The Rule of 752 has been floating around since 2011 but I came up with this Rule of 867 to better serve you!
The concept and discussion revolving Rule of 752 has been around since 2011 (not from a 2019 book named with a coffee drink), and it helps magnify (not exaggerate because math is involved) the cost of your expenses.It is a great way to not let small spends sneak up on you.
Rule of 752 explained
You can use the calculator app in your phone for this.It is an easy calculation where you multiply your weekly expense(s) by 752 to determine the true cost of that expense that would have earned 7% over 10 years.(The geekiness in me actually did some Excel to confirm the calculations, it’s annual interest rate of 7% compounded weekly, and the math works out!)
Some examples –
Buying your coffee at a national chain, ~$25/week, instead of making your own, cost at ~$5/week(?), that is a $20 up-charge and we multiply that by 752 = $15,040.If you were to make your coffee everyday instead of making a daily run to your coffee shop and at the end of 10 years you have an extra $15 grand under your name, would you do it?
Weekly nice dine-out for two, ~$150/week, instead of learning to cook a nice medium rare steak, ~$40/week, you are paying $110 surcharge for not doing your own dishes, and we multiply that by 752 = $82,720.If you were to go to my YouTube channel to learn some cooking tips and cook some nice meals for your loved ones instead of spending extravagantly on meal + liquor every week and at the end of 10 years you have an extra $82 grand under your name, would you do it?
Gas money, ~$100/week, instead of driving less, ~$50/week, since we have to work from home more and should consider doing it more long term, and we multiply that by 752 = $37,600.If you were to stay home more to spend more time with your family while working from home (yes many office workers do argue that we work more at home since the pandemic, that is why many employers are considering making this switch permanently), instead of going back to the office and having water cooler talks and at the end of 10 years you have an extra $37 grand under you name, would you do it?
We have all known that small expenses add up, but when we multiply that by 752 we can truly realize the OPPORTUNITY cost (from your Econ 101 class!) of these instant conveniences / gratifications.
What about Rule of 867 and why is it better?
While the 752 number is great at identifying what your true opportunity cost it is just a paper/theoretical figure which you probably will not act on.So I came up with 867 to be your practical solution.It is a multiplier for the money earning 7.7% annually over 30 years tax-free.(The geekiness of me actually did not need to open Excel for this one, it is an illustration from one of our best financial tools.)
Simply put, if you are 35 year old today, and we just discuss how you can eliminate those extra $180 cost/week from the examples above. You will just take $100 of that $180 which will lead to saving $400/month.By the time you are 65 you will have $400 multiplied by 867 = $346,800 under your name, would you do it?
Why is it better you ask? Well it is a bigger number first of all.Most importantly, it is a tax-free number, meaning this $346 grand belongs to you free from any tax liability in the future (free from probate and legal liability as well, among other benefits).Because of tax alone, the previous 7% return from the Rule of 752 would actually mean a before-tax equivalent of 10% return consistently long term, which can be unrealistic if you do not select the right stock/mutual fund/portfolio (we can discuss this in a post later on).
Here it is, realizing your true cost of a daily coffee run compared to how much more you can spend in the future And an even better/greater number to work for you not against you.As always, time is your friend in terms of saving and you will be richer than you think sooner rather than later!
Save save save, in and out of 401(k).Moving your hard-earned retirement savings to tax-free accounts as much as possible will help to put more certainty in your tax liability (NOW than LATER) and avoid surprises when you are retiring.Be in control and have flexibility.
