, maybe will $3 million materially improve our lives over 2 million? Maybe marginally so. Okay. Now, again, this is somewhat dependent on the individual. So, you know, we need to know what we want out of life and how we're going to use the money to understand where those marginal improvement shifts are likely to come. Okay? So, there's no formula for f figuring this out, but it is a
29:44 phenomenon of growing wealth and it's something that we need to think about and figure out for each of us as individuals. Right? So as wealth increases, so gaining additional wealth as a factor in improving our lives tends to diminish in the face of having time to do other things we enjoy. in in the face of having good health, in the face of of building solid relationships, having
30:19 friendships and and close relationships with our family members, right? So those factors are likely to have a greater impact on our happiness, our well-being than building additional wealth. Okay? And again, this is going to be different for each of us, but those are some of the factors or those are the factors that I encourage you to consider as you work out the math of enough. Okay? So past your enough, whatever that number is,
30:55 to continue to work to accumulate additional wealth at the expense of taking time to do other things in your life, at the expense of your health, at the expense of spending time with other people and building those relationships is likely to lead to a very unfulfilling life. Okay. Next, risk changes once you've already won. So, let's just take a number. Let's say your your freedom number is $3 million.
31:30 Okay? Once you've hit that number, what kind of risk you assume in your investments should change. Okay? So, the objective should shift from winning to not losing. Right? You've met your objective. Now the only thing that's important is sustaining your, you know, freedom number. So if you know if your freedom number is $3 million today, so next year, you know
32:06 what? Maybe there's 3% inflation. So 3% of $3 million is about $100,000. So next year your freedom number is $3.1 million, right? Well, that's just a 3% gain. You can get that in, you know, a money market in in a number of money market funds these days, right? So these are the kinds of things that you know instead of maybe you know investing in something riskier maybe some kind of real estate
32:41 investment or continuing to hold a lot of your wealth in a business which is a riskier proposition than certain types of financial investments. So you may need to start shifting where you know in what things your money is invested. So overexposure to the market in terms of stocks or bonds or a business or having high leverage, all of that may become irrational once you've once you've won, once you've met your freedom number goal, right? And and it's it's not
33:18 necessarily a matter of, you know, like huge risk and then all of a sudden you hit your goal and and hit hit your goal, bang, okay, now I'm like no risk. No, it's it's it's probably more like a a a tapering of risk right now. You're never presumably you're never going to get we're never going to get to the point where we uh don't take any risk because that that is part of why we get a return on investment. But but certainly as I mentioned earlier the the amount and kind of risk we take when we're younger and in the accumulation phase is almost
33:55 for sure going to be higher than that which we take on once we're approaching and have gotten to our freedom number gotten to the point where we we have won. Okay. So we really it becomes far more important to protect the downside than it does to chasing upside. That that is the bottom line, right? We're there. Now it's time to enjoy the fruits of our labor, so to speak. Okay. So the the reality is that
34:32 for for some people financial failures actually happen after they've reached the enough point because they fail to make that shift from winning to not losing. They take on risk they shouldn't have taken on either because they're greedy or they're just not paying close enough attention and and and their investments are kind of drifting or whatever, right? And now all of a sudden they were they were at their winning number and bang, now they're below it again, right? So this is why we
35:11 we once as we start approaching the point where we've won, we want to start examining how we're going to make that shift, okay, from winning to not losing. So finally, at the point where we're getting we're getting close to winning, we probably should be thinking also about shifting our focus from net worth to life impact. Okay, building wealth takes time. It takes focus and it takes energy that
35:49 otherwise might have gone into something else. Okay, that's just the reality. While it was very popular or maybe it still is very popular to think that we can have it all, we can't. Okay, just we need to do away with that foolish idea. We cannot have it all. We have a limited amount of time. We have 24 hours in the day. That's all we've got. and and what we need to learn to do is pri to prioritize uh and and decide you know what is important to me right that's why by the
36:26 way for some people pursuing you know 10 figure wealth is just not anything they care to do because the sacrifices they have to make in other areas of their lives is just not worth it right so as as we transition from building net worth to building a life of impact. Right? So now we're going to look at potentially allocating capital to things like family, to philanthropy, to building a legacy. Right? I have a friend who um talks about how, you know,
37:03 he's he's working to get to the time where, you know, he can take all of his family, his children, his grandchildren on a great trip somewhere where they can just be together, have great food, enjoy the time together. That's that's what he's looking that's what he's that's part of the reason why he's building wealth so he can make that shift uh from you know focusing on net worth to focusing on life impact right this is someone who understands what he wants from life right we all need to do that we all need to follow
37:38 that example I should say okay so as we again make that shift we want to invest more in in freedom in the sense of pursuing the life that we want to live, not just financial returns, right? And and and this this kind of goes back to the um um the issue of diminishing returns, right? We'll get much more satisfaction in life from nonmonetary things
38:14 once we've hit our once we've won, once we've hit our enough point, right? And so that's when we want to start looking uh at how we're going to take advantage of the freedom that we've earned by having built the financial foundation that we've sought over whatever period of time that was. Okay. So, we need to start acting what is the money for now instead of how do I get more money right
38:49 now? We don't want to wait to ask that question until we have the money. We want to ask that question. This is taking us full circle. We want to ask that question as we investigate the three pillars and the nine realms, right? What is the money for now? What will the money be for when I've won? That will help you figure out what that winning number is and help you quantify your success. So, I thank you very much for joining me
39:25 today. My slate of shows is Monday at 10:00 a.m. Pacific time, trust and estates weekly. Tuesday at 10 a.m. Pacific time, business lessons from the military. Wednesday, like today at 10:00 a.m. Pacific time, people making money. And every other Thursday at 5:00 p. p.m. Pacific time, join me at Jiggers's place for a cocktail and a smoo. We talk about almost everything except for finances. So, if you have any thoughts, comments, criticisms, uh in in the show notes, you'll find links to social media as well as my
40:02 email address. You can find my shows on YouTube, Spotify, and Apple Podcast. So, whatever your favorite platform is. Uh, and I thank you once again for joining me, wishing you a wonderful rest of the day, and signing off as I always do. Marie darling, you are my bell. Courage at all times, my friends.