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Creating Freedom Through Financial Independence


It’s All About The Increments Baby!

November 29, 2018

There’s often a claim made that goes something like this: “Get your biggest expenses under control and most of the hard work is done.”

The theory being your biggest items are where most of your money goes.  So fix that, and you’ll automatically have a decent savings rate.

But these people are often subtly implying that the small expenses and therefore small improvements don’t really matter.  Well, I call bullshit on that!


Sweet, sweet savings

Look, I can see the sense in this statement.  But unfortunately, in the real world, it doesn’t work like that.

Human nature gets in the way, and naturally, we just end up spending whatever we earn.  So if we make a sensible housing choice, we’ll end up spending more on holidays, eating out, cars, or clothes.

That’s just what people do.

Otherwise any household with a decent income, modest house and low cost vehicle would be rich.  But clearly, that’s not the case.

So where does the money go?  The answer is, everywhere else!

The wealth is in the details.  Small amounts can still make a gigantic difference.  Let’s get this fact straightened out once and for all!



Looking where all your money goes, is critical.  Not just the big stuff.  Everything.

I posit that it’s even more important to appreciate the small dollars.  While that might not sound very logical, hear me out.

In my mind, this goes to your overall attitude towards money and how grateful you are as a human being.

We need to realise how damn good we have it, and how little it really costs to live.  Once we have that warm fuzzy feeling, we begin to appreciate seemingly small amounts of money.

Take $10 for example.  That’s enough money to feed our household for an entire day.  Meals, coffee, snacks, everything!

So $10 is pretty damn useful when seen in this context.  It actually buys a lot of stuff when used correctly.  We just have to get better at spending our money.  Luckily, it’s a skill anyone can learn, and we can improve over time.

Here’s the thing:  The people who don’t respect small amounts of money, will rarely ever have large amounts of money.  And even if they do, they’re far more likely to just piss it away.

Because a large sum of money is simply lots and lots of small amounts bundled together.


Leaky Boat Syndrome

You’ve probably read before that a small leak can sink a big ship.

The problem is, for the average Aussie household, they have about two thousand leaks on their boat!

Yet they continue sailing along, frustrated, busily scooping the water out as it comes into the boat – thinking to themselves, “Man we sure could do with a bigger boat.”

To which I’d say, “No, you need to fix the fucking leaks!”

Without doing a song and dance about it, I though it’d be helpful to share what we did.

We wrote down every single place that our money was going and put it into categories.  Then we went down the list, one by one, and looked for ways to improve on that.

Almost every time, there was a way we could save from that category.  And then we made a conscious effort to carry that out.

We did this once a year.  And guess what?  Every single year our spending came down.

When we met, we were probably spending around $70,000 per year, and had a savings rate of maybe 35%.  By the end of our journey, our spending fell to around $45,000, and our savings rate was over 70%.

There’s more fat we could trim from our current lifestyle if need be, but we’re pretty happy where it is.  We’re retired now with some bonus income coming in, so a little bit of sloppiness isn’t so bad.

But on the other hand, I don’t want to lose my frugal street cred either! 😉

Even a slight amount of waste in each category, leads to a large amount of waste across your spending as a whole. 

This leads to the near-zero savings rate that the average Aussie household has.  And if this is true (which I maintain it is), then here’s the other side of that…

If we can wind in a bit of this excess, while still living a good life, then this creates a huge improvement overall.  That leads to a strong savings rate.

And we know what eventually happens with a strong savings rate, right?

Yep.  Financial Independence.

So if you’re not sure where you’re money goes (and you’re not bleeding cash with crazy things like a huge mortgage or car loans), you can be pretty damn sure it’s leaking out in small increments everywhere else!



We’ll purposely look at a few small examples to see how it’s possible to add some of those sexy increments to your savings rate, even if you’re already running a pretty efficient household. 

There’s a million possibilities, but here’s some to start…

— Trimming back on unnecessary insurance.  By increasing your excess, or getting the insurance within your super fund.  This way you’re still covered, but your personal savings rate is higher, helping you reach FI sooner.  Savings = $10 per week.


