This post is part of the series FI 101. Click here to read more.
Have you ever been told that you need to spend more money in order to create an early retirement?
Yeah, me neither. More’s the pity.
But as we discussed in a previous post, your expenses are half of the equation when you’re striving for Financial Independence, so it’s critical that you try to manage them well.
And by “manage expenses” I’m not just talking about keeping yourself out of your local coffee shop or using that extra coupon at the grocery store. Those are great practices, but I’m talking more about your major expenses. The ones that make the difference between you living well within your means or spending everything you earn.
Let’s discuss a few areas that, if properly managed, can help you get on track to Financial Independence.
Look To Eliminate Excess
Everything you own requires something from you. Whether that’s time to make use of an item, storage space for it, a commitment to repair or replace the item if damaged or lost, or simply your attention, the things we buy or acquire will impact our lives in some way as long as we own them.
This is not a call to minimalism, unless you’re naturally drawn to that. There are areas where all of us tend to buy way more than what’s necessary and we tend to justify it by saying “I’ve got the money”. And while true, this thought is the enemy of achieving FI! We need to separate our income from our expenses, making decisions based on how much we would like to see ourselves spend instead of how much we have.
And don’t go to extremes here, there are plenty of reasons to save or designate money for special items or events, I’m just talking about our everyday tendency to buy clothes, gear, electronics, media, and other items that suck away our ability to save.
Reduce Or Eliminate Monthly Services
This kind of goes with the section above, but try to think of your monthly services on an annual basis. They are more expensive than we often think!
Cable TV, internet, cell phone service, home and auto insurance, gym memberships we’ve forgotten about… there are so many areas that can slowly bleed our money away so that we don’t notice. Take a few minutes to think about what you could negotiate, change up, or cancel altogether.
Evaluate Your Home Ownership Needs
Have you considered recently what you actually need in a home?
Several years ago my wife and I decided to downsize our home in an effort to pay off our mortgage. The byproduct of this ‘move’ was that our monthly expenses dropped substantially. Our house no longer required all our spare time to renovate and maintain it, so we began to participate in things we had avoided previously. We enjoyed more time with our growing family. If you’re interested, you can read about it here: Smaller House, Larger Life!
But your needs might be much different from mine. You might have 7 kids (like my parents did) and need 3000 square feet in the country! Or, you might live a more urban lifestyle and not really need to own a home at all. What’s important is that you evaluate what your actual needs are instead of buying the most house you can afford “because that’s what everyone else does.”
Make Better Use Of Free Time
Have you ever noticed that when you’re busy with work you don’t spend very much money? That may seem obvious, but transfer that to your average weekend. Are you prone to spending more money when you’re idle or bored? Got free time at work so you shop around for things you don’t need?
Make a plan! Decide to be more productive! Try to find ways to put your free time to use so that you’re still getting some rest and relaxation, but in a non-bank-account-draining manner.
Start A Budget
Finally, I highly recommend starting a budget, or improving the one you already have. OK, so this one you’re probably rolling your eyes at, but think about it. How are you going to manage your expenses well if you don’t have a good handle on what your expenses are?
Setting up a budget is a fairly easy process, and I’ve laid out my recommended method in the Build A Better Budget series. I hope you’ll at least read through it and see if there’s anything you can use. It might be the most important step in the process of managing your expenses.