To Inform:

Like many people who are either approaching retirement or have recently retired, you have likely spent years diligently saving and investing to secure your financial future. However, once you reach a point of financial stability, it’s essential to transition from a mindset of saving to one of spending—enjoying the fruits of your labor while still maintaining a balanced financial approach. This shift can be challenging for many savers, who often struggle to allow themselves to spend freely even when they can afford it. In this article, we’ll explore strategies to help you make this transition smoothly and discuss the “time buyback rule of thumb,” a useful tool for deciding when to pay for services versus doing them yourself.

The Time Buyback Rule of Thumb

The time buyback rule of thumb is a practical method to evaluate how to allocate your time and money effectively. Here’s how it works:

1. Calculate Your Hourly Income (or former hourly income if retired): Divide your annual income by 2,000 hours (assuming a standard full-time work schedule).
2. Determine Your Time Value: Divide your hourly income by 4. This gives you a benchmark for how much you should be willing to spend to save one hour of your own time.

For example, if your annual income is $200,000, your hourly income would be $100 per hour. Dividing this by 4 gives you a time value of $25 per hour. This means you should consider paying for services that cost up to $25 per hour if they save you time because it would “cost” you 4 times this much to do it on your own.

This can be a useful rule of thumb when considering services like hiring a lawncare service, a home cleaning service, or even a travel agent to help plan a trip. Of course, you can always spend more than this if you can afford it and it’s worth it to you to pay for it, but the time back rule helps to give a minimum threshold of when to consider just paying for something rather than doing it yourself.

Overcoming the Savings Trap

Many savers find it difficult to transition to a spending mindset because they have spent so long focusing on accumulation. Here are some strategies to help you avoid this trap and enjoy your wealth:

• Set a Spending Budget: Allocate a portion of your income specifically for discretionary spending, ensuring you have a clear plan for enjoying your wealth.
• Prioritize Experiences: Focus on spending that creates lasting memories, such as travel or quality time with loved ones.
• Invest in Convenience: Use the time buyback rule to outsource tasks that consume your time, allowing you to focus on more fulfilling activities.
• Practice Mindful Spending: Reflect on your spending habits to ensure they align with your values and goals.
• Seek Professional Advice: Consult with a financial advisor to create a balanced spending plan that aligns with your overall financial strategy.
• Reframe Your Thinking: View spending as a reward for your hard work and a way to enhance your quality of life, rather than as a threat to your savings.

Conclusion

Transitioning from a saving mindset to one that includes spending requires a thoughtful approach. By using tools like the time buyback rule of thumb and implementing strategies to overcome the savings trap, you can enjoy your wealth while maintaining financial stability. Remember, your financial success is not just about accumulating wealth but also about living a great life.

Written by Jake Martin, Client Advisor and Team Leader