A Life Changing Amount of Money

What is a life changing amount of money? Not “How much to retire” or “What income will make you happy.” Literally, what amount of money would you have to find in the couch right now for your day-to-day to noticeably change? The answer will depend on who you ask. As a 12-year-old, I would have said maybe a hundred bucks. A hundred bucks would’ve bought me a significant amount of candy and movie rentals. My bubble was so small; a bill would’ve gone a long way in changing my life.

The answer obviously changes when you start asking adults with real bills and real problems. A Huffington Post survey found that the average adult would say about £354,000 (about $500,000) would be a “life changing amount of money.” Men needed £100,000 more than women. I find this to be an unbelievable amount of money. It takes a half-million to change your life? That’s a pretty significant windfall, and one that most will never see. I suppose the thinking goes: “A half-million bucks will buy me decent house outright, with a couple hundred thousand left to fund my kids’ college educations, plant a sizable nestegg, and take a nice vacation.” That’s a guess, but I think it would be what most people would say.

I’ve been told, though, that I’m not most people.

This week I came into a “life-changing” amount of money….$400. Let the critics throw their stones, but this $400 is going to change my life.

Change How You See Money

My boss has this thing called a WAR Award. WAR = Wins Above Replacement. The WAR metric is most commonly used in baseball, where it represents a player’s total contribution to his team that is above what a replacement level player would give you. Bryce Harper led the MLB with a WAR of 9.93 this year, meaning the Nationals won 9.93 more games by having Harper on their roster instead of a Triple-A player. My boss adapted this to an office environment, and every couple months a new WAR Awardee is named. Along with a nice little baseball, you also get an impact award of about $400.




What would you do with $400? Get a babysitter, have a nice steak dinner, get an Uber Black car and have it bring you and the spouse to a Jazz club afterward for a little necking. That sounds pretty sweet, but after the night was over, that would be the end of that $400. Thus, it wouldn’t be very life changing—lest a baby was conceived during that little night out.

So, how can $400 change my life? Well, the short answer is “invest it.” Instead of spending a night on the town worrying about what some babysitter is doing to the baby, I instead put that $400 into my favorite high-yield bond ETF, JPS. Over the past decade (during very low interest rates) this little ETF has churned out 7-8% dividends year in and year out. $400 at 7.5% interest is a perpetual $2.50 a month. That’s not much, but funny enough, is still so significant.

A gallon of water costs about a penny ($0.0099) where we live, and our showerhead runs at 2.5 GPM. I take roughtly 25, 4-minute showers per month. 100 min x 2.5 GPM…carry the one…a little math tells me that I use 250 gallons per month to shower. At $0.0099/gallon, I spend $2.475 per month for showers. So, that little $400 just bought me free showers for life! A life-changing event! Now, no matter what happens elsewhere in my life, I’ll never be left wanting for a shower. Finally, no more embarrassing elevator glances when the other person knows it’s me.

Mrs. Right vs. Mrs. Right Now

Investing $400 for a perpetual stream of income is like looking for Mrs. Right. It’s like waiting for that nice church-going girl that you can take home to mom and dad. You’re pushing aside your carnal instincts in exchange for a lifetime of home-cookin and never-alone Friday nights. However, spending $400 on a night of flight and fancy is like looking for Mrs. Right Now, it is the prostitution of money.

Granted, I chose probably the cheapest line item in my budget. “Showers” weren’t exactly breaking the bank in the Retire29 household. However, the point is valid for any amount. In January, like most months, I’ll set aside around $2,500 for savings. That will yield $8.33/month at a 4% safe withdrawal rate–enough to pay for my Netflix subscription.

Let’s keep going. Also in January I’ll receive my employer 401k match, that will safely give me $15/month for life–or almost my entire water bill.

I spend about $20/month in miscellaneous cash expenses. In February, my tax return will be enough to cover that expense…for life.




In the second half of next year, I’ll save around $20k, the $67 monthly income from that will cover my average electricity bill. And, of course, the $3o0k or so that is currently working for me will pay out $1k per month, which will cover all food and travel. Now, we’re talking. Imagine if I can be mortgage free in five years, and food is my biggest expense–an expense that is now paid for? Nice.

You see where I’m going with this? Any amount of money can seem life-changing when you look at it for the income that it will provide you forever, rather than the immediate things it will get you today.

In the future, when you come across a little windfall, don’t dismiss it or view it in terms of face value. Do some simple mental gymnastics and invest it, thereby turning that small windfall into a little employee. An employee that will work for you forever, switching on your lights, growing all your food, or warming up that glorious morning shower.

Now, THAT’S life changing!

Thanks for reading!

Eric

 

 

21 Comments

  1. Eric, awesome article well worth the wait. Every time i pay down a little bit of debt I think of the amount of interest I do t have to pay on that now that it’s gone. The amount I pay in interest every year is ridiculous and I cant wait to get out of this mess.

  2. Be careful about the high-yield bond market right now. JPS is a closed-end fund so you may have a little bit more protection, but high-yield bonds look dangerous right now! Their spreads over Treasuries are creeping up.

    • Jason,
      Duly noted, but it’s been that same rhetoric for several years now, and total returns have continually been phenomenal over the past decade. It’s natural that the yield spreads will grow a bit as the funds rate rises, but it’s pretty clear that the move in the latter won’t be drastic. All told, bonds are still a small part of my overall portfolio (about 10%), so if there are price fluctuations, not a huge deal. It will be an opportunity to continue buying at lower prices.

      Eric

    • Absolutely right, Kurt. If I was forced to change my life with a sum of money today, it would have to be a huge amount, since material possessions and experiences lose value or fade into memory.

      Eric

  3. I really like your prospective on life changing amount. I look at it the same way. As I continue to invest every month I think about the interest and market gains I earn and what they could pay for. Last year I earned enough to pay my water bill and new tires for the car and a few other things. lol

    • Anonymous,
      Why you hatin? Just kidding. You’re right. Thankfully, windfalls happen all the time in my life. I just got paid last week, so that took care of the heat, and I also won my Fantasy Football league, so that’s $750, so that’ll take care of my wife’s showers (with hot water).

      Eric

    • Hey Ambertree,
      Yah, that’s probably what I would’ve said, as well, before changing how I see money. No mortgage would certainly be life changing for us, as well. But, the threshold to cross life-changing really drops when you consider the income from money rather than the money itself.

      Eric

  4. Thought provoking post! Just to play devil’s advocate though, I don’t think you’ve demonstrated that $400 is a “life-changing” amount of money for you, based on your own definition of “the amount of money you’d have to find in your couch for your day-to-day life to noticeably change.” I mean, you aren’t going to quit taking showers with or without that extra $400 I assume!

    The deeper meaning behind this question is even more interesting that income streams however. How much money would you have to find or have to change your day to day life – your job, your relationship, your housing situation, your travel plans?

    This goes along the lines of the cliche question “what would you do if you won the lottery and didn’t have to work?” that career counselors and early retirement evangelists posit. The implication of course is that those plans should be implemented regardless of whether there is a current windfall to finance them.

    My answer is that I don’t know. I am struggling with the question of how I want to shape my life currently, and no amount of money would help me solve that problem (in fact a massive windfall might prove distracting and temporarily disrupt my progress toward an authentic answer). What do I want to do each day? Do I want kids? What kind of work do I want to focus on?

    In short, no amount of money short of $2 million would actually change my day to day life currently; that’s the amount I’d need to be comfortable quitting my job and giving up the career I’ve worked the last decade to build. Even that windfall wouldn’t answer my questions though. Money can’t buy the important answers I suppose.

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