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Enough Ratio – The Household Version

This post is the third and last of a short series exploring what we term an ‘ethic of enough’ and one way that ethic is applied to personal finances.

In the first post of this series, we introduced and advocated for an ethic of enough. In the second post we raised and challenged you to consider the question of whether your household has enough annual income and whether it may be time to stop striving for more. But how do you objectively gauge whether you have enough income or whether you are striving for more simply for the sake of striving for more? Doesn’t our culture teach us we can never be too thin or too rich?

Yes, it does but that doesn’t mean our cultural teaching is correct or healthy. We all need to be able to afford the necessities of life, ideally without having anxiety about paying for them. What about the great many of us who easily afford the necessities and even some luxuries but are still anxiously striving to increase our income. How do we objectively gauge whether we have enough? Let’s circle back to the original questions in this series: “How can you have enough? What does that even look like?”

Image Credit: Insurance Noon

In the previous post we had you compare your household income to U.S. national standards. Now let’s have you take that comparison and apply our “enough-ratio” to your household standing. We’ve created and offer to you the following enough-ratios as both guidance and a reality check of what’s enough for any American household, wherever you are physically located or wherever you are on the trajectory of your career.

Take another look at your comparison of your household income to the U.S. national standards of the second post of this series. If your household income is more than ten times (10x) the latest Census Bureau poverty threshold for the same sized household, or twice (2x) the latest Pew Research upper income threshold for the same sized household, then you exceed these enough-ratios of 10x and 2x and you objectively have more than enough income for your household. Yes, objectively, you have enough! (In other countries these same 10x and 2x enough-ratios can be pegged to similar standards of those countries to likewise provide guidance and a reality check for what is enough.)

Now what are you going to do with that objective benchmark? What reasons do you have to strive for and accumulate more, beyond being trapped in a plantation system mentality? You may have a valid reason, but what is it beyond believing you can never be too rich?

Enough-ratios apply to passive income as well. In the first post we noted a pre-COVID 2018 Charles Schwab Modern Wealth Index survey identified $2.4M net worth as the amount by which our culture currently consider a household to be wealthy. A modest 4 percent return on that wealth generates income of $96,000, also in the range considered rich for a single person as well as exceeding the threshold for upper income based on the Pew analysis (see the second post). Even in the current bear market of September 2022, 4 percent yields can be sustained with conservative, high-quality investments.

Here’s the simple math for you to determine what’s enough wealth (nest egg or principal investments) for your household: Enough income ÷ Yield percentage that can be sustained perpetually without encroaching on the principal investment = Enough principal investment. For instance, Enough income of $96,000 for an individual ÷ 4% Yield = $2,400,000. What is enough wealth for your household’s nest egg or principal investments depends on the size of your household, which won’t likely vary too far beyond that $2.4M amount.

If your household is middle or upper income - especially if your household exceeds these enough-ratios, and you think you don’t have enough then that begs asking why your household is over-consuming. You need to dig deep and figure out why your household is living large, why you think living a large lifestyle is worth trying to sustain, and what are the ignored costs of sustaining that lifestyle (i.e., ignored costs focus are whether you or someone else is suffering or being exploited in order for your household to use more than enough).

We’ll be transparent, as always, and share with you that we find applying an ethic of enough and our enough-ratios challenging, particularly, yes, as we work to apply them to our own lives. But we’ve started, and we’re finding transformational improvements to our relationships within our households as well as reduced anxiety regarding our household income and wealth. (We suspect this may be a gateway to improving our individual and collective mental health, but that’s a post for another time.) Having tested and tried them on ourselves first, we encourage you to test and try an ethic of enough and enough-ratios on yourself and household. We’d love to hear your experience as you try these concepts or if you’ve been practicing some variations of enough, and what that looks like for you.

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