Earnymore V Frugalizm

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Should I Just Earn More and Carry On As “Normal”?

I read a comment the other day stating it is not being frugal that will get you to financial independence early it is earning more

"I believe that wealth comes from creating more income, not reducing costs" alexisassadi

I’ve been focused on making passive income since I was in my early 20’s. When I was 24 years old, I became financially free and was making around $60,000 per year from my online businesses. projectlifemastery

Live normally and get rich has a nice sound to it. Being frugal on the other hand could alienate yourself from the people around you, you will miss out on a normal life? "Live for today as there might not be a tomorrow!" is very true; thankfully the odds are in your favor.

• Should we earn more and carry on as 'normal'?
• What happened to the TRiBE when we became frugal crazed savers
  
•  Should we live like yesterday - a living cost comparison
• A look at average living costs - are they normal or wasteful?
• A look at the cost of housing - likely to be your biggest expense
• A look at wages, wage earning curve and taxes
• A comparison of the numbers between the TriBe and carrying on as average
• Why earning more, being partly frugal and adjusting your lifestyle may be a better approach to financial independence
• Some ideas to earn and save more

Being Frugal and Seeking Financial Independence did impact the Tribe

From first-hand experience the Tribe understands that being frugal does impact relationships and the way you live day to day for instance:

• We did not have our own property (read have a huge mortgage) in a desirable London location like friends with similar incomes. 
• The rental property was not what we desired nor filled with furniture we liked and owned.
• We did not buy expensive things, making do with an old car "out of date" gadgets. 
• We went on reasonable holidays that we planned and booked ourselves
• We did not pay for a nanny or private schooling.

What we had gained was:

• We had no debt and shunned credit cards.
• We saved over 50% of our salaries
• We could afford to loose \ quit our jobs and still pay the rent 

When we talked about why we "shunned" the expensive lifestyle and our plans to retire early we had some comments such as:

“That is impossible and reckless.”
“Why would you ever want to do that?”

Conversation was quickly changed to the weather, kids or sports game. Ho hummm...and you have missed out on:

Should we have lived like its 1999?

Keeping to a modern lifestyle is very comfortable compared to the fairly recent past. We have access to exotic restaurants, films, gadgets, sports, designer goods etc. Everyone likes these things including us.

Our modern living is easier. We buy meals instead of making them, rely on cars and services. Gas and electricity is piped to our homes helping us save amazing amounts of time. Washing machine anyone - possibly the biggest time saver ever?

Our productivity and wages go much further and we spend it and boy do we know how to party. It is all so convenient and easy – just hand over money in exchange for stuff and experiences.

All this comes at a cost as MONEY = TIME (working) and LIFE = FINITE AMOUNT OF TIME. There is a key trade off here about lifestyle and free time.

So what does this consumer lifestyle look like:

Average Household Living Costs in the UK (multiply by ~1.5 for Dollars)

Source: £531 per week (~$800): Source ONS and Telegraph

Average household size (number of people): 2.37    Source: ONS

Average House Prices

Source http://www.dailymail.co.uk/news/article-1052769/The-map-reveals-long-wait-house-price-recovers.html

Average Wages and Wage Curve

http://www.ons.gov.uk/ons/dcp171778_385428.pdf

TRiBe Comparison

In my last post I detailed the current spending costs of the TRiBe. There are four of us.

Living costs

- The average cost of living in the UK for a family of four (excluding rent \ mortgage) is 3,222 Euros per month

- Our cost of living is around 1,200 Euros Per month.

This is a huge difference due to these main factors: low transport costs (no work commutes and cheap runner), owning our property outright, efficient energy solutions, growing some of our own food (the fruit trees are amazing) living somewhere which is a holiday.

Using the crude calculation that you need 25 times your annual cost of living to retire (I would personally use a higher number) and the cost of buying a property you need these investment pots saved up:

25 times the UK cost of living (minus rents) to carry on as usual + House Purchase = 3,222*12*25+200,000 = 1,166,600 Euros

25 times the TRiBe cost of living + House Purchase = 1,200*12*25+200,000 = 560,000 Euros

Income, expenditure, saving rates and early retirement

If you carry on as is I would argue your saving rate would be more like 20% on average compared to a family careful with their money saving 50%.

A crude calculations (assuming no investmet gain, compound interest and no inflation):

Lets take average earnings of a family after tax = 39,000 Euros source

Saving 20% and carrying on spending as "normal" (3,222 Euros per month) would take 1,166,600 / (20%*39,000) = 150 years!

