My Three Pillars – Pillar #1: Saving More

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You don’t have to be wealthy or privileged to become financially independent.

On the road to financial independence, I am applying a system of three pillars:

  1. Saving more
  2. Earning more
  3. Investing more

I know, it’s brilliant and pure genius and nobody has ever thought of this before.  But, even though it may appear so obvious, it doesn’t happen automatically.  And none of these work well when applied alone.  To do it right requires focus, discipline, and your eyes focused on the direction.  Wherever you look, there you will follow.

Each category is broad and can be applied in myriad ways.  Let’s take a look at the first pillar, Saving More, and see examples of how I apply it in my own life.

 

Saving More

There is a scale of saving, and it is wide.  You can save very little and just get by, or you can cut yourself off from modern society, stop shaving (men and women) and spare every expense.  I aim to spare as many expenses as I can without restricting myself, because that would be no fun.  Here are some examples.

1.      Utilities

When it comes to the electric bill, my views began to change when I began to focus my eyes on the costs.  The appeal of saving money in step 1 to then apply to step 3, which helps me reach the summit of financial independence, is very exciting to me.  So I started doing things I never did before.

Like temperature control.  I love my a/c.  But what if I trained my body to be comfortable at a different temperature that would allow me to turn off the a/c for a while?  So, I started by moving the thermostat up by just one degree.  I then kept testing the boundaries to see where I was really comfortable.  Summer is just starting, but who knows how many hours of the a/c running (and my money with it) I will save.

You can do the same with the lights.  See how long you can go with just natural light coming in from the windows before flipping on all the light switches.  In my case, I really enjoy the natural light, even when there isn’t much of it in the early evening.  Maybe by paying more attention to this I save about a half-hour to an hour on the light switches.  A lot?  Maybe not.  But it hasn’t affected me in the least.

These two may not be game-changers in and of themselves, but they fit my model of saving money without restricting myself.  That means I save money while living the same life I lived before, having sacrificed nothing.  Good deal.

2.      Entertainment

Most of us want the freedom to go out and enjoy ourselves.  I do not want to sacrifice that and wouldn’t want to consider it unless in dire straits.  Fortunately I am not, so I can tweak things to my advantage.

Going out to dinner is always a big one.  I love to be able to go out with my wife on the weekend and enjoy a nice meal.  We get out of the house, eat some good food and can really talk in a way that is different from being at home.  But, those checks keep getting bigger and bigger and we don’t even drink.  Instead of cutting this out completely, which would be very restricting and not so much fun, we consider whether we really want to go out because it will be good for us versus the times we want to go out because we don’t know what to make at home.

You know the feeling.  You’re sitting at home and neither one of you knows what to make, so you just dispatch the decision onto a restaurant.  That’s cool, but if you take a moment to think about it, could you prepare a meal together at home, rent a movie and relax and have just as good or a better time?  Maybe, maybe not.  But it’s worth a thought.  In our experience, we really enjoy spending that time together at home eating at our own table and relaxing.  Let’s do some math to show what kind of impact we could be looking at here.

Let’s say a typical couple spends $35 each time they eat out at a restaurant.  That couple goes out to eat twice each weekend.  That’s $70 per weekend, or $3,640 per year.  Wow.  These are not big checks but they add up to one really big check.

What happens if we reduce that number to once per weekend.  Now the yearly expenditure is $1,820 and that couple still eats out almost every weekend.  That’s an extra $1,820 in their pocket that year.  If my employer gave me a $1,820 raise today or if someone wrote me that check, I would be pretty happy.  Instead, I just wrote it to myself.  I’m so nice.

 

How Does This Help Me Become Financially Independent?

Just to see how this applies to the real world, let’s invest that $1,820.  Remember, investing is no guarantee, but the S&P 500 index has returned on average 10 percent annually since its inception in 1928, before taking inflation into account.  Past results are not a guarantee of future returns and some years go up and others go down, but let’s just use that number to spur some thought.

 

Initial Investment

Rate of Return

Annual Addition

# of Years

Future Value

$1,820.00

10%

$0.00

15

$7,602.59

$1,820.00

5%

$0.00

15

$3,783.65

$1,820.00

10%

$1,820.00

15

$71,211.10

$1,820.00

5%

$1,820.00

15

$45,020.28

Figures derived from calculator found at http://moneychimp.com/calculator/compound_interest_calculator.htm  

Of course, you need to invest wisely to get solid results but it is possible to learn to do that.  Or, if you’re not comfortable doing that, you can hire a fiduciary who can.

 

Conclusion

This is how I approach saving now.  I look for areas of my life that can be pruned without affecting my living experience, then save a sizable amount of money without even feeling the difference.  The good news, for me anyway, is that once I began focusing on saving it became like a game to me.  Finding little areas to save where it didn’t impact me in any way other than making my wallet heavier became fun.  I enjoy it now.  Which may be the most important aspect if you want to keep it going.

See the other parts of this series:
Pillar #1: Saving More
Pillar #2: Earning More

What are your thoughts? Let me know in the comments below.


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