Today I want to break from the norm and talk about finances. I realize this is a financial blog at heart, so it’s weird that writing a financial article would be considered a break from the norm. I think a self-aware person would admit that financial topics aren’t always at the forefront around these parts.
You’re probably worried this means I won’t delve into some obscure thought experiment. Don’t worry, I will delve. It will be fun. So buckle up, friends, it’s about to get financial.
The 5-2 Split
Let’s talk about a term that I’m making up [that might already exist but I don’t want to Google it because I’ve already mentally invented it]- The 5-2 split. Most of us live two separate lives. We have five days of work- and that’s one life- Then we get two days of not working where we desperately attempt to make up for lost time. People tend to separate those two parts of their life. They’re one person Monday-Friday and another person on the weekend.
It looks like this.
We feel chained to the Monday-Friday portion of our lives. We act like that’s the constant and the weekend is the variable. I HAVE to be at work Monday-Friday, so what can I do on the weekend to make up for it?
Work is typically not all that fun, so when the weekend comes around we want to make it count. We assign a fun scale to the weekend because we’re cool, well-adjusted adults.
Sometimes we have to clean the house and do chores all weekend, or we sit around and watch the rain crash down around us like some type of metaphor for our aching and empty lives. In that case, our weekend might look like this.
If our weekend is blase then that’s a real bummer. The weekend in the above picture did not score very highly on our fun scale. Sad.
So next weekend we’re going out! Sizzler it is, and maybe an exciting trip to WalMart. I don’t know, I’m a dad now. I don’t remember what people do in their spare time.
Anyway. Let’s say you do those things and you have a real blast. So your weekend fun scale looks more like this.
This is a much better weekend than the previous picture. When the workweek sucks balls we can always think about those two glorious weekend days when we get to be our true selves. Our lives aren’t a flaming pile of shit if we can put together a few weekends like this every month.
But the thing is, the weekend is only two days.
Even if your weekends are awesome you’re still MOSTLY having a shit time. To combat this feeling of angst and incessant longing we try to think of ways to make ourselves happy during the workweek. We swap out the word ‘weekend’ for the words ‘not work’.
This mental reframe buys us more time. Instead of working five days and only getting two days for fun, we can have fun ANYTIME we aren’t working. Hooray!
So what is fun?
Fun is anything that distracts us from the fact that we’re spending our very limited amount of time on this planet doing some menial job that doesn’t give us a lot of hope or meaning with nothing to show for it at the end of the day.
So, going to cool bars is fun. Having a big house is fun. A new car is pretty fun, too. Vacations are fun and turtles are fun. There’s a lot of things that are fun. It becomes not very hard to peg our fun scale all the way if we just plan ahead and spend enough money.
Yippee. This is great. There are 168 hours in a week and we only have to be at work for 40 of them. That means we have 128 hours for maximum fun. F-word, yes.
Being tired, stuck and broke is depressing, but we can temporarily block those icky feelings by drowning our sorrows via the purchase of goods and services. IE having fun.
We spend forty hours of every week working in order to pay for the fun we have while we’re not working. Then, the cycle repeats.
Everything we buy in order to make up for lost time is actually chaining us to our jobs.
Work is the constant, but only because we make it the constant. We tell ourselves, “I’ll be working until I die, I may as well enjoy as much as I can.” This is fine, in theory, but it leads us to make less than optimal financial decisions.
If you have to work anyway, why would you drive an old car? Why would you pack a lunch, or skip a vacation? When you start from the idea that work is a constant it doesn’t make a lot of sense to save any more money than you have to.
So, instead of driving a paid-off car, you finance a new truck. It looks awesome and you’re temporarily happy.
Who can resist?
But your life is not actually separated into neat little ‘Work’ and ‘Not Work’ sections. Your life is one continuous slip n’ slide through existence. When you buy something during your ‘Not Work’ time you have to pay for it by spending more of your day hanging out in the ‘work’ section. There are only so many hours in a day so by working more you’re getting less time not working. Mind-blowing, huh?
Here’s a handy math equation where A equals the number of hours working and B equals the number of hours not working. The total can add up to no more than 24 hours in a day.
A + B = 24.
If A is larger, B will be smaller and vice versa.
Another way to look at the equation is 24- A = B.
I feel this is enough math.
But then something annoying happens. Our ‘Not Work’ fun scale starts to slide back towards the middle. Our new truck isn’t super new anymore and going to the bar every weekend is leaving us exhausted and broke.
We’re back to not having all that much fun.
The real bummer is we’re still financially pegged out. We end up paying for our purchases long after they lose their value to our fun scale. We’re still throwing money at the problem but it’s not making us any happier.
The concept of money really confuses the real trade we’re making. We think, “Oh, it’s only money. Why not spend it?” People view money as something outside of time, but it’s not. Time is money. You aren’t really trading money for whatever you’re buying, money is just the metaphor we can tangibly hold. You’re really trading time. Your time.
You pay for everything you buy by trading a portion of your very limited life force. Each purchase is more of your life you’re agreeing to spend as Work You and less time you’ll spend as Not Work You.
More Fun with Math
You’re bored at work and scanning the world wide web for a new truck. You find the perfect one. It has tires and everything. You buy it. [Weeee!]
Let’s say everything included the new truck is costing you $600 per month for 72 months. You can easily make that payment. The total you’ll pay is $43,200. That’s not bad for a sweet looking truck. [<–This is also a very conservative estimate. A lot of new trucks are up in the $70,000+ range.]
