Frugality attempt

Red coffee moka pot on stove | frugality attempt
My trusty moka coffee pot

In my previous post on savings rate, I established that I needed a 70% savings rate if I had any hope of retiring at 55 ie I needed to save 70% of my take home pay. Currently my savings rate average around 55% so I have my work cut out for me! At this rate, it will take me 14 years to retire which means traditional retirement instead of achieving FIRE 😞

Disclosure: Please note that I may benefit from purchases made through my affiliate links below, at no cost to you

So ... how do I improve my savings rate?

There are only two ways to improve my savings rate – decrease my spending and/or increase my income. Increasing my income would involve asking for a pay rise or working more hours or getting a second job or as they call it in FIRE circles, a side hustle or two. I already work long hours and my current job is stressful so working extra hours here is just not palatable. Note to self – check out side hustles.

Hmmm …. if increasing my income is not readily achievable then that leaves decreasing my spending …

I am not a frugal person by any stretch of the imagination. After all, you can’t take your money with you when you die so why deny yourself that little luxury or extra comfort in life if you can afford it? As long as you can afford it, why not? That has been my philosophy towards spending money since … forever. So I need all the help I can get for this project!

Mrs Frugalwoods' Uber Frugal Month Challenge

Fortunately, I came across Mrs Frugalwoods’
Uber Frugal Month Challenge and decided to participate on a whim.

I need to get this off my chest now … I LOVE Mrs Frugalwoods and her
family and her life. It is addictive reading about people far away who
have embraced frugality to the extreme (vs my way of living) and are so
genuinely happy about living with less. They achieved FIRE at 33 and
moved to a homestead in Vermont by living frugally. They are now living their dream lives … how inspirational is that? Read about it in their book – Meet The Frugalwoods: Achieving Financial Independence Through Simple Living

So I’m hoping that participating in the Uber Frugal Month Challenge would kickstart my own frugality attempts.

I decided that the lowest hanging fruit was my buying a cappuccino or
two on days I worked. My coffee expenditure averaged $65 per month over the preceding three months which to be honest, was lower than I expected. Over the previous year, I had begun to reduce my coffees to one a day instead of two or sometimes three. So the plan now was to cut out this expense totally.

I LOVE my coffee … instant coffee was never going to be my
solution. I discovered my favourite coffee roaster, Padre could deliver
freshly ground coffee in 500g bags as a monthly subscription with free
delivery. Problem solved!

My next worry was if I could get up earlier each morning to brew the coffee in my moka pot.

I was pleasantly surprised that I could, indeed! I was also delighted
that this caffeine hit was strong enough to satisfy me and stop me
craving coffee later in the day.

During the Uber Frugal Month Challenge, I bought 3 takeaway coffees
(when I was out with friends), Padre coffee cost $29 – taking my total
coffee expense to $39.25 – so ok, the savings are not massive but hey, I am happy with every dollar saved as that means I have more to invest.
And savings however small, add up over time.

Unexpected additional benefit

But wait, there’s more … my routine had been to rush in the morning and get to my local cafe, cursing about the lack of car parking. Or get to work only to rush out to buy my cappuccino.

I never realised that this was a rather stressful way to start my day. By getting up half an hour earlier, I had time to brew my coffee and perform little chores eg load the dishwasher while waiting for the coffee to brew. It was a much calmer me that arrived to work each day, ready to tackle the stresses of the job.

It is this unexpected benefit that will sustain my making coffee at home in the morning. And fingers crossed, so far so good!

Savings rate

One of the basic principles of reaching Financial Independence (FI) is having an above average savings rate. Your savings rate ie how much of your net income you save directly depends on how much you spend. Therefore the lower your living expenses, the higher your savings rate, the faster you will reach FI.

The theory goes that if you save 25 times your living expenses, you will be able to live off this amount forever, by withdrawing 4% per year from this invested amount.

For example, if your living expenses are $40 000 per year, then you will need to save 25x $40 000 ie a million dollars before you can retire. This means you can withdraw 4% of a million dollars ie $40 000 per year and reinvest the balance. Then the next year, withdraw another 4% and so on for your living expenses.

There are of course, a lot of assumptions – the chief being that your investments / savings provide a higher return than inflation. In other words, a million dollars today may not buy the same things as a million dollars in 30 years or 50 years’ time. Therefore, your investments or savings must beat inflation.

Returning to the example above, if you can reduce your living expenses then the amount you need to save for retirement will be less. For example, if you can live on $30 000 per year, then you only need to save $750 000.

This incidentally is the same formula that is used to calculate how much you need for traditional retirement. The difference is that pursuers of FIRE actively reduce living expenses in order to aggressively increase their savings rate, aiming at a 50% or more savings rate.

Numerous blogs expound on this eg in this  article, The Shockingly Simple Math Behind Early Retirement. According to this article, if you save 5% of your pay, it will take you 66 years to retire but if you can increase it to 60%, you can retire in 14.5 years. That is a whopping 51.5 years shaved off!

Therefore using the article as a reference, if  I want to retire at 55, a mere 8 years away, my savings rate would need to be a massive 70%! Now, that is a scary number.

At this stage, I had no idea what my savings rate was so it was time to start tracking my expenses … yikes! I have never budgeted in my life, not consciously, at least. I have always lived below my means so I never felt the need to stick to a budget.

I use ASIC’s free track my spend app on my phone to record all my expenses – it does require discipline to enter ALL expenses especially little cash transactions without receipts eg a take away cappuccino. I have only been doing this since March. I have noticed though that since I started recording expenses, I am more mindful about my expenses.

My monthly savings rate have fluctuated wildly depending on whether it is a month when utility bills are due, once off expense such as fence replacement or when annual professional association fees are due. So far my best month was 72% and the worst month 26% with an average of 54%.

Conclusion? I have a LOT of work to do to increase my average savings rate to 70% if I want to retire earlier at 55 instead of 60 or 65.


Where can I send your
Monthly FIRE Goals Plan?

By signing up, you’ll also be added to my newsletter

You can unsubscribe any time, I promise.