There are concepts with money that you can clumsily explain dozens of times, then you discover that a simpler and more intelligent way of talking about it exists, and everything becomes clear.
This is the case with the rule of 752, and I’ll explain why.
Enlightened people like me like to tell people to invest their money rather than spending it on purchases that are not essential to their happiness on earth. A $5 coffee drunk quickly while answering emails. Uber Eats for $68 for two ordered one evening when the fridge was empty. A cellular plan for $125 per month to own the latest iPhone.
In short, all kinds of expenses often forgotten the next minute. Or quickly integrated into a “normal” level of life satisfaction once the excitement of the new thing has passed, often after a month or two.
It’s always difficult to explain why these expenses are important, because the amounts involved are not impressive. This is where the rule of 752 comes into play.
What does this rule do? It acts like a pair of glasses that lets us see the true cost of things.
To find out the price we really pay for an object or service, simply take what it costs us per week, and multiply it by 752. The result is the amount we would have in our savings account. investment after a decade if this sum had instead been invested in financial assets, and had obtained annual growth of 7%, a return lower than that of a balanced portfolio of index funds 60% stocks, 40% bonds (8.5% per year on average for 50 years). For monthly expenses, multiply by 173 instead.
Let’s imagine an example. Joséphine is an engineer, she works hard, and earns a good living. She’s not used to making herself lunch. She spends about $20 a day for a take-out lunch, and $5 for a coffee shop near work, which adds up to $125 a week.
Joséphine knows that she could drive a small second-hand vehicle, or sometimes take the bike or public transport. But she opted for a new SUV “so as not to break down” and because she is “at this point in life”. Including interest charges and taxes, she remits $390 every two weeks to the bank for this privilege, which comes to $195 per week.
Her wardrobe is starting to date, so she spends on average $150 per month ($35 per week) on a few new clothes. Owning the latest iPhone and a data-rich plan at $125 per month ($29 per week) are expenses she’s “willing to take on.”
Normal lifestyle? For a mid-career professional, there’s nothing scandalous here.
The four expenses I just described cost $384 per week. But the real cost is very different: multiplied by 752, that comes to almost $290,000 per decade.
If it is maintained from the age of 30 to the age of 65, this completely ordinary lifestyle for tens of thousands of Quebecers will in fact have cost $3 million.
What could Josephine do with $290,000 after 10 years? She could pay cash for a vehicle (or offer one to a loved one who is struggling financially). Take a sabatical year. To travel. Experiencing a recession or job loss stress-free while everyone in the office panics. Or choose to pay off her mortgage and never owe anyone a dollar again because she’s “at this point in life.”
Same person. Same job. Two different routes.
Most people think that you have to be a specialist doctor or owner of a construction company to get rich. Or that you have to receive a big end-of-year bonus, or not have children.
Few people realize that things like small packages from Aritzia or Amazon, a new SUV, a cell phone plan, and not-so-great paninis purchased near the office have costs that exceed a fairly million dollars. quickly in a career.
And you don’t need to have a high lifestyle to use the rule of 752. Buying 5 coffees per week costs $25. Making coffee at home costs less than $5. After 10 years, the difference ($20 per week, multiplied by 752) will actually have cost $15,040.
I’m not saying not to buy coffees. I say the question arises: what would make you happiest? Drinking coffee from a tumbler, or discovering $15,000 in your coat pocket every decade?
To be 100% clear, the purchases I just mentioned are not the causes of our inability to get rich.
But they are often the symptoms.
You can absolutely get rich by making these expenses. But then you have to earn a very, very high salary, and put a significant portion of it aside. For the majority of us, better planning our expenses is the most direct way to increase our savings and our independence – regardless of our income level.