Pillar 1: Fuelling the Financial Independence Engine
(aka Living a Frugal Lifestyle)
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| Photo credit trophygeek (CC-BY 2.0) |
The more you can reduce your expenses, the more you have available to save and put into investments. Eventually these investments will be out-earning you and will be generating enough growth on their own to fund your lifestyle.
Reducing expenses is more important than increasing income because it does two important things:
- It means you can save more.
- It means the target you need to reach is smaller so you'll get there sooner.
The first point is (hopefully) obvious:
But by itself it does not explain why reducing your expenses is more important than increasing income when trying to increase the amount of money you have to invest. To explain that we need to look at the second point. Remember that your sizeable investment will be growing at a certain rate above inflation. If the amount by which your investment grows is greater than the amount required to live then you can consider yourself financially independent!
income - expenses = money to invest!
But by itself it does not explain why reducing your expenses is more important than increasing income when trying to increase the amount of money you have to invest. To explain that we need to look at the second point. Remember that your sizeable investment will be growing at a certain rate above inflation. If the amount by which your investment grows is greater than the amount required to live then you can consider yourself financially independent!
growth on investment > living expenses
⇒
financial independence!
If you live a frugal lifestyle your living expenses will be lower. If your living expenses are lower the the growth you require on your investment will be lower. Which means you need a smaller total investment to produce that growth.
Some people are naturally frugal. But frugality is definitely something that can be learned. It eventually becomes fun and natural. At first it requires you to look at all of your expenses and re-evaluate them. Think outside the box. Don't assume that every expense is a given and that there is no way around it. Yes, some of them might be (if possibly only temporary), but you should at least try to think of creative solutions around them.
Think Creatively to Live a Big Frugal Lifestyle
Some people are naturally frugal. But frugality is definitely something that can be learned. It eventually becomes fun and natural. At first it requires you to look at all of your expenses and re-evaluate them. Think outside the box. Don't assume that every expense is a given and that there is no way around it. Yes, some of them might be (if possibly only temporary), but you should at least try to think of creative solutions around them.
Spend some time drawing up a list of all the things you spend money on and try to find ways to find cheaper alternatives. Some expenses could be deleted from your budget permanently! In future posts we'll look at some specific examples of how we've reduced our spending.
Yours frugally,
Mr Cent(ri)frugal Force
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