Back in the day I was very into backpacking, specifically ultralight backpacking. By carrying less stuff, this minimalistic practice allowed me to hike further and see more of the wild. I initially saw having less gear in my pack as a negative, a sign of being less prepared. Over time my brain rewired itself to where I saw carrying less gear and weight as a blessing because it allowed me to experience more in nature. In ultralight backpacking we talk about concentrating on your “Big Three” in order to bring about the greatest weight reduction in what you’re hauling around on the trail. I’ve used this tactic to lower my budget greatly and this overall mentality is ~exactly~ how I see my life today. The less costs I have and the less things I am attached to, the easier it is to experience everything life has to offer. The approach you would take to lower your pack weight on the trail has a lot of similarities to lowering your budget to increase your savings rate and reach financial independence to do whatever you’d like with your life as soon as possible.
Minimalism is not only practiced for financial gain as it can bring simplicity and less stress to your life, but in the context of financial independence I cringe at some of the minimalist and frugal practices being discussed for such little financial benefit. Yes, I wholeheartedly agree “every little bit counts” when saving, but when you haven’t addressed the “Big Three” in expenditures and you’re splitting 2-ply toilet paper for $10 in savings a year, you’re not spending your time wisely. Let’s have a look at what the average household spends in a year (taken from here) and how the “Big Three” play into things:
|19%||10,742||Housing (rent/mortgage, ins., taxes, maintenance & repairs)|
|14%||7,667||Utilities (inc cell phone) & household operations|
|11%||6,349||Social security, pensions and personal insurance|
|3%||1,846||Apparel and services|
|2%||864||Tobacco products and alcohol|
|1%||683||Personal care products and services|
The three biggest categories in this list happen to make up 50% of all spend. Luckily we can do some things to lower these expenses and increase our savings rate on our way to FIRE.
Housing – Live as small as you can. Housing is the single biggest driver of expense and by entering into agreements with lower rents/mortgage payments, plus lower insurance premiums and property taxes, it frees up money for other areas of your budget (Travel! Entertainment!) or for socking it away and improving your savings rate. This category also includes maintenance and repairs on your dwelling. We’re not talking about living in squalor in some creep’s basement, but shaving a few hundred off your rent each month can make a big difference in gaining your freedom. Think long and hard about a roommate or not, or before you sign that mortgage/lease on that posh place that could place you in that office cubicle for years. Living small also has ripple effects in other categories like housing maintenance, utilities, and even limits the room you have to fill your home with costly items that quickly lose your attention and are banished to some dusty shelf.
Transportation – This is a category where you should do as I say, not a I do. I bought a nearly new car this year that was 43% of my entire year’s budget when considering all the associated costs. 😮 That’s crazy and was a lapse on my part, but the scary thing is, folks do it regularly. Not only does the cost of your car and how much its value has depreciated when you purchase it play a part here, but also the type of gas it takes, the MPG it gets, the insurance, possible property taxes and maintenance costs. It really adds up when you factor in a long commute from that big house you spend so little time in, right? Taking the bus or train can really help as well as carpooling, but even better would be living closer to work where riding your bicycle or walking would be feasible. How great would it be to pay yourself in savings and exercise on the regular?!
Utilities & Household Operations – The third part of this trifecta is everything it takes to live in your home. Do you have 3000 sq. ft. of hardwood to clean every week as opposed to 1000? That’s going to cost you a little bit more in Murphy’s oil soap every month and so are the 2000 Flushes tablets for three toilets as opposed to one. Every little bit counts. The electricity for the big central air conditioner or two in a good sized home vs. a wall unit in an apartment is also a significant cost. Fortunately using a heating/foot warming pad (I use this one!) while you turn the heat down to sleep, or using a fan while lowering the air conditioning can curb these costs greatly.
Concentrating on lowering the costs of your “Big Three” budget items plays the biggest part in shortening the amount of time it takes for you to reach financial independence. If reaching financial independence sooner rather than later isn’t a huge priority for you, then maybe you’d enjoy the extra spending cash to inflate other parts of your budget. How cool would it be if the three biggest categories for your budget were restaurants, entertainment and education?!