Achieving financial freedom while maintaining a fulfilling lifestyle might seem like an elusive dream. However, by prioritising your savings rate and reassessing your spending habits, you can pave the way for a future where you have the flexibility to pursue your passions and life's important moments without the burden of financial constraints. One of FIRE’s main principles is aiming for a savings rate of around 50%. While it’s not easy, any steps toward this is better than nothing. According to the ABS’ most recent numbers (December 2023), the Australian national household savings rate is sitting at 1.1%. If you were to save just 5% of your income, you’d be doing almost 5 times better than the national average.
It is also important to note here that while a higher income might be beneficial, it is entirely reliant on the savings rate. Someone earning $100k with a 5% savings rate will work more and retire later than another person earning $50k with a 50% savings rate.
One common concern is that prioritising savings will lead to a dull and joyless existence. However, this notion overlooks the transformative power of mindful spending. By tracking expenses and reallocating funds to what truly matters, you can enhance your quality of life while simultaneously boosting your savings rate.
For example, in October 2023 we spent $1092 on fast food/ eating out. That’s about $250 a week. This covered our work lunches and the odd Maccas run a couple times a week for dinner.
Now fast forward to January 2024 where $230 was spent on eating out and take away. While the groceries category increased to $450, our total food and drink spending for January is less than half that of October.
By cooking work lunches once a week at a cost of roughly $100, we are able to go on actual nice dinner and movie dates and spend quality time together. This is a stark contrast to shoving burgers and oily chips into our faces in the maccas carpark. Not to mention the health benefits of eating balanced meals on a daily basis.
By redirecting money spent on fast food and take away we’ve cut our food and drink expenses in half, all while eating healthy and going out for memorable date nights, bumping our savings rate to 57% for the month of January.
This is a direct result of tracking expenses, and even if the whole “retire early” isn’t your thing, I’d argue most people would benefit greatly just by tracking expenses.
As opposed to automatic expense trackers and apps, I prefer manually tracking our expenses for two reasons:
1. It makes each transaction more real, (27 maccas transactions over two months means a lot more when you’re manually entering each one)
2. It is more motivating. Whether you use excel or an expense tracker such as Wealth Position, seeing the net wealth numbers go up is hugely motivating when you’re manually going through each transaction.
Meal prep is a great way to cut down on total food and drink expenses, but maybe you’re already doing that and you’re still not saving a heap of money. Go through your expenses and (for most people) there are four main expense categories that can be optimised. These are Housing, Transport, Food and Lifestyle. While three of these might be self evident, Lifestyle is not. This category is made up of the things that aren’t necessities, but contribute to your chosen lifestyle.
This includes hobbies, entertainment, social spending, subscription services, buying clothes etc. It is important to be honest with yourself and decide what is and isn’t necessary. You can’t be expected to go without any clothes, not see your friends and have no hobbies. So it's about figuring out what you value the most.
If you’re willing to be creative and sacrifice things that are less important in order to invest in those that are most important you will find money you already have, and enjoy a greater sense of meaning and purpose.
To summarise, savings rate is more important than total income. Increasing your savings rate doesn’t mean cutting down on the things you love, in fact it can mean the exact opposite. By tracking your expenses, you can find areas where your money is going toward things you don’t give a shit about and redirect it to your interests, passions and hobbies, all while saving money.
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