Home > Financial Updates > What’s your Expense Freedom Day?

What’s your Expense Freedom Day?

Boiler Blast

Tax Freedom Day is a concept used to compare how much of your earnings go to taxes.  Basically, it assumes that everything you earn goes towards taxes 24/7 until you pay your share of taxes, to give you a feeling for how much of your income is used to run the government before you get to spend anything.

For example, if your effective tax rate were 25%, your tax freedom day would be April 1st (exactly 25% of the way through the year).  So then I wondered, how many days are you working just to cover your expenses?  For many people, it may be until December 31st, but it’s a useful exercise to understand the magnitude of each of our expenses.

So why does it matter?

I think it’s important to understand what exactly we are working for.  I’m still working on solidifying my own long term goals, but one this is certain, I don’t want to work my whole life, and the sooner I hit expense freedom day each year, the sooner I’ll never have to work again.

Here are my various expense freedom days throughout 2012.  They will vary for everyone depending on taxes, earnings, and spending.

  • Tax Freedom Day: March 5th (Raise a glass to paying my fair share on St. Patty’s day!)
  • Housing Freedom Day: May 5th (Have an extra Margarita to celebrate no more rent payments on Cinco-De-Mayo!) 
  • Transportation Freedom Day: June 28th (Finish buying train tickets/gas by the Fourth of July!)
  • Utilities Freedom Day: July 13th
  • Shopping Freedom Day: July 27th
  • Expense Freedom Day: August 8th (let the investing begin!)

What happens on August 9th?

At Midnight on August 8th, I was free of paying taxes and expenses.  All the work I did through August, September, October, November, and December contributes solely to investing (since I already have 12 mo emergency savings).  That’s a healthy chunk of change.

This is a powerful idea.  It means that all the work I’ve put in since August has been pure gravy.  Not that it’s especially feasible, but theoretically I could work Jan 1 to Aug 8th every year and take a 5 month vacation…

Clearly I’m going to continue to work until December, but each year that I invest that “gravy” I’m actually moving up next year’s total expense freedom.  When my expense freedom day hits Jan 1st, I am officially financially independent.

The other point that sticks out is this.  Once I hit transportation freedom day at the end of June, I’ve got a little over one month of working until I hit total expense freedom day.  That must mean I’m only spending about a month’s salary on stuff that’s not absolutely essential.  That’s good to know!

How does this help?

personally, I like thinking about my finances in terms of dates instead of just numbers on a page.  It helps give me a sense of scale and I  understand that if I splurge on a new tech gadget, I’m adding a few days to my Total Freedom Day.

It also makes me value vacation time that much more.  I plan on taking the last two weeks of the year off of work, so essentially I’ll be padding my investment accounts while relaxing at home working on my own projects.  Now that sounds like a good way to live.

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