What Does That $25 Expense Really Cost?

I was reading a personal finance newsletter the other day when it posed asimple question:

Do you know your financial independence number?

Your financial independence, or FI, number is roughly the amount of money
you would need invested to support your annual spending without relying on a
paycheck. One commonly used rule of thumb is 25 times your annual expenses,
based on the idea of withdrawing about 4% of your portfolio each year.

There are plenty of nuances to the 4% rule, and I’m not going to bore you
with them today.

Because what interested me wasn’t really the number.

It was what knowing the number can teach us about spending.

The Other Price of a Purchase

Let’s say I add another $25 monthly subscription to my life.

It’s easy to think of that as $25. Or maybe $300 a year.

But if that $300 becomes a permanent part of my annual spending, using
the 25-times-expenses rule, I would theoretically need another $7,500
invested to support it.

Or suppose I add another $50 dinner out each week.

That’s $2,600 in additional annual spending—and another $65,000 in
investments needed to support that spending using the same framework.

That doesn’t mean I shouldn’t go to dinner.

If I enjoy it, value the experience and can afford it, it may be $50 very
well spent.

But it gives me another way to think about the decision.

Warren Buffett Thought About Spending
Differently, Too

This reminded me of something I read years ago in The Snowball,
Alice Schroeder’s biography of Warren Buffett.

Buffett famously thought about the cost of purchases in terms of what
those dollars might become if they were invested and allowed to compound. Even
something as ordinary as a haircut could become extraordinarily expensive in
his mind once he considered decades of potential compound growth.

I’m not suggesting we start calculating the future value of every
haircut.

I still plan to get haircuts.

But I like the underlying idea: the price on the receipt isn’t
necessarily the only cost of spending money.

This Is Why Lifestyle Creep Can Be So
Sneaky

And this is where my FI number is useful to me.

It’s not some magical number I’m racing toward. In fact, mine has changed
over the years as my spending has changed.

Instead, it’s another lens through which I can look at my expenses.

This week, for example, I reviewed my credit card and discovered that a
free trial I had signed up for had expired and quietly turned itself into a
recurring charge.

Oops.

That’s exactly why I periodically audit my expenses. Not because every
dollar must be saved or invested, but because I don’t want expenses I don’t
value quietly becoming part of my lifestyle.

Maybe the goal isn’t to obsess over every dollar we spend.

Maybe it’s simply to pay enough attention that the things we spend money
on are actually worth what they cost—not just today, but over time.

Because ultimately, it’s not what I spend on one Tuesday that shapes my
financial life.

It’s what I allow to become part of every Tuesday that follows.