— Finding a lower cost phone/internet plan.  It will be pre-paid of course!  Earlier this year, we got a 2-for-1 deal with Kogan Mobile – unlimited calls, texts & 7gb data per month – $300 for the year.

This plan has currently been improved to 13GB per month, though the 2-for-1 has finished.  We already had a super cheap phone deal, but this was still an improvement.  Savings = $5 per week.


— Haircuts at home.  Mrs Strong Money now cuts her own hair after learning how to do it watching youtube videos.  And she also colours it when she feels the need.  This stuff costs a small fortune to outsource as most of you probably know!  Savings = $20 per week.


— Having a meal plan, and eating more vegetable focused meals.  This made a huge difference to our grocery bill as highlighted in the grocery strategy post.

But I think most of us could improve in this area and shed at least a little more off our weekly shop by doing the above.  We also started spending less on vitamins since our diet became a lot healthier, which is another benefit.  Savings = $10 per week.


— Re-plan your dates.  For couples, instead of going out to a cafe/restaurant to spend time together (simply out of habit), why not go for a nice sunset walk or an invigorating bike ride.

Instead of once a week, go for once a fortnight.  You’ll feel better for it.  And it’s better to fatten up your bank balance than, well, ourselves!  Savings = $20 per week.


— Be more efficient with resources.  Across the spread of power, water and gas, be a little more careful with how much you’re using.  Those are important resources after all, and using a bit less of each is far better for the environment, if nothing else.

Switch to a cheaper gas/power provider.  Get energy efficient lights.  And switch off stuff at the wall when you’re not using it.  We did these things and it actually did make a difference.  More than that, it just feels better not to waste any of these resources.  Savings = $5 per week.


— Forbid yourself from fast fashion.  That’s right, now I’m attacking your fashion sense.  Well, really, I’m just asking you nicely that you consider buying a little less shit in this department.

Fast fashion is a disgraceful trend, a big pollution problem, and a horrible waste on so many levels.  Young people are the worst culprits.  The truth is, most of us already have so many clothes that we only wear a fraction of them.

Rather than a steady stream of new, unnecessary upgrades, try the good old Op Shops if you really need something.  Then you can feel good knowing your clothes shopping is helping this issue.  Mrs Strong Money has hit the jackpot a few times and bought some unreal clothes very cheaply this way.

Or, if you’re like me and can’t be bothered clothes shopping – just get a few good items for your Birthday and Christmas, then wear them until they fall apart!  Then proceed to buy nothing in between those periods.  Savings = $5 per week.  (savings for teenagers = $237 per week?)


— Getting in the spirit.  I know this will be a touchy one.  But it’s my view that adults giving each other gifts for Christmas is kind of a weird concept.  I just don’t see the need.  I mean, it’s for the kids.  And the most important thing you can give someone, isn’t a present.  It’s your presence.  

Rather than exchanging crap we bought from the shops, spend time with the people you really care about, and tell them how important they are to you and why.  This is far more meaningful.  Not to mention all the gift wrapping, cards, plastic bags and other junk we throw away when it’s all over.

It makes me feel a bit sick actually.  Thinking of all the resources that went into making that stuff, for us to use it once, then throw it into landfill.  What for?  So our loved ones know we care about them.  TELL THEM THAT!  Rather than getting a gift to do it for you.

I’m not saying don’t have Christmas.  I’m no grinch.  Just be mindful of what’s really important and focus on the meaning of it, without the waste.  Personally, we’ve reduced the gifts we give to each other (simply because it feels unnecessary), and been more mindful of the stuff we do buy.  Savings = $5 per week.


— Time off.  Another idea that we used on our journey was stretching out our holidays.  Instead of once or twice a year, you could go away once every 18 months.  It’s not much of a delay, but it cuts the cost down dramatically.

Other than that, we started taking trips within Australia versus overseas, (mostly so we didn’t have to leave our dog!).  We also took time off to holiday at home, or ‘stay-cation’ as our American friends call it.  This was mostly to trial what our FI life would be like.

