Do you have to adopt extreme frugality in order to achieve financial independence? Is there a specific type of money attitude you need to adopt?
I don’t think there’s a straightforward answer to that question. In reality, there’s a multitude of answers that could suit anyone’s approach to achieving FIRE.
Different Approaches to Achieving Financial Independence
From what I’ve observed from a lot of financial independence bloggers is an implementation of both approaches (although there definitely are some examples of extreme frugality out there!). It’s a given you have to be mindful with your money if you want to pull FIRE off but a little frugality in certain areas undoubtedly helps you on your way; with the added benefit that the early adoption of frugal living techniques will help you along the way when you’re living that FIRE life.
“The Shockingly Simple Math Behind Early Retirement” is a great blog post by Mr. Money Mustache written in 2012. It explains your savings rate is determined by 2 things – the amount you take home per year and the amount you can live on each year. Based on a lot of assumptions (I’m simplifying this so read the original post for all the beautiful details!) retirement is dictated by this; if you save 50% of your income, your retirement is set at a certain amount of years (16 in the post’s example). Save more and retirement comes earlier. Living this way has the added benefit of ensuring you can actually live on this lower amount every month for the rest of your life.
The approach we’ve taken to our FIRE plan so far has been;
Mindful spending & conscious consumption > frugality
We haven’t suddenly started living on rice and beans, walking everywhere and playing board games as our only source of entertainment (however, all of those things do sound like great ways to maximise our savings rate!). What we have done, however, is tracked our spending closely, cut back our discretionary spending whilst trying to keep our mandatory spending as low as possible.
Things may well change as our journey progresses but we implemented our plan with a generous time-frame of achieving our goals and also with *very* conservative estimates of our annual savings to get us there. It wasn’t a huge transition for us as we were already pretty diligent savers but adopting this new lifestyle has actually been quite liberating. I feel happy spending as little as possible, it gives me a greater sense of security. Although I’ve never really bought into consumerism and needed the latest [money sucking object] in my life, a commitment to saving more and spending less makes me feel far more in control and at peace. The age old saying of it’s the simple things in life really does hold some truth – who knew?!
This isn’t to say it’s going to go to plan; life is unpredictable. We could be made redundant, the stock market could crash and we lose all our money, we might get fed up with our plan and just want to blow our cash on fancy cars and trips to luxurious destinations (OK, that’s not going to happen). However, 9 months into our FIRE plan, I’m really enjoying the approach of spending less and saving more and long may it continue!