Saving money is basically a way of buying back your own time—and after you add in the powerful effects of compound interest, you quickly realize just how much of your future time and freedom you can buy back with very little cost to you today.
I recently got my hands dirty and ran the numbers for just how much time you buy back when you save money. The result is incredible: if you’re an average reader of this site, for every $18.12 you save today you buy back an entire day of your life when you retire.
This calculation takes into account a few (relatively boring) assumptions that you can safely skim over if you’re not in the mood for your eyes to glaze over. It assumes:
- You are 30 years old (the average age of a visitor to ALOP, based on website analytics)
- You’ll retire at 62 (the average age of retirement in the US)
- A 2.3% inflation rate (Charles Schwab’s long-run inflation estimate)
- An 8% average yearly return on investment (without inflation; a relatively conservative and realistic figure; the average return on the S&P 500 over the last 50 years was 11.68% without inflation)
- $37,500 of yearly income at retirement, in today’s dollars (comfortably above the U.S. average of $31,742)
Calculator
Want to see how much you need to save to buy back a day of your own life?
I asked my buddy Ryan to program up a simple calculator to calculate exactly how much money you need to save today to do just that. Just plug in your own numbers (don’t worry, I’m not recording anything), and the calculator will spit out exactly how much money you need to save today to buy back one day of your life.
Money needed to buy back a day of your life:
But wait… there’s more
But it gets even better.
This idea is powerful, but it doesn’t take into account two things, both which make the effect even more profound.
- It assumes that you’ll spend the money you save immediately when you retire—not part-way into your retirement like you likely will. Interest rates compound like crazy over time, which will only make your money travel that much further.
- As you get accustomed to saving more money, you may also become accustomed to spending less. That means you’ll need less money to live off of when you retire, which will make your savings travel that much further.
I think the point of productivity is to get more meaningful things done in less time so you can make more time for what’s important to you. Saving more money accomplishes the same thing—albeit over a much larger timeframe—and it may be one of the smartest things you do with your money.
