Most people that I talk to about Financial Independence are cautiously interested. I’ve started to leave out the “Retire Early” portion because that’s really not my intention and I think it gets the conversation off on the wrong foot. But what I’ve noticed is, as soon as the conversation starts to point towards any kind of frugal living, that’s when I tend to lose people. You see, most people get the whole “Investing for the future” thing, but not everyone wants to get on board with the frugality side of FI. Personally, I think frugality, especially at the start of your FI journey, is the real superpower that unlocks it all. Here’s why frugality matters… A Lot!
Why Frugality Matters Reason #1 – Cost of Living Reduction (12x)
Let’s start with a simple and honest example. Before we started our own FI journey, my wife and I were regularly spending anywhere between $800 and $1,200 a month on eating out. For us, eating out included any eating or drinking that was done at gas stations, restaurants, bars, entertainment venues, etc. Within 3 months of focusing our attention at reducing this expense, we now top out at $600 on a bad month. And for my wife, if we are in the $300’s or $400’s it’s a success. Anything else is failure.
We have permanently reduced our eating out spending by $600 on average. Now, I can do the Time Value of Money calculation on how much money we’d have if we invested that savings over 30 years, but I think everyone gets it. It’s a ton. Like, over $815,000. But like I said, I’ll spare you that argument.
For our purposes, let’s just leave it at “I think most people would be pretty happy to reduce their annual cost of living (COL) by $7,200. That gets you almost half way to an individuals 401k contribution limit ($19,500 in 2021). That’s a maxed out IRA ($6,000 if younger than 50). And also a maxed out family HSA ($7,200). You get my point here, freeing up that amount for us gave us a massive chunk of money to put into savings/investments.
Why Frugality Matters Reason #2 – FI Number Reduction (25x)
I don’t know about you. But for me, it’s thrilling to find ways to cut expenses from our monthly budget then multiply that by 12 and determine the annual savings. I think this aspect alone would be a compelling argument for why frugality matters. But if you want to amp it up a notch, for all you FIRE chasers out there, the story doesn’t end with a COL reduction. Nope, for us, it’s about a lot more than pinching pennies, it’s about the journey to freedom. And the Freedom Hurdle, or FI number as some others might like to call it, is worth lowering any chance we get. So what does this $600 a month really mean to us? What does it mean to our FI number?
Everyone here probably knows the 4% rule so I won’t go into that now. Another way to think about the 4% rule is simply that you need to have 25x your annual living expenses to retire forever and never work another day in your life. Well, remember earlier in this post where we reduced our annual COL by $7,200? Yeah, that meager $600 a month in COL reduction actually reduces our FI number by a whopping $180,000. Can you believe that?
So next time someone laughs at you for getting excited about finding a way to save an extra $50 a month, rest assured that they must not understand the super power of frugality. They don’t get that it’s not just $50 bucks a month. Nope, it’s $68,000 in 30 years! And it’s $15,000 you can remove from your FI number! Yeah, fifteen grand!
Mental redlining and about to stand up out of my chair
Some Final Thoughts On Frugality
Frugality gets a bad rap. It’s typically associated with annoying friends who try to exploit you and get you to pay for everything. Or that friend who totally re-gifts all their gifts to you and thinks you don’t notice. Or that person at dirty santa who clearly just wrapped a “gift” they had sitting around their house.
Hey, I get it. I get looked down upon by people in my life because I’m living “Small Minded”. And not living out of “Abundance”. Blah blah blah. But those of us on this journey know why frugality matters. It’s a sacrifice sometimes, sure! But not always! Almost all the frugal hacks I have on this site are about finding ways to save money without noticing that you are saving money!
We live in a world that tells us our problems can be solved if we only made a little bit more money. With more money, we could buy that 2nd home, that boat, take that vacation, have that luxury car, or house in that ritzy neighborhood. But hey, guess what!? Most people in our lives are totally broke off their butts. Living paycheck to paycheck texting on their new iPhone while driving a brand new car on their way to get a $6 Starbucks latte.
Realizing I need to take a deep breath, sip my coffee, and chill out a second.
Some Final Final Thoughts on Frugality
Frugality fast tracks us to freedom. Freedom from feeling forced to pick a high income, high stress job that knocks away years of our lives. Freedom from sitting in a chair until 65 and deciding then that we can really start living!!!
Okay, I think my rant is now over. I get FIREd up about this stuff! (see what I did there?) But I wanted to write this to both reassure myself and reassure others in our community that the only reason people give you crap about being frugal is because they don’t understand the power of finding ways to free money from the bondage of our monthly expenses. They simply don’t understand why frugality matters. So, on one hand, we can’t really expect everyone to understand. I mean, how can we expect the same people who pressure us to buy nicer cars, clothes, and homes to also praise us when we leave their cell phone family plan to go save $80 a month with a prepaid carrier? We can’t.
Remember! Frugality matters way more than we think! It’s not just monthly savings. It’s annual cost of living reduction. It’s a wrecking ball of net worth 30 years down the road. And perhaps, most importantly, it can be weeks, months, or even years off our working time. Bringing that FI number crashing into the ground is something we all can get excited about. So, let’s freaking do it.