Latest posts by FIRECracker (see all)
- Fear Will Hold You Prisoner; a Diversified Portfolio Will Set You Free - October 24, 2016
- Buy Your Freedom; Rent the Rest - October 21, 2016
- Mission Impossible: Retiring Early and Travelling the World…with Kids? - October 17, 2016
“Wanna come ride the subway with us?”
“Nah, I’ll just catch a cab.”
Are words I have literally never spoken in my entire life. My friend Nat, however, not so much. She takes taxis constantly, even though she has a transit pass. Besides, why would she bother waiting for a subway that takes a whole 30 minutes to go home, when a cab ride only takes 15 minutes? Saving 15 minutes is well worth the extra $25 cab fair, right? “Time is money”, she chirps, as if that hand-wavingly justifies her decision.
Now, the statement “Time is money” is often thrown around as justification for spending money on convenience. That being said, “Time is money” isn’t wrong. Money IS a proxy for time, after all. It’s just not the whole picture, and the problem is if you just use “Time is money” in isolation to justify your spending habits, you end up making some bone-headed decisions.
Like Nat, for example. So let’s break this shit down, shall we?
Nat makes $75,000/year or $35/hour as a business analyst. Not a bad salary, so what’s wrong with spending some money to save time? With a relatively demanding job, she wants to squeeze out as much time as possible. Besides, since she makes $27/hour after tax, she can easily earn that in less than an hour. No biggie, right?
That’s how a normal person thinks. But not Revolutionaries. Revolutionaries know that becoming FI means being able to exchange our hard earned money for time.
And in this case Nat is not saving herself time at all. In fact, she’s losing it.
In order to passively generate the extra cab fare, Nat would need to add an additional $625 to her portfolio. That’s $25/year x 25, using the 4% rule. (Dividing by 4% is the same as multiplying by 25.)
And assuming a $27/hour after tax salary for Nat, that’s $625/$27 = 23 hours. So every time she spends $25 for a cab ride to save 15 mins, she has to work an extra 23 hours to pay for it!
Working an extra 23 hours (or 3 days) to save 15 mins?! Um. Okay.
But here’s the even bigger issue. Out of the $27/hour Nat makes, she needs to pay rent, food, phone bills. All those “needs” eat up 70% of her take home pay, leaving 30% for her “wants”. This means only $8 will be available for her cab rides. This means to save $625, she would need to work 78 hours (or 10 days)!
And that’s not all. Nat doesn’t just take cabs once a year. She does it every time she goes out with friends. This ends up being 4 times a month, which ends up being 48 times a year.
That’s an extra $1200/year just on cab rides! This means an additional $30,000 needs to be added to her portfolio to cover this cost. That’s 3750 hours or 1.8 YEARS of extra work just to pay for cabs!
And that’s what happens when you simply say “Time is money.” You end up accidentally costing yourself even MORE time and MORE money down the road.
Why is that?
Because there’s an additional question that nobody ever talks about, and that question is “What kind of Time?”
Because Time spent being miserable is not worth anything. An extra year in a corporate prison is the same amount of time as an extra year travelling the world, but is one worth more than another? Hell Yes!
Every money decision you make is basically buying some form of time. But the difference between a regular person and a Revolutionary is that we understand the value of buying the right kind of time.
Nat saved 15 minutes, at the cost of an extra 1.8 years of misery. Was that a good deal? She might say yes. The rest of us would say NO!
And here’s where we break rank with the rest of the “Frugality” blogs when it comes to spending money. I’m not one of those people who sit on their pedestal and just DISAPPROVE of every spending decision people make. “Hey, stop spending! Are you spending? You’re spending aren’t you?”
I say: Spend money when it buys you Time being Happy.
Want to buy a new Xbox? Go for it! As long as you get many hours of happiness out of it, without needing to work an insane number of hours to pay for it, why not? Want to splurge on that fancy vacation? Sure! We sure as Hell did when we were working, and we don’t regret a single Margarita.
But there are certain expenses that make absolutely NOBODY happy. Is a 15 minute cab ride in of itself fun? No, it’s not! It’s stressful trying to hail one down, you get stuck in traffic, and God only knows what the last people were doing on that leather. And for that expense that doesn’t increase your happiness, you pay for it with 1.8 YEARS of corporate servitude. Or put another way, NOT spending that cab fare money buys back 1.8 years of traveling the world. Which one would you rather have?
Spending money is fine, but not like this. Cab rides are just a shitty deal. And there are TONS of these expenses in everyone’s daily life. Let’s take a look at a few of Nat’s.
Quick show of hands. Who LOVES paying bank fees? Anyone? Yeah, that’s what I thought. Bank fees make precisely NOBODY happy (well, except the bank, but fuck THOSE guys). And with the advent of no-fee checking accounts everywhere, not paying them is simply a matter of filling out a few forms and transferring your money over.
At $290/year, that’s $7250 to be added to the portfolio. Which ends up working out to 906 hours or 5 months of extra work.
VIP Cable Package
Some people might enjoy the Hell out of their cable package, and that’s fine. But Nat doesn’t even watch hers! She comes home from work exhausted and binge-watches Netflix. So what’s the point of paying for this?
That’s an extra $100/month or $1200/year. That works out to $30,000 extra in the portfolio, forcing her to work an extra 3750 hours or 1.8 years!
Pointless Gym Membership
Again, not all gym memberships are bad, but one you don’t use is definitely bad. Nat’s situation is even more bone-headed because she spent all this money buying a condo, and the condo has a gym in the building! So she has a free gym, plus a private gym membership, neither of which she uses because she’s too busy at work to pay for the gym membership she doesn’t use! ZUH?!?
$100/month, $1200/year, another 1.8 years tacked on.
Paying for flights instead of using frequent flyer miles.
There are so many credit cards out there willing to throw welcome bonus miles at you that simply by paying attention and filling out the occasional form, you can accumulate enough miles to cover your vacation flights easy. We saved $6000 travelling the world by doing this.
Using frequent flyer miles saves her as much as $1000/year, so by not doing this, she requires an additional $25,000 in her portfolio or 3125 hours of work/1.5 years.
|Activity||Cost (per year)||Portfolio needed to support it||Extra years of work|
|VIP Cable Package||$1200||$30,000||1.8|
|Pointless Gym Membership||$1200||$30,000||1.8|
By making these 5 minor changes, Nat can reduce the portfolio needed to retire by $122,250! Which means she can retire 7.3 years earlier than she normally would! And what does she sacrifice? Nothing. The only thing she’s done is cut out spending which gives her ZERO happiness, so this is complete, 100% upside.
Again, we are not the Frugality Police. Frugality is not the point. It’s about realizing that every dollar you spend is used to buy Time Being Happy, and that you want to get the best deal possible in every purchase you make.
If something doesn’t add ANYTHING to your happiness, get rid of it. You won’t miss it (since you didn’t care about that thing anyway), but you’ll find yourself buying back YEARS in Early Retirement that WILL make you happy. Like Nat, you may even realize how easy it is.
What are some things you can get rid of that doesn’t add to your happiness? How much sooner will it get you to financial independence? Chime in below!
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