|View from the Exercise Carpet in the Wreck Room: Massage Sheets Drying|
I saved forty cents this morning. Something like that. Instead of running my load of massage linens through the dryer, I hung them up to dry. Google tells me that running a dryer once adds about forty cents to my electricity bill.
And forty cents, you know, buys... well... nothing. I don't think there's a single thing I buy for that little money, any more. Throw in another few cents savings, maybe, for the incremental wear and tear saved on the dryer, but it still doesn't add up to much.
And then there's the set-up cost. I bought a hundred feet of line -- we needed line anyway, and we have a good bit left, but still, I spent a dollar at least. So I don't even make back expenses until the third time I do it.
This is the first way, and probably the most common way, to think about saving money. You do all this work (actually this was not a lot of work, but there's five minutes of browsing the internet, lost to me forever!) and you get nothing out of it. What earthly good is forty cents?
Ah, but let's annualize it! A massage therapist does a lot of laundry: I was typically running the dryer four or five times a week, every week of the year: some 250 loads at forty cents apiece. That comes out to $100.
This is the second way of thinking about it, and I confess that it's still not very exciting. $100 is in fact money, but it's not a whole lot of it. And it's earned at the distinctly uninspiring wage of $4.80 per hour. Wouldn't I be better off to sink that time and energy into drumming up more business? $100 is what I charge for a single in-home massage, after all.
There's actually a lot of ways to pursue this line of thought. Do chore time and creative-marketing time actually come out of the same bucket? What about the overhead of doing that $100 massage, the driving, the marketing, the oils, the linens? (And, yes, the sheet-washing?) What about the fact that Uncle Sam is deeply interested in my massage earnings, and expects a cut of them, but turns up his nose at my line-drying earnings? You can bat it around a lot of ways. But it's still true that $100 a year doesn't seem like a lot.
But there is yet a third way to think about it, and this is the one that had me pinning my sheets to clothes-line in the wreck room this morning. To grasp this, you need to understand The Four Percent Rule. This rule says that you can rely on taking out 4% of your savings (intelligently invested) for the rest of your life, without exhausting them. Which means that to be financially independent -- to live on your savings -- your annual expenses must be no more than 4% of your savings; or to turn it around, once you've saved up 25 times what you spend in a year, you never need to work again. (This is hugely controversial, by the way, and can be argued six ways from Sunday, but I find Mr Money Mustache totally convincing, on this one.)
Due to the outrageous good fortune of my life, and a certain innate miserliness, this savings is within hailing distance, for me. (And a good thing, too, because at 58 I don't necessarily have a whole lot of working years left in me.) But I'm not there yet. Despite the fact that Martha and I earn well below the Oregon median income, we are saving money, to the tune of some $3,500 a year. So we are inching towards that financial independence number.
How exactly does this fit in with the forty cents I saved this morning? Well, the "25 times" may sound awfully daunting, but actually what it shows is the extraordinary leverage of reducing your annual spending. $100 per year is not much money. But the savings needed to safely generate that $100? $2,500 dollars. There's no legerdemain here. Saving this forty cents has exactly the same financial impact as saving an extra $2,500 this year. Or to put it another way: it magically scoots me eight months closer to financial independence.
All of a sudden, saving that forty cents looks a whole lot different.