Are you wanting to kick start your journey to financial independence, perhaps excited, but also overwhelmed about how to practically start? Well, you’re not alone and in this post, we’ll explore how you can save money to help you on your FIRE journey while minimizing any impact to your overall quality of life.
NOTICE: The content of this article is not to be considered as a legal opinion, financial advice or tax advice. Millionaire Wealth Guide does not hold itself out as a legal, financial or tax advisor. If you want to receive a legal opinion or tax advice on the matter in this article please contact us directly and we will refer you to a legal practitioner.
Why Cutting Monthly Expenses Is Important
Most people associate cutting monthly expenses as a boring and even sometimes painful process equating it to a diet and saying goodbye to your favorite food! It doesn’t have to be like that though with careful planning. It’s also important to contextualize why you are cutting monthly expenses, which is to fast track your path to financial freedom by creating savings that can be invested, pay off debt and even on experiences or education to develop yourself. Therefore, your work now will pay huge dividends for your future self to enjoy life on your terms as opposed to being chained to a 9-5 or equivalent forever more. So now we’re clear on the why, let’s get into it!
1. What gets measured, gets managed
The first step is gaining clarity over your monthly expenses through tracking. This can be done either manually using spreadsheets or through an app like Mint which helps automate this process. I would recommend using an app though because it makes tracking much easier once setup which is important in helping you stick to the process! As part of your tracking you should put your expenses into distinct categories like Food and Entertainment, an app like Mint gives you suggested categories to help with this process.
2. Never pay an unwanted subscription again
Take a good look at any subscriptions and ask yourself 1) do I really need this? And 2) is there a free alternative to this product? Oftentimes subscriptions can be charged on you or your partners credit cards without you even realizing it. There are also now Apps available like Rocket Money that once you link your accounts including credit cards accounts, can easily identifying recurring charges and cancel them for you at the tap of a button!
3. Consider making gourmet food at home
Going out to eat less can be a great way to save a significant amount of money and it doesn’t have to be boring! We all know food, and especially alcohol has a significant markup in the restaurant and that’s before you even need to pay a tip! Now I’m not saying you can’t ever go out to eat, but rather it’s about given yourself an honest view over whether you can go out less and instead put money towards fun meals to cook at home alone or with a partner for a fraction of the price!
4. Review your car payment, Uber costs, and consider Public transport or even cycling and walking!
The average car payment in the US is now $725 for a new car according to Nerd Wallet which is a significant amount of money – https://www.nerdwallet.com/article/loans/auto-loans/average-monthly-car-payment. Consequently, it’s worth considering buying a used car that will still get you from A to B but allow you to shave off potentially hundreds of dollars on your car payment each month. To put this into context, if you saved $200 on your car payment each month, over a 30 year period and assuming a 10% historical stock market return you would have $3,921. 1 year of $200 monthly payments saved would be $47k so yes it makes a difference! Finally, another consideration is whether you can walk and listen to a podcast to get around or even take public transport. This not only is a healthy alternative to transport but a cheap one!
5. Shop smart
My dad taught me from a young age the phrase, “buy cheap, buy twice” and for me its turned out to always be true! The philosophy behind this phrase is to focus on buying fewer but higher quality things. Taking this a step further, buying used or refurbished can be a significant money saver and still help you achieve a higher quality product. I’m sure you’ve heard from friends and family who have got a deal or two from Facebook Marketplace such as an Anthropologie sofa originally priced at $3k but bought for only $1.2k! There are many, many deals out there like this, its about whether you are prepared to look and be patient. However, one things’ for sure is that you can save a fortune by buying the right things used.
6. Debt refinancing and making interest rates work for you
Debt refinancing and making interest work in your favor is a very important consideration. The basic premise here is that, in general, you should seek to refinance any debt you have where the interest is lower. There are some situations where this is not appropriate for example, student debt refinancing and giving up federal loan privileges may not always be in your interest, so you need to think holistically. Taking a simple auto loan example, if you currently have a 5.5% rate, and a few years later you can secure 3.5% – that 2% difference on a $40k debt amount is $800. With a mortgage the numbers are even more stark!
7. Negotiate your bills
A lot of people think they can’t negotiate their bills which simply isn’t true. A classic example is on your internet and phone plans, all it takes is one phone call stating you plan to switch providers to find out these companies are more often than not willing to throw discounts you way! The problem is people get comfortable and used to paying bills, but its important to remember many of them can be negotiated which can result in significant savings for you!
8. Buy a milk frother, flask, and start making your coffee from home
This last one is for the coffee lovers out there! A coffee a day at $6 = $2,190 a year. While coffee shop coffee and vibes can be awesome, what if you buy yourself a milk frother and Aeropress or Moka maker with the money saved from just 1 week and make yourself lattes from home. By having coffees twice a week you can save $1,560 a year without a significant impact to your life.
Achieving financial independence
Cutting expenses and being frugal where it makes sense is a critical step in your financial independence journey however there are other crucial steps needed to support you. For example, calculating your FIRE number, investing, budgeting and developing your money mindset to name but a few. Remember the journey to FIRE is a marathon and not a sprint, therefore, be consistent with your actions have confidence in the actions you take today leading to your dream of freedom.
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