Investing your time to reduce recurring expenses

[Cecil]

I had a new angle on this idea today. Apologies if it's been discussed before - I searched and couldn't find anything.

I recently spent 3 hours on the phone with my cable company (they don't talk to each other, long story) to save $10/month on my internet package. Assuming this discount lasts forever, I'd need an extra $3k in my stache at 4%SWR to cover it. Obviously this particular discount is temporary, but the concept applies to any kind of indefinitely recurring expense.

$3k in my stache is nearly a month of work at my current savings rate. That means I just spent 3 hours of time to save a month, which is a 5200% return on my investment over the time horizon of my career.

The next logical step is to note that if my time is worth say $30/hour, then spending an hour ($30) is financially beneficial if it can save me $0.10/month indefinitely.

That seems totally absurd but the numbers work out. Did I miss something obvious, or are recurring expenses actually that bad? Is it really worth investing an hour to figure out how to save $0.02 every time I buy a jug of milk?

[Joel]

Cutting expenses is the best way to end up with more money.

[gooki]

Yes, recurring expense really are that bad.

I'm constantly amazed by Americas willingness to adopt subscription services.

[secondcor521]

Yes, they are actually that bad.

It's the rule of 300 as I call it.  For every dollar you spend every month, you need $300 in savings to cover it (using the 4% rule, it's even worse if you're more conservative and use a lower SWR).

1/4% = 25 times expenses, times 12 months per year = 300.  Shockingly simple math.

[Nords]

Joe Dominguez' "Your Money or Your Life" describes the amount of life energy you'd have to expend on consumer purchases.  "How many hours are you willing to work to buy that shiny object?"  You're essentially working the problem from the other side:  "How many hours are you willing to work to avoid a recurring expense?" 

That seems totally absurd but the numbers work out. Did I miss something obvious, or are recurring expenses actually that bad? Is it really worth investing an hour to figure out how to save $0.02 every time I buy a jug of milk?

Your math is correct, but you'd have to make sure that you only do the calculation once.  If you spend a few minutes searching for milk deals before you buy every gallon then you'd quickly hit diminishing returns.

So the most cost-effective solution would be to stop buying milk.

Some would invest their time to create recurring (passive) income.  If you can invest three hours to save $10/month for the rest of your life, that's great.  But how many hours would you have to invest to raise your salary (or your rental property income, or your dividend income) by $1/hour?  That might pay off a lot more quickly than cutting spending.

[happy]

Daily or Weekly recurring expenses are the worst and the ones to target first if possible i.e. in your example you saved $10/month, but if you could hit a $10/week expense...well thats $520/year instead of $120/year. (25x$520/year = 13000). AND if you could save $10 a day its $3650year...and at 25 x = $91000k less net worth.

Hence why that "only 1 Starbucks a day" is really worth eliminating.

Hmmm,   how can I save another $10/day?