We’d spend a few weeks at home trying to act as if we were retired and see how it went.  Many times, it was surprisingly more refreshing than a holiday!  Because there wasn’t all the packing/unpacking, driving, flights and people to contend with.

Try this stuff out for yourself – you may be surprised how it feels.  Savings = $20 per week.


The Sums

So let’s see what kind of impact this small handful of savings really has, in terms of reaching early retirement.

Well, adding it up, these made-up (but entirely possible) optimisations come to $100 per week.  That’s $5,200 per year.  Now it’s starting to seem like a decent amount.

But that’s only one year.  Sticking with these new habits and investing the extra cash (earning 7% per annum), after 10 years, you’d have around $70,000.

That in itself is a big boost in your FI war chest.

(In case you’re wondering, this figure blows out to $1,038,103 over 40 years.  The difference between retiring a millionaire and retiring poor is all in the details)

That’s not all.  Remember, your spending is now $5,200 lower each year.  And you would’ve needed somewhere around $100,000 in shares to create this income each year.  But now you don’t need that extra hundred grand!

So in this example, you’re $70,000 wealthier, while the amount needed for FI is $100,000 less.  That’s a dramatic improvement and a huge step towards freedom.

The savings rate boost would, in most cases, bring your early retirement forward by at least a few years!


Full Overhaul

The above example is for an already reasonably efficient household.

Imagine if you’re starting from the position of a typical Aussie household – spraying money in every direction with no clear handle on where it goes!

As of January 2018, we began tracking our spending in a spreadsheet for the first time ever.  All will be revealed early next year!  (now published… Strong Money Household Spending 2018)

But looking over it now, I can see we have 26 categories of expenses (more than I thought).  Some are high, some low.  Either way, that’s a huge list to work with.  You may even have more!

An average household starting today with 25-30 spending categories, could easily find a way to save $10 a week from each category, on average.

That opens up close to $15,000 of savings per year.  Investing that cash and earning a 7% return per annum…

After ten years, they’re $200,000 wealthier.  And because of the lower spending, they now need around $400,000 less in investments to retire.

Basically, they’re a shitload better off than they were before!

High income earners can get away with just a moderate level of frugality, for lower income earners, those small increments are even more important.  Either way, savings rate as a percentage of income, is everything.


Level Up

Here’s a quick table for you to see how long it’ll take to retire, based on different savings rates.  Or you can use an interactive online calculator like this one!

This table assumes you earn a 5% investment return after inflation, and you live on 4% per year during retirement.


Savings Rate Years to Retirement
10% 51
15% 43
20% 37
25% 32
30% 28
35% 25
40% 22
45% 19
50% 17
55% 14.5
60% 12.5
65% 10.5
70% 8.5
75% 7
80% 5.5
85% 4
90% 2.75
95% 1.5


As you can see, every incremental jump in your savings rate, brings your financial independence date forward.  By years!

Now you can see exactly why small improvements excite me so much!

Study this table, because this is where the magic happens.  If you want to retire sooner, simply learn to live on less of your pay.


Money Audit

Here’s my project for you.  Give yourself a Money Audit.

Look over a minimum of 3 months worth of bank transactions.  Find out, really, where does your cash escape to?

Round it up and put all the expenses into categories.  For the costs you can’t find, do your best at estimating those on a yearly basis, and average it out.

As an example, your car service might be once a year and cost $500, with some minor repairs every couple years.  Note this down as $10 per week, or $40 per month – whatever is the easiest for you.

I’ve found that measuring your expenses by the same time-frame (weekly, monthly etc.), it gives us a much better picture of our household spending.

Once you’ve got your categories sorted, sit back and take a look at it.  And think to yourself…

Is there anything that looks a bit high to you?  Are these things really adding to your life?  Is there any way to get the same benefits at a lower cost?  Are these costs worth sacrificing your freedom for?

Can you improve on them?  Or cut some of them out completely?

Really think about your life and what’s important to you.  For us, some things we just couldn’t justify.  And the rest we simply improved upon.

