I'm Buying My Time

One time after a personal finance discussion with a friend I think I may have inadvertently shared too much about how much I saved or how my progress was towards retirement. I'm guessing that since it was a goal that my friend had never given much serious thought to they just immediately thought that someone my age should be out "enjoying life and spending my money" not hiding it away for a rainy day. They told me, "Whoever dies with the most, loses the most." Right then I knew the conversation was over so I let it drop, but even months later I still think about that comment.

The first thing about it is that the viewpoint of that comment assumes that money is the most important thing in life. That if you end your life with $0 then you played it correctly. I can't imagine being 90 years old and having $30,000 left in my savings and wondering if I would outlive the money I had left.

But this also made me think of what is my plan? Why am I saving? What's the rush to be financially independent years/decades before most other people? It took a long time to find these questions but the answer to me was simple:
 
I'm buying my time.

The way that I view it, I don't own my time, and that is the most important thing to me. Money is a way for me to acquire my own time. Right now, my time has to be spent making money so that when I do take vacations or want to do something I can afford to take that time off of work. Once I reach financial independence, I will have successfully bought my time for a price I deemed fair, I am then free to spend my time on whatever I want to do with it. If I die with a lot of extra money and a few extra decades of being able to choose what I wanted to do, instead of working at a job. Then I think I'd be happy with that.

This prompted me to do some math to figure out how much my time was worth, how much I needed to save, and how much I had saved. I have a couple of examples of how much time is worth below since I didn't want to give exact specifics on how much I spend or make. I also expanded this to show how much you would need to save to get 25 years of expenses saved since many places seem to use this as a standard for a projected retirement number where you should not run out of money.
 
Scenario 1: $2,000 per month or $24,000 per year (after taxes)

Monthly Expenses
$2,000
Annual Expenses
$24,000
Taxes (15% tax rate)
$4,235
Annual Expenses With Taxes
$28,235
Work Hours in a Year
2080
Cost of 1 Hour of time
$13.57
25 Years Total
$705,882

Scenario 2: $3,000 per month or $36,000 per year (after taxes)

Monthly Expenses
$3,000
Annual Expenses
$36,000
Taxes (15% tax rate)
$6,353
Annual Expenses With Taxes
$42,353
Work Hours in a Year
2080
Cost of 1 Hour of time
$20.36
25 Years Total
$1,058,823

I think it's fun to know how much an hour of my time will cost me. Knowing that saving $2,000 equals over 3 weeks (16.6 business days @ $15/hour) of retirement seems like a great measuring stick to me.
 
As you can see the difference between $2,000 and $3,000 per month in expenses can make a huge difference in how much you need to save. I also gave a large buffer for taxes, since your effective tax rate should be lower than the 15% tax bracket shown here. Also, if you have any deductions or money saved in tax exempt accounts such as a Roth IRA then you won't have to pay any taxes on that money as it comes out. So you should have a much lower tax rate. These numbers can easily be adjusted by not having a mortgage or rent in retirement or even working a part time job as a tennis instructor for fun.

I'm not exactly sure how much time I've saved at this point because these variables can change things but I believe I'm about 35% of my way towards owning all of my time (or about 8-9 years worth of my time saved). This is a hard thing for me to gauge since while I do have a mortgage now, I have a feeling I could pay off my house in the future which would lower my monthly expenses. However, I don't actually see myself living in my current house for the rest of my life, so that will be a big change at some point.
 
My guess is that when I near financial independence I'll have the "one more year" syndrome because I'd rather work a little longer at a higher paying job for the peace of mind it will probably offer for not running out of money.

What do you save for? What is important to you? Being able to buy gadgets? Owning your time?

19 comments:

  1. I'll be drawing $4,356/mo in retirement (a mix of social security, pension, and assets draw). I've figured out there will be no taxes due on this! The link below shows my Retirement planning google sheet:

    https://docs.google.com/spreadsheet/ccc?key=0Ajym06WyPAdmdHFDTElyYkhfdzAyT2MwWlhCZVM0Vnc&usp=sharing

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    1. I realize that my tax assumptions are very wrong in my figures listed above, but the way I view it is that I will have a buffer for a lot of those unexpected twists that life might throw at me!

