The post about accepting that it’s sometimes OK to spend money. Accept your financial vices.
The financial independence clan can be a bit of a reproachful bunch. Cut your spending to the bone because if you don’t then you are failing at this FI business.
I’m not ignorant to the simple maths that the less you spend, the more you save and the quicker you’ll reach financial independence.
But to use a well-worn cliché, you could get hit by a bus tomorrow. You probably won’t; so don’t spend as though you’ve only got 24 hours left on the planet. But don’t go to extreme levels of deprivation.
A popular thing folk say in the FIRE movement is that cutting your expenditure had a double benefit: you save more in the here and now and the pot required for retirement goes down as you have a lower income requirement. But this seems deeply unsatisfactory to me.
Perhaps cutting back to a point where you deprive yourself of life’s pleasures is fine in the short term. But do you really want to live that way for the rest of your life?
The very word “deprive” suggests you are resisting something you want. If you can cut your expenditure down to the absolute essentials and not feel as though you are missing out at all then great. Yours is the golden situation. Otherwise, for most people, a fulfilling life requires spending money to some degree.
There are obviously limits to the principle…
Clearly you shouldn’t drive yourself into debt or spend everything you earn on fripperies. FI won’t happen if you don’t save anything.
At the risk of saying something painfully trite, it is about balance.
Work out how much money you have left each month after your essential expenditure comes out. Then divide that up between savings and expenditure in the manner that makes you happiest, factoring in the need to balance enjoying life now with enjoying life in the future. The balance will be different for different people.
My method: the frivolity pot
I use the following system for getting comfortable with my expenditure:
I put aside £500 a month for “variable” expenditure. This doesn’t include anything I pay for by direct debit – i.e. bills, mortgage, yoga studio membership, travel card. Within this £500 allowance I don’t beat myself up about what I spend it on.
I also have an annual “frivolity pot” of £2,400. I put aside £200 per month into a high interest regular saver bank account. When it matures after a year it becomes my frivolity pot for the coming year. The frivolity pot covers any expenditure too large for my routine monthly expenditure. I have it so as not to throw my usual savings out of balance.
What is it ok to spend money on?
This is another area where I think the FIRE movement can get a bit dictatorial. Spending is fine, they say. As long as it creates some kind of joyful, soul-replenishing experience. Spending on restaurants, clothes, alcohol, antique dolls etc. is a waste. Never mind that the financial independence movement does need consumerism.
I say, embrace your financial vices, however silly or superficial. As long as it’s within your “permitted” expenditure, it’s all good.
What are my financial vices?
I get nothing from clothes, accessories or tech. Here’s some of the things I spend money on that I could cut back on if I were so minded…
The regular one: dining out
I really enjoy eating in restaurants. Don’t get me wrong, I certainly don’t do it every night; once a week is more likely. I also don’t eat in high-end restaurants (even my financial “vices” aren’t very scandalous). To me, a modestly priced meal out once or twice a week is well worth it.
I enjoy it for two reasons:
The social side – London is such a huge city it’s not always feasible to have dinner around a friend’s house. I love catching up with friends over a nice meal.
I do not enjoy cooking.
Where food is concerned, I cut back by nearly always taking my lunch into work (yes, that old chestnut) because to me, spending money on a sandwich from Pret every day is a waste. But in the spirit of this post, if your vice is sandwiches from Pret then don’t let the frugal living mob guilt you into quitting.
The once-in-a-while one: expensive travel/holidays
Like most people, I like holidays. My usual holidays are generally quite low budget so I don’t consider them a vice – and for a lot of people it falls into that joyful, rewarding acceptable expenditure.
However, every now and then I do have a blow out on travel and holidays. For example, a six week trip around Southern Africa during which I spent an eye-watering amount. That one went way beyond my frivolity pot.
Or the long weekend in New York, which it’s fairly difficult to do on a shoe string. I didn’t stay in a super fancy hotel. My view is that if you’re doing a city break properly you won’t be spending much time at all in your accommodation, so keep it basic. But as for the “tourist experience”, I want to experience a place as much as possible so don’t hold back on all the things I want to do and see.
The boring one: having a cleaner
This is something I build into my usual bills, so I don’t consider it to be a variable or frivolous expenditure but it still isn’t very frugal.
I’ve only had a cleaner for a few months. I keep looking at it there on my expenses spreadsheet and debate whether to chop it, and always conclude that it’s here to stay.
I think having a cleaner is actually very consistent with FIRE. FIRE is about prioritising time over money. By taking household chores off my weekend to-do list I get more time to do the things I enjoy.
The one I really am trying to cut back on: drinking
I like alcohol. I like the pub (I don’t really like bars and clubs). As with restaurants, drinking can be a wonderfully social thing, so I’m ok with this particular vice to an extent. But it’s not great for my health or weight, so this is one area where I’m trying to cut back.
What are your financial vices?