Next, go down your categories one by one.  Find a way to optimise your spending in each area, and then get to work making it happen.  If you’re doing it right, there’ll be a big list!   And then work on them one by one.

This stuff is like getting in shape.  Our expenses are how much fat we’re carrying.  And our investment portfolio is how much muscle we have.

We’re simply trimming the fat.  And using that fuel (our savings) to build the muscle (our investments).  And as this muscle grows, our financial position becomes stronger.

There’s so many possible ways to find incremental savings.  So this process can be repeated every year.

Start tracking your spending in a spreadsheet, if you don’t already.  The results may surprise you.  And this way, you’ll know for sure where your money goes – no guesswork needed.

As you make positive changes and see the results, it’ll motivate you to find more ways to be efficient.

Remember, $10 a week is really $520 a year.  And that requires over $10,000 of investments to cover that cost with dividend income.

So, rather than think about the $10, think about the $10,000.

As you can see, this stuff can literally make the difference between permanently broke and wealthy.  A couple of tweaks here and there each year, will see you many thousands of dollars closer to your goal.


Final Thoughts

Our nature is such that we want the rewards without the effort.  But it rarely works like that in real life.  To retire ridiculously early, requires a change in philosophy and a systematic approach to improving our spending habits.

Don’t get me wrong, large expenses are super important and should be your first focus.  But appreciating small improvements is glorious too.  Instead of one or the other, aim for both!

The bottom line is, every dollar you can drop from your yearly spending, is 25 dollars less you need of income generating investments.  And it doesn’t matter which expense category that comes from!

So the next time somebody says “It’s only $10/$30/$100”, you now know that’s a destructive thought process to have.  To our wealth and our freedom.

Ultimately, we’re not sacrificing our spending in order to save.  We’re sacrificing our lives in order to spend.

Some things are worth it, but many are not.  By realising the future impact of our spending choices, we learn to prioritise and make better decisions.

Let’s start taking small amounts of money seriously.  Because the better you get at playing this money game, the sooner you can retire.

Thanks for reading! 

Here are some resources you may find useful on your wealth building journey:

Sharesight: A great portfolio tracking tool for share investors, and free for up to 10 holdings.  It tracks all dividends, franking credits and capital gains, which is incredibly helpful at tax time.  Saves me a lot of time and headache!

Mortgage broker: My personal broker of 10 years is More Than Mortgages.  Highly rated and award winning, Deanna and her team been super helpful over the years and can assist with anything home loan related, including refinancing and debt recycling.

My book: After 5 years and hundreds of articles and podcasts, I decided to distill everything down into an easy to follow book.  Designed as a complete roadmap to achieving financial independence and retiring early in Australia.  Available in paperback, ebook, and audio.

Just so you know, if you choose to use these resources, this blog may receive a financial benefit at no extra cost to you.  Thanks in advance if you do.  And to be clear, I only ever recommend things I use myself and genuinely believe in 🙂


47 Replies to “It’s All About The Increments Baby!”

  1. Great post Dave! It’s important to look at both the big one-off savings as well as the incremental savings you can make, if you can get them both sorted out then you’re going to be making your journey to FIRE a lot easier!

    We already follow a lot of these tips, my wife cuts everyone else’s hair although she gets hers done professionally because I probably shouldn’t be trusted with clippers or scissors! Another one I see a lot of is people spending $20 a day between eating out for lunch at work and having a couple of takeaway coffees. That can be close to 10 grand a year just by taking some leftovers and using the coffee at work. Hell, buy one of the Aldi coffee machines for your office desk or kitchen and use that and you’ll still save a fortune!

    One of your tips I’d be wary of though is having your personal insurance in super. There are a couple of big concerns here, the main ones being that you’ve only got Any occupation cover in your super for TPD rather than Own occupation, you’ve got no trauma cover at all in your super, and that the definitions for income protection tend to be a lot more generous in your own name as well. I talked about it a bit in this post

    1. Thanks for the comment mate. Absolutely, it has to be a holistic approach, not just a couple of moves.

      Oh the coffee and lunch thing is a real killer. And it becomes a regular habit which makes it harder to switch off. I did cover those savings in an old post here – making big money from little changes.