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  2. This is a great way to look at it- buying your time. Keep in mind that your spending rate is likely to go down in retirement- for one, you no longer have to save for retirement! Other work-related expenses like work clothes, commuting, lunches out, etc. will be reduced as well. So while it is useful to look at 25 years of your current spending rate as a yardstick, it may be even more useful to subtract out those expenses that would disappear if you weren't working.

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    1. I expect that my spending rate will probably go up at first then eventually settle down. Being that I plan to retire by my early 40's I will probably want to get some serious travelling in. I have always told myself that the first year I would sell my house and do an around the world trip. I've been rooted to my job/home for a long time now, I think it would feel nice not feel tethered to a location so firmly. Anyways, the first year I expect spending to rise, then it will hopefully settle into something more normal, but who knows what that new normal may be.

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  3. I like this take a lot. I have a high stress job I hate so I'm definitely saving so I can change jobs to something I like and handle a significant cut in pay if needed. Also hoping to retire by 55.

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    1. I used to have a high stress job, I recently switched to a new company where the culture change has been a breath of fresh air to me. I don't feel as much of an urgency to retire as soon as possible but I'm sure that will settle back in after a year or so. Good luck on your goal of retirement by 55! Hopefully you can find a better job along the way and get rid of some of that stress!

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  4. I realize you were ballparking but your tax numbers are off by quite a bit even for a guesstimate. A single person no dependents would only pay 2500 in taxes on 30000 and only 4800 on 45000. Federal taxes are not a flat tax. A person making 30k would have 10000 in deductions/exemptions automatically so only 20k would be taxed. The first 8925 would only be taxed at 10% the rest at 15%.

    This will change both scenarios greatly. At 24000 in expenses you would only need 25700 of retirement money. At 36000 you would only need 39500.

    If this was money in a taxable account with long term investments you would pay 0 in taxes. Also if it is 401k you are withdrawing from you are likely retirement age and the tax deductions become larger.

    Interested to see updated tables with new tax numbers.

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  5. Sam,

    I know I have waaay over estimated on taxes for this. But over the years I have realized that I'm the kind of person that would rather set the bar too high and try to meet it instead of aiming for exactly what I think I need and then hitting an unexpected bump in the road.

    I also know that not everything in life goes as planned, some times for better or sometimes worse. I know that planning for an early retirement a decade ago would have been completely different without "Obamacare" that has recently surfaced. So many early retirees would have either had to pay a lot more for health coverage or simply couldn't get it at all.

    I have no idea what the next decade may look like so I figure I should plan for the worst and hope for the best. This way I get a little wiggle room if things don't go as planned.

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  6. And what is your life's duration ?
    Do you have a magic ball ?

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    1. My life's duration shouldn't matter if I use the 4% rule. If the average return on savings is 7%, and the average inflation is 3% then I can safely withdrawal 4% of my "nest egg" forever because I will never take down the principal.

      If you save 25 years worth of spending money, you are implicitly using the 4% rule.

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  7. Thought-provoking post! A couple of points from the other side -

    > My guess is that when I near financial independence I'll have the "one more year" syndrome because I'd rather work a little longer at a higher paying job for the peace of mind it will probably offer for not running out of money.

    Aha, but money is not the only dimension here. You're also running out of time, 24 hours every day ;) As the title of your post correctly identifies, you're buying your time. But there's no savings account for time, so beware that one more year for comfort urge.

    > I will probably want to get some serious travelling in

    I had this idea too. In the year an a bit since retiring I discovered much of that were the empty dreams of a cubicle slave, thinking 'anything but this'.

    That's not to say I won't do more travelling in future, but I'm glad there's been a break. I want to travel slowly, overland, and savour things. When I was working time was always short. You can do a lot of things better and enjoy the moment a lot more when you own your time

    Oh yes, and I vastly overestimated my spending rate. Even after you've stopped work, there still aren't enough hours to do all the things you want to do. But there are more of them, at least!

