Back in elementary school they did a lot to scare us out of smoking. A huge poster of a woman dominated the nurse’s office, where you could see through half of her body as if with cartoon x-ray vision. You could see her rotting lungs, cavity-filled mouth, and other gross consequences from habitual smoking. Definitely a decent fear tactic as that image is burned in my brain to this day. Another poster showed what you could buy with the money spent smoking over time.
As a kid who was always saving, I was surprised how the money added up. You could buy an iPod in a month! A car in a year!
It is fun to frame saving in a similar fashion. If I pack a lunch today instead of eating out, how much will that save me long term? What about if I start doing it every day?
It makes it easier to fathom selling my car since I don’t really need it. What would selling my car net me down the line? If I sold it now, could I buy a newer model in a few years for the same amount?
I prefer to think about “saving” money as “spending” it on my future freedom. If I invested the $20 I was about to spend on a T-shirt, how many days of retirement am I buying?
Of course, like anything, there is a balance. Tons of investments are better enjoyed now than later. I want to go on a big ski adventure while my knees are still in good shape. I want to backpack across South America while I don’t mind sleeping on dirt floors in remote villages. However, I started to wonder– if I decide to spend my money on freedom instead of the record player that would not really increase my quality of life– how many days of freedom can I purchase?
In the figure below, I calculated the growth of a one-time investment over time. The prices are approximate, but you get the idea! I marked down what the growth would be after 10, 20, 30, and 40 years.
|Lunch||Nice dinner out||Dinner at the top of the Eiffel Tower|
|Audiotechnica Turntable||Stereo system||Home theatre set up|
|Puppy||5 Puppies||21 puppies|
|Trip to Paris||5-day Heliskiing trip||Summiting Mt. Everest|
|Used 2015 Subaru Forester||Porche Cayenne||Lamborghini Aventador|
The math is simple. Over time, the average rate of growth if you invest in a total index fund or the S&P 500 is around 7% annually, accounting for inflation. This growth is assuming you invested the money once and left it there to grow. If you are interested in playing with some numbers, here is a decent calculator to use.
The days of retirement come from assumed spending of ~$40,000 a year after 40 years. Of course this will vary person-to-person, but you could take the amount in the 40 Year column and divide it by your daily spending to get the number of days.
The biggest takeaways:
- If I invested the money from selling my car and biked to work instead, I could shave off at least 5 years of work.
- I don’t smoke, but if I instead gave up something I do a lot — eat out for lunch– I could make huge returns. Just one day of lunch will eventually be 2 days of freedom down the line. But if I brought my lunch from home for 10 years and invest $10 five days each week instead, I would have ~$33,000 in 10 years. Almost a full year of retirement for me!
- If I put off having one puppy now, eventually I can build a doggo empire and take over the world!
What is worth the trade?
Some things aren’t worth the trade-off of freedom down the line. We only have one life to live, and it’s not worth being an unhappy scrooge just so you can live big later. But what things would be easier to give up now to be worth free time later? Are there things in your life that don’t increase your quality of life that you could cash in for freedom?