      There could be a list of probably a couple hundred ways to make incremental savings – maybe I’ll do a post with a list in future.

      OK thanks for the extra info on super, had no idea about that. Was just a random idea, not something I had done or looked into deeply – clearly it’s more complex than it seems!

    1. Oh sorry that’s supposed to be $300 per year. And that’s for two people. I’ll fix it up now in case anyone gets the wrong idea!!!

      Also I’ve already commented on that thread.

  2. As the guys at ChooseFI say, “It’s the aggregation of marginal gains” and also reminds me of the old proverb, look after the pennies and the pounds will look after themselves… so very true.
    Great post as always!

  3. Hi Mr Strong Money

    Another helpful and super practical blog you are right when you talk about how hard it is to reign in our spending We all have different priorities that we think are important when it comes to our spending A money audit sounds great
    I get so much out of your blogs but you really don’t enhance them with the swearing

    1. Cheers Wazza 🙂

      Hopefully it encourages people to work on those little things that add up to a lot! Your point is noted – see my reply to John for my explanation (excuse) on the swearing lol.

      1. Hi Dave,
        I really like your blog, but feel there isn’t enough swearing. More bad words and name calling please.

        I once wrote a blog about the opportunity cost of private schooling ( and someone shared it to the Mustachians Australia group on the Facebook and I was flamed hardcore (they didn’t know I was in the group). But I realised that the way they felt about the post was their problem, not mine.

        John Cleese once said, “If people can’t control their own emotions then they have to start trying to control other people’s behaviour.” Don’t censor yourself because someone makes a choice to be offended.

        Keep up the good work!

        1. Haha thanks Andrew, I appreciate your support and for sharing your experience.

          It’s certainly not easy to keep everyone happy, but it’s good to get feedback. Because at the end of the day, I want to give content that people find helpful and enjoyable to read. Luckily most people are respectful with it – in other places online I’ve found folks can be quite rude and frankly will complain whatever you write!

          I wouldn’t change my writing style to suit others though, I just may be more selective when I swear. But thinking about it, I’d still write this post the exact same way today. For me I enjoy writing in a casual conversational style, so some name-calling and swearing is inevitable like real life – it also keeps things fun (for me at least!). If I was publishing a book or trying to be a serious mainstream writer, maybe different story, but neither of those things are on the cards!

          I love John Cleese by the way – one of my favourite old shows is Fawlty Towers. Thanks again 🙂

          Edit: Just read your post, it’s excellent! I’ll have to remember that in case someone suggests to me that’s why they can’t save. Can only imagine the avalanche of complaints written about it, as it’s another one of those emotional topics where it’s almost impossible for people to look at objectively and rationally!

  4. Another great article Strongmoney and wholeheartedly agree that the ‘small stuff’ really adds up, they can also be the easiest things to reduce as well.

    This is the first step my wife and I employed when we had the mind shift to really take control of our financial future. How can you save money to invest when you don’t know where your money is currently going?

    I’ve used a number of apps but one the one I personally found the most useful is the free version of moneybrilliant. If others read your post and want to start analysing there household expenses, this app allows you to import their past 12 months of bank transactions and categorizes the transaction for you and produces some reports/graphs etc. It can be a real eye opener so beware….. haha

    1. Well said oddshapes. Thanks for sharing – I’ve never heard of that before or used any apps for tracking, but others can check it out and may benefit from using it. Thanks for reading!

    1. Thanks a lot John. Sorry it wasn’t to your taste, the language is used when I think something needs a very strong emphasis and it matches what I’d say if this was a real life conversation. Since I try to write in a conversational style, I feel it has to match what I’d say so it’s genuine. But I’ll take note of that for future. Appreciate the feedback 🙂

  5. I’m a fan of cutting large expenses and small expenses – it’s all a win! I find that the big ones are easiest to target first and then work through each of the smaller ones- but everyone has a different approach.