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    1. Well, I'll be glad to have the "one more year" syndrome. That's a good problem, not a bad one :)

      But you're right, time is something we can't get back. I do think that I will probably overestimate my spending as well because I am a little bit of a worrywart.

      I imagine that last year of work will be very different though, I'll have enough FU money saved up to really just walk away if I'm that unhappy. I also think that once I do give up my current profession I will probably look to do something that I enjoy even if it doesn't pay well because money will no longer be a motivation. Now I just need to start working on making connections so that once I quit my regular job I can get a job working with animals!

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  8. Also it is good to think about the state of one's health declining as we age. Sure you don't know when you will die, but we do know that physically we begin to decline. So you save all this money for vacations, etc. but I guess it then depends on what kind of vacations you want to go on and if you have the health to be able to do so. A friend of mine recently passed away at the age of 32 and he was doing what you are doing; saving for early retirement, but he also made sure that if something came up that he wanted to do, he didn't hesitate to do it, no matter what the cost. I am sure this set him back a bit on his retirement, but he lived his life having a ton of fun. Knowing his story I can only encourage people to remember that we don't know what life may bring so enjoy what you have while you have it. That doesn't mean we don't save and plan, but it does mean that we can do so while living in the moment too.

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    1. I weigh my decisions on spending carefully. I view spending on vacations and experiences to be a much higher value for my money than say fancy new cutlery, or a funny welcome mat to my house that costs more than some plain simple cheap one that serves it's purpose of wiping off the bottoms of shoes.

      With age we all know that our health will eventually decline. My plan is to be financially independent before the worst of that happens so I will still have the flexibility to do the things I want. I probably won't be able to hike mount Everest when I retire because of health reasons, but to be honest I probably couldn't now either. Either way, that was never one of my plans in life, hiking anywhere you need to bring your own oxygen seems silly while you are still on the planet earth.

      I'm sorry to hear about your friend, death at any age can be difficult to handle, but it can be especially tragic at such a young age. It sounds like he had a balance of work, saving, and leisure that let him enjoy his life to the fullest. I think that is one of the best keys to life in general, having the proper balance. If you save so much that it hurts and never let up, you just live in a world of pain. You have to stop and enjoy the ride sometimes.

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  9. “What do you save for?” This is an excellent question to ask ourselves. Not all can answer this easily, because of all the priorities they have. But I realized this when my mom once told me that when I reach retirement age, I should make sure that I retire in style. That’s why I plan my income accordingly since then. And it’s good to know that you do the same, and in my opinion, better than anyone because you do all the computation for 25 years ahead. Well, the longer you save the better, I may say. Cheers!

    Greg Grimsley

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    1. Well for me, I save for the freedom of choice. Once money is no longer a motivator behind what I do then I can choose to do whatever I really want to do. If I wanted to spend a year becoming a master of needlepoint, I could do that. I highly doubt that would ever be something that I would ever really get into but it would be comforting to know that I could do that if I really wanted.

      Thanks for stopping by!

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  10. The idea of financial independence appeals to me. I haven't even got my foot on the first rung of the career ladder yet, but I think it's important to consider your goal before you set out, otherwise you don't know where you're going and you won't know when you get there. My goal is to buy my freedom from the rat-race.

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    1. Hey Myles,

      I don't know exactly what I want to do once I reach financial independence but I know what I don't want to do, and I think that's just as important. I don't want to spend 35 years working for someone else doing something I'm just not passionate about.

      I think it will be a good problem to have to figure out what to do once I reach financial independence. I know that I have a number of years to think about that still, so I'm not worried. Thanks for stopping by!

      -Zee

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  11. Excellent post. Before I was introduced to the FIRE community, it didn't even occur to me that we aren't born free. Now I definitely consider sums of money as buying time for myself, and it truly makes me think twice about what I am spending money on.

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