Sean, the 27-year-old blogger at Money Wizard, has recently shared the basic calculation method he’s using to save money. To this day, he has banked more than $181,000, hoping to retire at the age of 37. Sean’s philosophy claims, that in order to keep away from overspending, we should start calculating our value of time in dollars.
“Probably what’s most driving me [to retire early] – I just want freedom,” he told Business Insider.
“So many people get caught up in the race of materialism, thinking that next house or next car is what will make them happy. I think happiness comes from freedom. I just want to be able to do what I want, without financial worry.”
Retiring early seems to be the new age dream and millennials are known to seek for it now, more than ever. As we shared recently, even science agrees that experiences, not stuff makes us happy.
Saving Off The Top
Sean has acquired his financial stability by saving 65% of his take-home pay. He earns $80,000 a year as a financial analyst, putting his money into a 401(k) IRA, and index funds.
“Saving off the top,” he said, is the best strategy for stocking away money – you don’t miss the cash if you don’t see it in the first place!
In this case, it’s important to have a set goal and leave your account to grow. If you’ll consider this as “extra money”, there’s a big chance you’ll spend it on those shoes you “really, really need right now”.
The Value of Time in Dollars
The main strategy Sean used, was calculating the value of time in dollars. He soon got in the habit to think about the true cost of the purchase, in terms of time it took to earn the necessary amount.
“Understanding that, at its core, money is a unit of exchange for time… every purchase costs me time – the most limited resource we have,” he said.
“If I buy a $30 dinner, that dinner is paid for in after-tax dollars and is subject to sales tax. If I’m in the 25% tax bracket and the dinner is subject to a 10% meal tax, that $30 dinner costs nearly $45. After considering the time spent working to earn $45, is the fancy dinner still worth it?” He explained.
The Temptation to Overspend
When it comes to overspending, Sean blames the never-ending temptation to buy stuff. At times, we see something we want just at that moment and think that buying it won’t hurt our bank account. Last year, Sean wrote about this phenomena, calling it “no-thought spending”.
“It’s a fast transaction, and you didn’t even notice the $25 dent in your wallet,” he wrote. “Now consider the time spent at work, on calls, and dealing with difficult customers that earned you the nearly $34, which finally whittled down to the $25 in your pocket today. Is it still worth it? Lord help you if that gadget happens to be a $1,000 MacBook…”
“This exercise can be applied to nearly every item that scrolls across your mind’s never-ending conveyor belt of impulse purchase ideas”
“When the buying decision is framed in the quantifiable days, months, and years of life an item truly costs, the Money Wizard thinks twice”
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