    Can’t wait to see your 2018 expenses and see how we compare. I know we’ll be over but it will be interesting to see by how much and which categories.

  6. Dropping the F-bombs Dave! You are fired up today!

    Very good points though. Understanding your family budget I think is the most important step in a FI journey. Our family has a pretty good handle on our budget, we use the moneysmart website ( which I found very helpful to get a good handle of where our money was going.

    Obviously as you say, its a balance though, you don’t want to cut to the bone and then live off baked beans forever 😉

    1. Haha yes I’m passionate about hammering this point home (obviously)!

      Thanks for sharing that, looks pretty good, hopefully others find it helpful.

      Yeah of course, it’s a balance in creating an enjoyable life that doesn’t cost a fortune. What’s wrong with baked beans though? Haha 🙂

  7. Another brilliant post Dave! So much so that I’ve just messaged my 19 year old nephew and urged him to start reading your blog (at the certain risk of him eye rolling my text and thinking I’m another person telling him what to do). He’s already read my copy of Barefoot Investor – he’s clever enough to borrow mine and not buy one -Haha. I told him – I know he took some financial pointers from there but in my opinion your blogs are even better . So here’s hoping I’ll soon have someone that I can discuss your posts with.

    1. Thanks very much Danielle, much appreciated. He’s a lucky young bloke, having such a switched on Auntie to nudge him in the right direction! Hopefully he jumps on board!

  8. I really enjoyed this article. Great advice and good table for reference. Fantastic to think about the amount of money you would have to invest to generate the same amount of passive income in order to cover those costs that you can trim – that’s a great thing to think about.

    I too am doing an annual (month by month) allocation of all our spending to see just how frivolous we have been in different categories in 2018. It really helps to keep that cost front of mind in the day to day and how by contributing to that cost, we take away from what that money could be buying us in life freedom instead.

    1. Thanks Al 🙂

      Definitely – when we look at how much investments we need to cover each small expense, it starts to feel like a much bigger deal!

      Great work on the tracking, it’s interesting to see how it matches up with what we thought we were spending.

  9. Great post Dave and an even better reminder for me to look around and actively minimise my expenses again. It’s been a year or two since i last did this.

    Today I cut my monthly phone bill by 50% and my internet bill will drop 40% in the next couple of months too.

    Thanks for the article and reminder!

    1. No problem mdk – I think we all need this reminder every now and then not to get too sloppy lol. It feels refreshing, like cleansing the system or something.

      Awesome job by the way, those are solid savings!

  10. Another great article Dave. Thank You so much!!
    The part on a ‘money audit’ reminds me of the chapters in Your Money or Your Life by Vicki Robin and Joe Dominguez. I’d be interested to know if you and your readers have read that particular book.
    The grocery spend is my Achilles Heel…I’m haemorrhaging money there…

    1. Thanks Jeff!

      I haven’t actually read that book, but I should – have heard good things. They’re the ones who basically introduced this simple living + hardcore saving = financial independence thing, if I remember correctly.

      You’ve probably already it, but maybe go back and see if you can get any ideas from my grocery strategy post and the great comments people have left there!

    1. Nice work Frankie, there’s always an upside!

      Maybe Ian would suggest you’ve pulled your hair out with all that stock picking? lol 😉

  11. Great post Dave! Very timely as I quit my high paying J.O.B. on Friday to start a business next year. We already practice a lot of these tips (no holiday in 2.5 years!) but our major leak is take away food and buying lunches at work. I am shit scared of finding out how much we really spent on takeaway….BUT with me around more my aim is to cook at home and get my health and waistline back!!! My partner and kids rarely ask to eat out, I am the piss weak one on that front lol

    1. Awesome stuff Whysee, congratulations!

      Haha take away is a nasty one 😉 Hopefully you can improve there, your body and wallet will be much better off, not to mention cooking/feeding yourself is a good life skill to have! I gotta say, your honesty is admirable! Others would be quick to reach for the list of excuses lol.

    2. Haha I figure if I put it out there I will be accountable. The sad thing is that cooking is a massive hobby of mine but being so tired makes me pull into the drive through way too easily. Onwards and upwards!

