When taking medicine, there’s a “minimum effective dose.” You don’t want to receive too much (or too little) medicine, you want enough, just the MED.
What about applying this idea to other fields, switching “amount” for “dose,” making it the MEA?
For example, instead of asking how much money is “enough,” try asking what’s the “minimum effective amount” to generate the money you need to live on. It’s a different amount for everyone.
But how do you know what the MEA is for you? Some clever people figured it out.
First, determine how much you spend in a month. It’s not as hard as it sounds. Set up a chart that includes all the stuff you buy and then just plug the numbers in as you spend. It doesn’t need to be fancy, just easy.
After six months, or longer if you want, you’ll figure out what you spend per year. There’s a bonus here too. You’ll likely find things that you don’t want or need and can eliminate them, lowering your MEA.
Here’s what the clever people figured out. Your yearly MEA multiplied by 25 is how much you need to be finically independent. If your money is in a low-cost stock index (like the S&P 500) mutual fund you can take out up to 4% a year (forever) to match your MEA.
Twenty five times is the MEA. You could use 26 times or more if you want to go beyond your MEA.
It’s a little bit like exercise. What’s the minimum amount of exercise you need to do to be healthy? No one really knows for sure.
Increasing exercise to the point where you look like a bodybuilder is way beyond the MEA, and more than most people want to do. At least with a financial MEA you can have a baseline for your financial health. Then if for some reason you want to go beyond “enough” and be a financial bodybuilder you can pursue that too.