How much money you need to feel financially secure

A survey conducted in the US finds that $516,433 (R7.5 million) in savings is the magic number required to feel financially secure.

A report by financial services company Personal Capital found that 20% of respondents would need more than $1,000,000 to feel financially healthy.

When it comes to defining financial health, the report found that there is no one-size-fits-all definition, with Americans striving toward financial independence.

The primary drivers of financial health include stability and security. Most Americans aim to have enough money to cover expenses and avoid losing sleep over money worries.

According to the study, 49 is the average age at which respondents think people feel financially healthy, and 47 is the average age at which respondents actually feel financially healthy.

Most respondents said that net worth is an important number to track, and 73% said that their net worth is a top indicator of financial health – yet only 66% know what their net worth is.

The study, conducted by The Harris Poll, found more than half (57%) of Americans connect financial health with their overall happiness.

When asked to define the term in their own words, the results showed it’s less about money or retiring at a certain age, but instead around the concept of financial freedom and having the ability to choose how they want to spend their money.

Key Findings from the ‘Financial Wellness’ poll:

• Financial wellbeing is rooted in “freedom and independence.” The vast majority (81%) say, “I will feel financially well when I have the freedom and ability to spend how I want to.”
• Financial wellbeing can also feel elusive. A majority (60%) feel confident in their ability to achieve financial health, but only 48% feel financially healthy today. Most think they won’t achieve financial health until nearly age 50 – or when they have over half a million dollars in the bank. But even more than dollar amounts, what’s most associated with financial wellbeing is peace of mind (for instance, having enough to pay bills and meet spending needs).
• Most need help on their journey to financial wellbeing. Nearly 7 in 10 (69%) face at least one roadblock. Lack of income (27%) and constant expenses (23%) are top barriers.

South African context

In a South African context, financial freedom means having enough savings, investments, and cash to afford the lifestyle you want without stressing about the financial impact of your decisions.

According to personal finance expert Warren Ingram, a “financial freedom number” refers to the amount of money you need to never have to work for a salary or a wage again.

Ingram stressed that the financial freedom number is different for everyone. However, it’s the number that gets you to a point where you don’t have debt, where you have enough money for an emergency fund that covers three months’ worth of expenses and have investments that cover your monthly expenses.

“It’s not a function of what you earn,” said Ingram.

Old Mutual Savings & Investment Monitor

Old Mutual is expected to publish its Savings & Investment Monitor this week. The 2020 edition showed that as a result of the Covid pandemic, financial satisfaction levels in South Africa are at an all-time low at 5.3 out of 10.

The drop in satisfaction levels is evident across all income groups

Satisfaction With Overall Financial Situation-Group by Demographics

Buffer 

Buffer savings, already under pressure in 2019, have been further eroded with the resilience of relatively higher earners now being tested, the survey results showed.

Consumers were asked to assess their available funds in the face of retrenchment or loss of income. In 2020, just under 40% of respondents said that they only have enough money to last a month or less, up from 28% in 2019.

Old Mutual noted that the position of higher earners is more resilient, but even the majority of higher earners are in a precarious position. It added that the deterioration in the stock of buffer savings is evident across all income groups.

Read: How to retire at 40 – according to JPMorgan’s asset and wealth management leader