    3. Dear Whysee,
      I want to quit my high paying J.O.B. as well…May I ask; do you have a pot of cash savings and/or an income stream such as dividend-producing shares to buffer you while your business venture gets off the ground? Care to elaborate….?? No problem if not.

      1. Hi Jeff, I really wish that was the case but no, we got a line of credit against our house (Thanks Melbourne property market). It is a calculated risk though as my new business is doing exactly what I do already and am established in (I won’t say too much as I’ve sent a number of colleagues and clients to this site). My partner was working PT and now he can work FT next year (increased income but nowhere near enough to live off 1 income) and our youngest starts school (goodbye kinder and childcare fees). My main issue was that I was running my own business within a business (from generating all my own clients to chasing up my own invoices with little support) but giving them 2/3 of the revenue for the privilege so it made sense to get the hell out of there!!! My advice would be to plan plan plan as my escape was 2 years in the making. So I am nowhere near early retirement but we can get there much faster with me being business owner than a worker bee. Feel free to ask any further questions as I’m procrastinating 🙂 Good luck to you!

        1. Thanks for getting back to me Whysee. I will follow your advice and properly PLAN my exit from the day job. Might try 6 months of ‘planning’ and then see where I stand. Am also thinking of asking my boss if I can go part-time (0.5 FTE) as a prelude to quitting completely. The FI whisperer inside me says; why not try living on a 0.5 FTE wage for 6 months and see how I go… I know where I’ll be putting the other 0.5… Low-Fee LICs!!

          1. Hi Jeff,
            I had the same experience some years ago. I agree with Whysee’s thoughts on the importance of planning. I meticulously planned everything except one thing – how I would manage my own psychology. I had become so used to working FT and associating with friends who worked FT that I didn’t realise how big a psychological shift had to be made when exiting the workforce. The longer you stay in the workforce in a chosen field, the more that chosen career defines you. If I had my time over again, I think I would have looked to take on a portfolio of PT jobs as a transition from j.O.B. life to FI life. I know that is not always a practical solution for everyone but for me the emotional separation from the workforce was a bigger challenge than I anticipated.

  12. So true: “Here’s the thing: The people who don’t respect small amounts of money, will rarely ever have large amounts of money. And even if they do, they’re far more likely to just piss it away. Because a large sum of money is simply lots and lots of small amounts bundled together.”

    Reminds me of the meme going around that says: ‘”It’s only $5″ has probably cost me around $10,000 by this point.’

    I find that one of the key benefits of tracking expenses is to help highlight the things that you spend on that don’t give you joy. For me, these are things like taxi trips (where the bus would suffice), bank fees, insurance, or mediocre takeaway. Ditch these and that frees up funds to buy things more important: your freedom!

    1. Thanks Michelle!

      Well said! Once you start tracking where it goes it definitely throws up a few surprises like ‘wow we spend this much on (X)’ that seems like a lot. And I think putting it on the same timeframe can offer new insights too. For example, our car rego is just over $800 per year. Since it’s only once a year it tends to get forgotten about, but that works out to almost $70 a month – which is huge. Seeing it on the same level as other expenses helps put it in perspective. There’s lots of one off or once a year expenses that look like this. Before you know it, half your pay is gone haha!

  13. Hey Dave,
    I love the idea of thinking about every category and how you can save, not just one. Like you effectively pointed out, if you can invest each of those small bits of saving throughout the year, you will be light years ahead of people who don’t invest, let alone save any money each year. There is a trade-off between enjoying yourself occasionally and being too tight, but if you get the balance right, you can live a happy and financially free life.
    Great post,
    Money Professor

    1. Thanks for the comment MP. Definitely a balance. Having said that, there’s still plenty of enjoyable things to do that don’t cost much, so we should probably go for those first 🙂

  14. Hey Dave,

    Great article!
    Running an annual spreadsheet for spending and income is such an empowering thing to do. My wife and I have been running our USPTYLTD spreadsheet for our entire 16 years of marriage. Over that time, the spreadsheet has been gradually tailored to our needs and now my wife and I each devote about an one hour per month inputting transactions (cash and credit) into our purpose-built spreadsheet. This effort produces a monthly cashflow statement and balance sheet and a series of informative charts (all in excel) feeding off the inputs for decision making purposes. Sure it has taken a bit of time to tailor the sheet to our needs, but that is all part of the journey. Now we know the process really well and we look forward to going through the process each month because we know that it will give us great insight into our monthly performance. While I understand that our process is not for everyone, I would encourage all your readers to follow their own path in this regard. A very worthwhile goal to pursue.