Saving 50% and being careful (1,200 Euros spend per month) world take 560,000 / (50%*39,000) = 29 years

So carrying on as usual in this case implies you have to work until the government set retirement age to take time out. Now lets double the income it now takes 74 years, trebling gives 50 years. In order to retire early you are reliant on a MUCH HIGHER income and INVESTMENT GAINS.

Just earn more can have hidden costs

As you are gathering I am struggling to see how just earning more is the right answer.

Carrying on as normal includes purchasing lots of expensive non-essential stuff and services. Yet whatever we buy is not enough (we have been told so). So we earn, borrow and spend more to keep up with the social status of our income bracket.

Earning more puts us further away from financial independence (TRUE FREEDOM). 

Carrying on spending “as your social income group” can become like a drug habit that is impossible to kick.

This ladder of property and stuff has to be paid for and usually at the cost of your health. It usually requires you to work harder for longer. Stress is added due to targets, people management and expectations. A poor diet can be encouraged "entertaining" clients, eating at the desk or a reward for working so hard. Vices (alcohol and cigarettes) are used to relax and socialize.

Working more takes your TIME away. Time from your family. Time to rest and think.

MONEY cannot buy back this TIME or HEALTH.

Continuing to living the same way will not prepare you for true financial independence where your TIME is yours.

There are many instances where people are too scared to retire because the HABIT and ROUTINE of work is ingrained \ part of who they are. Worse still many people retire followed quickly by kicking the bucket due to the dramatic change in lifestyle and meaning \ personal value.

British workers expect retire four years before state pension age on £20k a year
Britons will enjoy 20 years of retirement

So ask will I really stop? Perhaps I will be so indoctrinated into the system financial independence \ early retirement will be forgotten.

Take Back Control

Going with the system is easy. Be part of the herd. Don’t think go with the flow. This really weakens the control over your life. You have outsourced it to other interested parties, paying a fee for being serviced. Someone else is doing the thinking for you.

Thinking for yourself on the other hand means taking responsibility for your life. Critical thinking and questioning the status quo will prevent you from handing over hard earned money (TIME) so easily.

New friends will be made with similar mind-sets who will be there when you need them. You will be there in return. Conversation will be less superfluous (about things outside of your control), less negative and more purposeful. I AM free to do as I please. I AM able to make a difference. I AM happy and content.

All of these changes reduce stress on mind and body as you become more resilient.

So just earning more and carrying on may not be the best way. Start taking back control of your life straight away. Stop keeping up with the Joneses, spending all that hard earned capital that can be compounded for your benefit instead of being spent for someone else. Controlling this urge to spend is true freedom. It makes a resilient, content financial independence transition easier and much earlier!

Earning and Saving More Ideas

Earning more does not just mean a better job is can mean investing in income. For example if you can purchase some dividend paying stocks and get paid each year. Compound them up and you income will increase from your savings very quickly.

1. Make sure your savings are working for you – safely! interest in a cash account or invested in blue chip dividend paying stocks or bonds? Read, learn how to invest and be informed. You are the best person to make these decisions. There is a raft of advice out there but most of it is a sales job. Risk, diversification (types of investment and currencies) and fees are major drives of wealth generation. Speculation is just for a small part of a portfolio that you are willing to loose.
2. If you have a hobby can you monetise it (renovation of old furniture for example)? What about a small home sales business – find a product, import it and sell it on line.
3. If you have a skill such as DIY why not sell your services as a handyman at weekends and evenings? Just doing things yourself is the same as a salary…?? Make sure you do as much DIY for yourself as possible.
4. Stand out in work – how can you make your bosses life easier? How can you make your team more effective? Be punctual and well dressed (quirky?). Be positive, helpful and workmanlike. There are many self help books - read.
5. Ask for a pay rise – if you don’t ask you don’t get!
6. Register your CV with work websites
7. How can you maximise your work bonus (are you working on the right things)?
8. Rent out a spare room

Earning more is always desirable.

Getting ready for a change in lifestyle is beneficial to your sense of freedom, friendships and health You can earn more by spending less and investing in income generating assets

Controlling your spending gives you more personal freedom

MONEY = TIME

FREE TIME = LESS STRESS + BETTER HEALTH + TIME TO THINK 

Just Do It! So what is stopping you from making a small change today? Most changes are not life threatening are they? If something goes wrong it is not the end of the world? Finally if it is not to your liking you are free to do something else.

Related Posts
FAC51 - 10 reasons while frugal is cool - why the f*** not!
30 Rules of Very Early Retirement

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