Reducing your costs is a leverage for FIRE
Leverages always have a big impact and so will reducing your costs. For every CHF / $ of costs you can eliminate out of your budget, you will need 25x that amount less to save in order to achieve financial freedom.
Why? Because you need 25x your yearly costs saved to be financially free, so it works the other way around too: If you can reduce your rent cost by 2’000 / year = you will have to save 50’000 less until you achieve financial freedom.
The Mindest for cost reduction
Mastering that area requires more than switching your mobile phone plan to a cheaper one. It’s a mindset change. One of the founders of the FIRE Movement, MrMoneyMoustache or (MMM) has some famous quotes which summarises the topic quite well:
“If you like your big fat truck, you better like your job too”
“Luxury is a weakness”
You are only dependent to your job/income, because you have costs to cover. So if you raise your costs, you raise the dependency as well.
And since we’re all locked in the hedonic treadmill, most of the things we buy or rent won’t make us happier in the long term (after we escaped poverty).
Knowing that, the key here is to understand that you can reduce your lifestyle quite far and you will experience the same happiness levels.
I experienced it myself, during the build up of my startup, I had for years 10x less money available than I had before (it was even below the minimum you would get from social security). Of course I had to be creative and couldn’t join every opportunity. So it was a limiting factor, but not for my happiness. I was as happy as I was before and now.
Therefore if you have already a cheap life, try to escape the lifestyle inflation.
If your lifestyle is quite inflated, try to experiment and to test the waters. You will be surprised how a basic car, wine, apartment, meal, trip will give you very similar if not the same amount of happiness after a very short time.
If you want to know more about the science, read the book “Happy Money: The Science of Smarter Spending“
Tutorials for cost reduction (WIP)
Here’s the list of areas I reduced my costs and it is sorted by impact:
- Health insurance
- Household insurances
I will add a step by step description of what I did within the next months.