Now, let’s say you make $25/hour before tax, which is about $52,000 per year. After taxes are taken out you’re clearing about $17.50 per hour. At that rate, it takes you a little over 34 hours of work each month to make your truck payment. That comes out to about one day per week.
This essentially means you’re working for the car dealership every Monday. That’s just for your truck. Tuesday-Friday you’re working to pay for your other expenses. You have the same calculation to pay for your mortgage, your two-hundred-dollar weekend bar tab, and your groceries.
By the time all your calculations are finished, you find you’re working your entire month just to pay for all these expenses. In that case, work actually is the constant for you.
If you spend everything you earn then you’ll never outgrow the need to trade your physical time for money.
If you view work as the constant and not as the variable, then this tradeoff kind of makes sense.
You basically have a prison sentence of 25 to life Monday-Friday, so who cares where that money is going. As long as you get out every weekend you can build yourself a life.
But I don’t want that kind of life. My time is more valuable than a new truck, or a bigger house. I want to use my money to buy back more time. That’s where the financial independence cult comes into play.
The Financial Independence Movement Gets You to Question Base Assumptions.
Assumptions like, Does work have to be the constant? What makes us happy? How can we orchestrate our lives to get everything we really want and nothing we only think we want because of advertising and social cues? What would happen if we flipped the script and made work the variable?
What would it look like to decide to trade less of your time?
Can you do that? Right now you might be stuck in a job that isn’t very fun because you have all these expenses you have to pay for.
What if instead of buying the truck you took every Monday off? The only reason you NEED to work Monday is to pay for your truck. If you drove a paid-off vehicle you could work four days per week instead of five and still be in the same position financially. Having a three-day weekend every week might increase your overall happiness even more than having a new truck.
Would your job allow you to work part-time? My job certainly wouldn’t. At least, that’s what I thought. Then I questioned that base assumption. I built up enough runway to not absolutely need my job and I approached my boss with an offer. Now I work three days per week and stay home with my daughter the other days.
Or, you could opt to work in a job that pays you less per hour, but that you enjoy more. Maybe instead of working construction, you could get a job managing an ice cream shop.
You won’t make as much money scooping ice cream, but you don’t need as much. You’ve decided that driving an older vehicle to an enjoyable job is more fun than driving a new vehicle to a shitty job.
These might be hard to do. It’s kind of uncommon to convince your boss to allow you not to work on Mondays. It also might not be good long term to switch to a career of scooping ice cream.
But those are choices that are available to you if you’re willing to take them. Having a job that pays you $52,000 per year but incurring a $7,200 per year truck payment and a $100/weekend bar tab, is the same as having a job that pays you $38,800 per year but without those expenses.
You’re allowed to decide which one would make you happier- A truck, a bar tab, and a stressful job OR a less stressful job and you eat from home more often.
But maybe nothing changes with your job. You decide to not buy that truck, even though you can afford the payments, but you still have to work the same amount of hours. Your boss is a stickler for the five-day workweek, so you’ve got all this extra money and nothing to spend it on.
That extra $600 per month is starting to pile up in a super annoying way.
What’s a person to do? We spend our extra money buying our future freedom.
Instead of letting that annoying pile of cash build on our kitchen table we buy shares of Vanguard VTSAX. VTSAX is a low-cost index fund.
The whole process looks like this.
Instead of just sitting there collecting dust, our money is working for us, earning even more money. Money piling up in our Vanguard account is not nearly as annoying.
But why?
So what’s the point of having a bunch of money locked up in a Vanguard account? That sounds lame. Well, in order to answer that question we’re going to have to introduce a new character- The Annual Expense Snail. The annual expense snail carries our annual expenses on top of his shell.
Here’s what he looks like.
I promise I’m not high.
Anyway.
The Annual Expense Snail is an important character. The size of the annual expense on his back determines how much money we’ll need in order to be financially independent. If we use the standard 4% rule, then we’ll need to have 25x our annual expenses saved up.
Once our investments equal 25x our annual expenses we can retire. At that point, we’ve effectively front-loaded all our time working and can trade it in for perpetual Not Working time.
If you reach financial independence you don’t have to quit working, but you have the option.
We can erase the Work portion of our lives and fill it with whatever we want.
Life becomes a blank slate. Once we reach FI our lives are no longer dictated by the 5-2 split. The equation no longer reads A+B=24. Now the equation is just B=24. All 24 hours of the day belong to us to live how we see fit. That’s pretty fun.
We are lucky enough to be gainfully employed and have the option to buy a new truck. We can make the payments. But we’ve made a conscious choice to buy freedom. Buying freedom is so much more fun than buying the newest shiny toy, people!
Building Margin
It’s not about how much you earn, it’s about how much you have left at the end of the day. If you get value out of squandering your money don’t let me tell you otherwise. Squander away. Just know there is another option. You don’t have to spend your years in a perpetual 5-2 split.
If you live below your means and invest your money you can trade the 5-2 split for a 0-7 split. B=24. Amen.
If you enjoyed this article please share it with your friends and political rivals.
Here are a few more articles you might like:
The Spectrum of Belief and the Circle of Influence
How to Take a Mental Vacation- Because Damnit You’ve Earned One
How to Access all that Sweet Pretax Money Once You Retire
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