How to calculate the effect of side income on hours/time to FI?

[kpd905]

I'm trying to figure out how much each checking bonus or other side income can reduce my time to FI.

I found this article (http://moneymetagame.com/fi/the-value-of-an-extra-100/) which has you calculate your real hourly wage (gross income - taxes/ actual hours worked per year) and then use an estimate of your years until FI.

So if I had a real wage of $40/hour, 10 years until FI, and assume a 7% return, to check the effect of an extra $100 I would do:

$100*1.07^10/40= 4.925 hours

Basically just figuring out the compounded amount of that lump sum over your time frame.

Is this the best way to figure this?  Or is there a better way?

[lexde]

Another thread here had a much easier way to look at these things, I think.

(Your expected FIRE annual expenses) x 25 = FIRE goal $ based on 4% safe withdrawal rate.
Divide that by 365, that's how much money will buy you one day per year of FIRE, forever.

For example, my FIRE "salary" will be 40K. Multiplied by 25, my FIRE goal is $1M. As a result, each $2739.73 in my account will buy me 24 hours of freedom per year forever. I guess you could narrow it further, and $114.16 would buy me an hour a year of freedom.

[kpd905]

Yes, I do keep track of that number in my spreadsheet, my "days bought" number.

Although I only use my account balance today, not taking into effect any future compounding.  My goal number is probably the same as yours at $1M. 

If I look at compounding at 5% over 10 years, then I need $1681.96 today to become $2739.73 in 10 years.

[maizefolk]

Two points.

• The boring/discouraging one: for side hustle income don't forget to run the calculation on income next of taxes at your marginal rate (potentially with self employment taxes factored in <-- but these won't be a problem for sign up bonuses)
• The more cheerful one: looking at your hourly wage is going to be deceptive because you spend a lot of hours not working. Instead I would look at the average amount you are saving per week (or per month if that's easier) towards FIRE. Let's say you're adding $1,000/week to the stash and anticipate doing so for the next ten years and ten pulling the trigger. Your $100, growing at 7% compound for ten years is worth ~$200. That means you have to work for 1/5 less of a week ($200/$1000) before your stash hits your magic number. So an extra $100 saved today = 33.6 hours less time until retirement.

TL;DR version: My proposed formula is

Time saved (hours) = ((A*B^C)/D) * 168 where A = amount of extra savings, B = expected annual return, C = years to retirement and D = average amount saved towards FIRE per week.

[kpd905]

Two points.

• The boring/discouraging one: for side hustle income don't forget to run the calculation on income next of taxes at your marginal rate (potentially with self employment taxes factored in <-- but these won't be a problem for sign up bonuses)
• The more cheerful one: looking at your hourly wage is going to be deceptive because you spend a lot of hours not working. Instead I would look at the average amount you are saving per week (or per month if that's easier) towards FIRE. Let's say you're adding $1,000/week to the stash and anticipate doing so for the next ten years and ten pulling the trigger. Your $100, growing at 7% compound for ten years is worth ~$200. That means you have to work for 1/5 less of a week ($200/$1000) before your stash hits your magic number. So an extra $100 saved today = 33.6 hours less time until retirement.

TL;DR version: My proposed formula is

Time saved (hours) = ((A*B^C)/D) * 168 where A = amount of extra savings, B = expected annual return, C = years to retirement and D = average amount saved towards FIRE per week.

Nice, this is what I was thinking because the original calculation I found did not address savings rate at all.  I guess you could also do your equation * 40 instead of 168 to figure out how many work days/hours you avoided with that extra money invested.

So each $100 (post-tax, like you mentioned) does get me roughly 1 day closer to FI.  Looks like I will keep hammering the checking bonuses, hope to hit $5,000 this year.

[maizefolk]

Sure thing. For me using 168 hours a week makes sense, because I think my quality of life would be much higher on sunday where I didn't have to worry about going back to the office the following monday than a sunday where I did. But if the biggest driver for FIRE for you is avoiding the hours you're actually working rather than the hours when you're not working but know you'll have to start working again soon it would make more sense to use 40 hours/week instead.