How Are Those Jeans Affecting Your Retirement Date?

Every so often a product, service, or idea comes along that seems tailor-made for the financial independence community. These are things that get each of us, no matter our station in life, closer to having total ownership over our times and lives. RingPlus, Republic Wireless, or FreedomPop phone plans come to mind. As do LED light bulbs, HD Antennas, and water heater blankets. Then, there are the big dogs like Dividend Growth Investing and 401k/IRA maxing.

Today, I’ve opened a Santander Bank checking account that is absolutely amazing. So amazing, that should I do nothing else, the account alone will pull in my retirement date by 24 days. I have also been having a look at the Chase business account as it has so many advantages over my current business account, so have a look there if you’re thinking of switching.

Extra20 Checking

I should start off by clarifying that this is not a sales pitch. There are no affiliate links in this post and I’m not a Santander Bank employee (nor do I play one on TV). I’m just an overnight enthusiastic advocate of Santander’s Extra20 Checking account.

It works like this:

1. Open and Santander Checking and Savings account at this link.
2. Deposit (you can use a credit card for the initial deposit, which is amazing [free points!]) at least $25 in Checking and $10 in savings.
3. Have a direct deposit of at least $1,500 to the checking account.
4. Use their online bill pay tool for two bills each month.
5. Every month where you complete steps 3 & 4, you receive $20 into the Savings account you opened. There are no fees as long as you maintain the direct deposit.

Here’s what I’m doing. I’m splitting my direct deposit with my work to send my mortgage payment and HOA fee to Santander. That account will auto-pay my mortgage and HOA fee. I’ll use that $20 bonus each month to augment my mortgage paydown, which will save me five months off my mortgage. This program is not a one-time offer nor is it for a limited time—there’s no end date. Of course, Santander could stop this program at some point, which would just cause me to go back to exactly how I’m doing things now.

Retiring 24 Days Early

This “free” $20 per month for doing nothing adds up to $240/year. Assuming a 4% rate of income from my investments, I’d need $6,000 in investments to replace this $240/year. At my future salary (right before retirement), it would take me approximately 24 days to bring in $6,000 (after taxes).

Now, I don’t actually plan on pulling in my retirement date by a month. As I said, I’ll just allow the $20 to add to the mortgage payment. So, this little checking account and the two hours or so of admin just saved me five mortgage payments (assuming it stays in effect for that long).

Decisions Today, Retirement Tomorrow

This example brings to light a greater concept, and that is how financial decisions today can materially affect our retirement date or some other long-dated issue. In the Santander checking account example, I showed how saving $20 per month pulled in my retirement by 24 days. However, this idea can be expanded to other recurring and one-time expenses you put in place today.

For this exercise you’ll need the following information:
1. Number of years until your goal of retirement
2. Your after-tax work income at the point you’ll retire (approximately)

For me, those numbers are about 4.5 years and $90,000.

Recurring expenses:

This is what we did earlier, just in equation format.

D: Days
E: Recurring Expense (annualized)
r: Passive Income or Withdrawal Rate (4% is the popular rule of thumb)
I: After-Tax Income at Retirement

For the Santander checking account example, the equation looks like this:

Let’s take an even bigger one, like how long you’ll have to work to maintain that $100/month cable bill:

Is having cable worth four months of working instead of enjoying family, self, and God’s green earth? For me, no.

You can see how these things add up. Every 65-watt incandescent bulb I replace in my home ($12 annual savings) with an LED bulb saves me 1.21 days at the office. I have at least 25 of those things recessed in our ceilings, so there’s a month saved. What recurring expenses in your life will keep you in the office for days, months, or years longer than you want? It doesn’t apply only to recurring expenses, either.

One-Time Expenses

You really want that pair of True Religion acid-washed jeans, don’t you? I mean, all the other kids got ‘em. You work hard, you deserve to play hard, and nothing says play like a $150 pair of jeans that look like they just got bleached with the whites. So, how much longer will you have to work to pay for those jeans? Use this formula:

D: Days
P: Price of Item
I: After-Tax Income at Retirement
n: Number of Years Until Retirement

For me to buy those fly True Religion jeans, I’d need to work an extra .86 days.

For some of you guys, working .86 days might be a steal for how awesome those jeans are. For me, I’ll pass. For every $174 I spend (or save), I’ll need to work one day more (or one day less), than I otherwise would need to. For many things, that extra day might be worth it. We’re taking a cruise this May that will ultimately result in me working an extra week—I can live with that in order to make some great memories with my family and bring our baby to her first taste of the Caribbean. However, for many other expenses, I won’t make the same concession.

Apply these formulae to your own life. One thing will become very clear, recurring expenses are far (FAR) more detrimental (or beneficial, if you’re eliminating them) than one-time expenses. That’s why replacing just six light bulbs (7.26 days saved) more than offsets a whole cruise with my family (7.22 days added). This is why I’m such a fan of passive expense optimization.

Take a look at where you’re adding to your working life, and bring forward your retirement today!

All the Love in the World,

Eric