    1. Wow nice work Steve, that’s dedicated!

      Ours is very simple, not charts or anything, but I might be able to mash up a chart for the yearly spending post early next year. The main thing is that people find out where their money goes and really question whether that stuff is worthwhile and understand it’s coming with a real cost of foregone freedom/wealth. Completely agree with you, whatever works for the individual.

      Thanks for the great comment!

  15. “This stuff is like getting in shape. Our expenses are how much fat we’re carrying. And our investment portfolio is how much muscle we have. We’re simply trimming the fat. And using that fuel (our savings) to build the muscle (our investments). And as this muscle grows, our financial position becomes stronger.”

    Probably the best analogy I’ve seen to explain this concept, so succinct and clear. I’ll definitely be showing this to my partner and friends! Great writing and post Dave! Cheers.

  16. Thank you for this post!

    We are new on the passive income/FI journey, and started by exporting a list of all our expenses from our bank accounts last FY and categorising them to get a picture of how much we spend on what and to compare that to our income to work out our existing savings rate, and find areas where we could save to increase that savings rate.

    We like to think of ourselves as fairly sensible with money, and we don’t buy a lot of stuff, but we were really surprised at the amount we spent at the supermarket and on takeaways and eating out last year, along with other ‘wasteful’ expenses just because we could and still comfortably live on our salaries! We’re not high income earners, but have never focused on saving or having a budget before – saving just sorta happened because we naturally don’t spend much so we figured we didn’t really need a budget!

    We now have:
    – a monthly budget for groceries
    – structure and rough costings for our meals (with back up options in the freezer for those nights we don’t want to cook)
    – improved meal planning including knowing which meals generally have leftovers and planning for when they will be eaten (or frozen as a back up option for another night)
    – a deliberate strategy for when we will buy takeaway (mostly just as a special treat for birthdays and the like)
    – a plan for “date nights” when we do get them, which is easily less than once a month (eat dinner at home with the munchkins like a normal night (much cheaper), then go out for a small, inexpensive dessert together – we don’t normally eat dessert so this will be an extra special treat to make date nights even sweeter)

    These strategies alone should save us somewhere between $6,000-$7,500 this FY compared to last year’s expenditure (if the plan proves achievable – there’s a bit of trial and error happening here – but I’m tracking it so we will know how well we’re going).

    Now we can see HUGE benefit in having a budget. Even if it’s used as a guide, and we end up a bit over in the end, we will still have made significant savings just by being aware of how much we’re spending and on what.

    We have also trimmed a few smaller expenses pretty easily – Netflix ($10pm) and Google Music ($12pm) have both been cancelled and we’ve reduced our mobile phone plans by about half ($22pm). Our mobile phone plans were not exorbitantly priced, but were more than we needed so there was room for savings. We won’t miss those services and we’ll save around $500pa.

    We reviewed our broadband plan and found we’re still on a great deal so no savings there, but it’s good to know we’re not paying the “lazy tax” on that. I already check our utilities plans every January.

    These, along with a few other budget improvements in categories where we overspent last year (holidays, gifts etc), and your strategy of consciously considering the cost of something before making a purchase, should see us lift our savings rate from what I would estimate as maybe 25-30% last year (I’m guessing as didn’t track it last year) to somewhere around 55% this FY (while both only working part-time and looking after 2 pre-school aged munchkins).

    Now that IS sweet!

    1. Wow, great to see what a difference a few tweaks makes – always makes me smile! Very nice work Miranda! 🙂

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