### Calculating the True Cost of the Things You Buy

How much do the things you buy really cost? What’s the best way to quantify that? Most things have a price tag, but is it really dollars you are concerned about?

Ultimately, their point is that you are trading your life energy, your limited time on this earth, for money. It is therefore important that you are intentional when you spend your money, as you are effectively spending your life.

We’ve all heard that time is money, and thinks to Vicki and Joe we may also understand that money is time. Additionally, the tools of Financial Independence give us a framework to evaluate spending in terms of your time, so you can properly evaluate whether the things you buy are worth the time they will cost you.

Spending comes in two main categories, one-time purchases and recurring spending. Most spending is actually recurring, with one-time purchases consisting largely of major lifetime events. For example, an engagement ring will (hopefully) be a once in a lifetime purchase. A car purchase, however, only seems like a one-time expense. In reality it comes saddled with many recurring expenses like gas, tires, brakes, oil changes, insurance, maintenance, and repairs before you eventually run through its useful lifetime and have to purchase another car.

### One-time Purchases:

Let’s start with calculating a one-time purchase. You may know the price of what you are buying, but that price is in dollars. We want to convert those dollars to time. For a one-time purchase, this starts relatively straight forward. All we need to know is how much money you are saving and the purchase price.

For example, let’s say you are saving $20,000 per year towards your Target FI Number. If you are evaluating a$5,000 one-time purchase, then instead you would be $5,000 short and only be saving$15,000 this year. Since it otherwise takes you a year to save $20,000, then the amount of time$5,000 costs you is:

${5,000\over 20,000 / year} = {1 \over 4}\ year = 3\ months$

Note that for a one-time purchase we don’t necessarily need to know anything about your Target FI number, your income, or expenses, only the ratio of the cost of the purchase to the amount you are saving. To generalized the equation:

$Time\ Cost={Purchase\ Price \over Savings\ per\ Time}$

Interestingly, the less money you are saving, the more time things cost. This is another example of a non-linear effect of savings. Someone who is not saving much, regardless of how much money they are actually making, takes much more of their life to purchase something.

### Recurring Spending:

Recurring spending is more complicated to calculate and at the same time more detrimental to your financial situation. It not only slows your wealth accumulation but simultaneously increases your Target FI Number.

For example, let’s say you are evaluating whether you want to live with a $150 per month TV bill. That’s that you will effectively add to your annual expenses. This has two effects: First, it will decrease your annual savings and therefore Stash Rate while you are earning. Second, since it is now included in your annual expenses, it raises your Target FI Number by *$1,800 = $45,000. Your target is higher and you are moving slower towards your target. To put the two effects together, you would need to know your annual expenses and savings. Without yet taking into account the growth of your money or inflation, the time to reach FI in the base case would be: $Years\ to\ FI={Expenses \over Withdrawal\ Rate*Savings}$ For example, with a 4% withdrawal rate,$40,000 of expenses, and $20,000 savings: $Years\ to\ FI = {40,000 \over 4\%*20,000}=50\ Years$ To find the time with the added$1,800 per year cost, just add it to the Expenses and subtract from the Savings.

$\text{Years to FI with Recurring Cost} = {Expenses+Cost \over Withdrawal\ Rate*(Savings-Cost)}$ $= {40,000+1,800 \over 4\%*(20,000-1,800)}=57.4\ Years$