Usually when we talk about cash flow we talk about income vs. expenses, right? Our jobs produce income, then our lifestyles dictate our expenses.
But have you ever given much thought to how much your job costs? How much do you spend in order to maintain your working life? And I’m not just asking about the normal “cost of living” expenses you hear talked about, like a more expensive city vs less. I’m talking about the difference between having the job you’re working in right now and not having a job at all. What would that change for you, financial speaking?
Trying To Exit The Hamster Wheel
For those of us who are plotting (and plodding) our way toward FI, these numbers can be significant. Much like retirement planning, we tend to think of FI as the point where we’re not dependent on our jobs any more to provide for our basic needs. At that point our income from investments outweigh our basic expenses. To me, that’s freedom.
So when we’re calculating how far we’ve got to go in order to reach FI, we’re not targeting a dollar amount that will keep us in our jobs (obviously). We want to strip all that stuff out and figure out what the minimum would be for us to be able to live job-free. Some of the areas where “work expenses” are hidden are in our normal, everyday purchases, and the mindset we’ve all had since we were kids.
These areas include:
- Commuting/Parking: Do you need a second car if you’re not working any more? Does your car need to be brand new any more? Insurance? Gas? Maintenance? Parking pass? Meter money? Consider all the expenses that go into getting to and from work.
- Costuming: What’s your dress code at work? Would you buy all those clothes, accessories, shoes, makeup without your job? Would you use as much dry cleaning or custom tailoring?
- Meals: This one’s a biggie. Fast food, convenience meals, snacks, caffiene, gym membership.
- Decompression: What do you do to unwind from the day’s stress? Happy hour, gym visit, shopping, etc.
- Escape Entertainment: Do you have expensive cable packages in order to “check out” after a day of work? Is that necessary without your job?
- Vacation and Expensive Playthings: I’ve got a friend who buys himself a present every year after the stress of tax season (he’s a CPA). What do you buy/pay for in order to “get away from it all” or reward yourself for a JOB well done?
- Job-related Illness: Examples might include back issues or headaches, etc.
- Other job-related Expenses: Do you have season tickets to sporting events or theme parks or zoos in order to “connect” with your family? Do you require childcare for work events, or to allow both your and your spouse to work? What other expenses do you create and maintain in order to sustain your job over the long haul?
If you’re looking at an annual budget, removing these items from the equation can have a major effect! It could mean the difference between your savings goal being $600,000 to reach FI, or needing to save $1,500,000. It could mean the difference between a 5-year or 15-year timeline before you could possibly get there.
By working out these numbers you can get down the the nitty gritty of what your post-retirement life would require. Once you’ve determined what the minimum sustainable lifestyle is, you’re then able to add back on the “luxuries” you wish to have during your early retirement/financially independent life.
Awareness Can Change Everything
Much like counting calories or maintaining a good budget, awareness can help us to change our habits. When I begin counting calories and see that I’ve just eaten 4,000 calories in a day, there’s a pretty good chance I’m going to be choosing the small bowl of cereal over the buttery, syrupy pancakes the following morning. I know that if I keep eating high-calorie meals my body will begin to change in ways that I don’t want it to.
This “awareness” works in a positive direction as well. Even if I’m eating a balanced, 2,300 calorie-per-day diet, I know that by simply shaving off 500 calories each day I could lose a pound a week. That’s an exciting proposition, and all it takes is a little bit of monitoring for me to get excited about going hungry (more than I usually do, anyway).
I’m sure you understand where I’m going with this. When you understand where the finish line is in your journey toward FI, you’re much more likely to make that first step.
Have you considered all of your job-related expenses before, and what eliminating them could do for your expense level? If you’re willing, please share with us what percentage of your expenses are job-related, in your estimation.