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How much do you need to earn in the UK?

What is rich?

The question of how much money you need to earn and the concept of being rich is very subjective and depends on personal goals and lifestyle.

It varies across geographical locations, for example, the cost of living in a metropolitan city like London is higher than that of a rural area. It varies across cultures and societies. For some, being rich means having a comfortable lifestyle; being able to afford basic necessities and some luxuries, for others being rich means having an extravagant lifestyle with multiple homes, cars, and other luxury items.

Being rich is associated with financial independence and the ability to have a comfortable lifestyle without worrying about money. For some, this means being debt-free and having a certain amount of money saved for retirement. For others, it means having the financial resources to travel the world, pursue hobbies, or start a business.

The definition of being rich is constantly changing, and what may have been considered rich in the past may not be the same today. Having a million pounds was once considered a significant amount of money, but in today's economy, it may not be enough to guarantee financial security for the long term.

How much do you need to earn in the UK?

Most people are stumped by this question; they pull a number out of thin air and have no idea why! £30,000, £50,000, £100,000….most start work and set a goal for how much they want to earn based on little more than what their school/college/peer group have said is a ‘good wage’.

Most want to earn a big salary because they feel it will create status and impress others. They can buy the latest car, the smartest clothes, and better holidays; It makes them feel important, and like it or not, we all like to feel important. Not only do we want to feel valued, but we also want to be admired; It's part of being human, and making £X,000 a year is a widely accepted definition of success in our society.

Keeping up with the Joneses

‘Keeping up with the Joneses’ is a saying which refers to the comparison with a neighbour as a benchmark for social class or the accumulation of material goods. To fail to "keep up with the Joneses" is perceived as demonstrating socio-economic or cultural inferiority. If you say that someone is keeping up with the Joneses, you mean that they are doing something in order to show that they have as much money as other people, rather than because they really want to do it.

Keeping up with the Joneses is about spending for the sake of spending – it is not about living intentionally. Wouldn’t it be better to stop comparing yourself to other people and actually calculate how much money you need based on your chosen lifestyle?

Maslow’s Hierarchy of Needs

Determining how much money you need to earn to live is a complicated question that depends on several factors as identified above. However, one useful framework for approaching this question is Maslow's Hierarchy of Needs, which outlines five fundamental needs that must be met in order to achieve self-actualization. By examining each level of this hierarchy and considering the cost of living, we can arrive at an estimate of the minimum amount of money required to meet each level's basic needs.

At the base of Maslow's hierarchy are physiological needs which include the most basic necessities for survival such as food, water, shelter, and clothing. In order to meet these needs, you require a certain amount of money to cover essential expenses such as rent, utility bills, groceries, and basic clothing.

The next level in the hierarchy is safety needs, which includes protection from physical harm, financial security, and stability. This can include expenses such as health insurance, emergency funds, and savings. Financial security may require you to save for a rainy day or retirement, which will require additional savings.

The third level of Maslow's hierarchy is love and belonging, which includes relationships with family, friends, and community. Meeting these needs will require additional expenses, such as travel or entertainment costs associated with maintaining these social connections.

The fourth level is esteem needs, which includes the need for self-esteem and respect from others. This will vary widely depending on location, society and culture, and peer group. For some, this will mean financial security and some luxuries, while for others it may mean access to a lavish lifestyle.

The fifth and final level of Maslow's Hierarchy of Needs is self-actualization which includes the need for personal growth and fulfillment. Expenses that fall under this category include hobbies, charitable donations, and personal development. The cost of these expenses varies widely, but they are not essential for survival.

Level 1: Survival level income

Imagine you have recently graduated and moved to a new area to start a job. Ignoring any up-front costs (moving costs, deposits, etc), you have moved into a rented room in a house with all costs covered for a monthly rental of £600. You spend £300 on food and clothing each month, £50 pm for public transport to work, and £50 pm on incidentals.

This equates to a survival level expenditure for a single person of £1000 per month.

Therefore, survival level income stands at a pre-tax gross annual income of £12,000.

If this survival income increases in line with inflation and you live this life until you retire at age 67, you can then retire on a state pension which is currently £10,600. You will have a £1,400 annual shortfall in retirement if you have not made any pension payments or savings.

(All figures are based on today’s values and assume growth in line with inflation. A full state pension is based on paying all the required 35 years of National Insurance).

Level 2: Security level income

In the UK we are lucky to have a free NHS service to cover the majority of health needs, although some of this cover has been eroded in the last decade and minor treatments such as dentistry, chiropody, hearing needs, etc. now need to be paid for.

Ideally, you should have an emergency fund of at least 3 months' income, this would give you time to maintain your current lifestyle and gain fresh employment without going into debt if you were to lose your job. Without this back up you could very easily get into a debt spiral where you continue to fall further and further into debt; despite making payments, your debts continue to grow due to the interest applied to them.

The survival level emergency fund would add a requirement to save £3,000 in total; let’s call that an additional £125 pm to build up the emergency fund over two years (and hope nothing untoward happens over that time period!) and then provide additional future security to cover any ad-hoc needs over future years.

This equates to a security level expenditure for a single person of £1,125 per month.

Therefore, basic security level income stands at a pre-tax gross annual income of £14,000.

There is now a bigger retirement income gap between this income and the state retirement pension. Over your working life, you would need to save enough to cover the retirement shortfall of £2,000 income per annum. Based on the 4% rule this would require a lump sum at retirement of approx. £50,000 and to save this would require an additional pre-tax annual income to put into a pension plan of approx. £300 (inflation-linked).

Next Level: Moderate UK lifestyle

In today’s UK economy, with high inflation and a cost of living crisis, it is very difficult to define a moderate UK lifestyle as it appears many millions of people are no longer able to achieve this, particularly as a single person. Most would define a moderate UK lifestyle as having the ability to rent or own a house, have a car, have access to mod cons like mobile phone/data/media/tv, etc, and a reasonable social life with an annual holiday.

To achieve this, housing costs will jump from £600 for a rented room to around £1400 a month for a small house; this includes mortgage/rent, council tax, utilities, and ad-hoc costs/maintenance costs.

The cost of buying a small car via PCP or a bank loan and then running costs including tax, insurance, servicing, and petrol, is around £350 a month.

Access to mod cons and a reasonable social life with an annual holiday….cost around £450 a month.

This equates to a moderate UK lifestyle expenditure for a single person of £2,725 per month.

Therefore, the Moderate UK lifestyle income requirement stands at a pre-tax gross annual income of £44,000 (after-tax income of £32,700).

This amount is without including any savings other than the security level fund monthly amount of £125. Also, it does not include making any payments toward the retirement income gap.

Joseph Rowntree Foundation

The Joseph Rowntree Foundation charity conducts and funds research aimed at solving poverty in the UK. They provide an annual report entitled ‘The minimum income standard MIS’ which sets out what incomes different types of households require to reach a socially acceptable or basic standard of living.

According to the latest study, a single person must earn £25,500 a year to reach a minimum acceptable standard of living, and a couple with two children needs to earn £43,400 between them.

When we see these figures in black and white, they may feel scary and unachievable, and if you stick your head in the sand and hope for the best, they will be. Or even worse, you listen to the media barrage of negativity and decide a rich future is out of your reach and you decide to waste money or spend money unintentionally, and YOLO live for the now. Then you will condemn yourself to a poor future.

Financial security and independence are not out of your reach. Grad Rags to Riches can take you through the 3 simple steps to becoming wealthy: Save, Invest, and Protect. The next step is up to you….


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