An Introduction to Financial Independence: Part Five – Building a financially independent life


  • Discusses how to go about structuring your life to achieve FI through the use of systems
  • Practical focus as opposed to theoretically focused.
  • Illustrates how one element of your life can impact others
  • Approximately 7300 words

Now that we have come to the end of our long journey we need to pull everything together. The previous sections have covered a reasonably thorough introduction to the world of Financial Independence and Early Retirement or FIRE. As you hopefully understand by now, FI is not a fast solution, it is not sacrifice free and it is a little bit different from the rest of the consumption oriented world. I have focused upon the financial elements in this section as opposed to the early retirement as I do not want to put the cart before the horse. Instead, we must focus upon the journey.

This section is designed to provide some ideas for orienting a life system around FI to make it as effortless as possible. Personally speaking, I’m somewhat of an actively lazy individual, my Ph.D supervisor once described me as being like Victor Tugelbend who is defined by the great lengths he went to in order to do very little. I believe that if we set up a few basic systems then we can make the journey towards FI as smooth as possible. If you want a refresher on the previous articles see the links below:

I see FI in much the same way. Quite simply, life is a lot easier when you’re financially independent as compared to when you’re not. So going to some effort in order to achieve it makes perfect sense as the long run laziness payoff is more than worthwhile. As such, a FI lifestyle is “actively lazy”.

That being said. This section has been inspired by Jacob Lund Fisker of Early Retirement Extreme. Jacob is the most advanced proponent of some concepts which I’ll outline soon. He has managed to take LeanFIRE to the absolute extreme through a combination of decisions which all link together in a lifestyle design. He’s chosen his housing location so that he doesn’t need a car, looks for easily repairable items and carefully controls food based expenditures. He has a novel and interesting way of looking at the world and it’s worth being inspired by some of his activities, even if you do not want to implement them yourself.

Personally, LeanFIRE is not for me. It’s too extreme for my personal tastes and I prefer to have a degree of financial redundancy within my life. I also enjoy some of the things that spending money can obtain me, conveniences that can be obtained here and there. Yet, it is still worth studying the concept as we can accelerate our own journey towards the FI lifestyle that we wish to achieve.

As outlined by Millennial Revolution there are three broad forms of people who will be able to achieve FI. Income maximisers, expenditure optimisers and investment gurus. Achieving FI requires that you may be okay at two of these and exceptional at the third in order to get to the destination. Higher income and above average investment returns will permit greater laxity on spending. On the other hand, if you have very low income potential and only average investment knowledge then your journey towards FI must be with respect to expenditure optimisation.

A life system recognises that many of our choices are interlinked:

  • Our job and our house location dictate how much transportation you need for commuting.
  • Our social circle dictates some of our entertainment budget
  • In many cases it’s easier to reduce expenses rather than increase income, but most of us are not at our maximal potential income yet.
  • Many hobbies have the potential for expenditure reduction, income generation or potentially investment returns as well as being enjoyable.
  • Sustainability over the long term beats short term optimisation

Jacob proposes a Web of Goals that link everything together. Riding a bike is both good for your health and deceases your commuting expenditure. Therefore you can cut both the gym membership and your car. Living close to a farmers market and your job further decreases the reliance upon a vehicle and ensuring that the house is right sized with little debt will also limit expenditures. Taking these to a natural conclusion will quickly highlight what your options are. What this means for Jacob is that he has made being Financially Independent his highest order goal and has organised his life so that other goals are secondary. For you, this may not be the case. You may want FI, but not at the expense of other elements of your life.

From Jacob we understand that our choices and our decisions do not live in an isolated environment. There are opportunity costs to almost everything we do and recognising this can only be to our advantage. Limited time, resources, personal energy and options all play against us. A systemic way of thinking will help us to navigate the minefield.

What I am not proposing is a complete descent into a complete frugality, I do not see it as beneficial to slash all discretionary expenses and retire within a couple years to a lifestyle which zero redundancy. I am a proponent of a more measured approach. To set your life up such that you have the option but not the obligation to take control of your financial destiny. Capital is slow to accumulate for most of us, we don’t get lucky and strike the jackpot, instead, our day to day decisions will slowly increase or decrease our financial means. Using this, we can make some small seeming decisions that have a massive impact on our day to day experience.

The Big Picture

Before we get into any elements of Lifestyle Design it is important to answer a simple question:

What exactly am I trying to accomplish?

If FI is your only goal and you’re willing to sacrifice absolutely everything else at its altar then your journey will look very different to someone who wants to be in great financial shape but isn’t willing to quit their hobbies. Do you like expensive hobbies? Round the world travel? Getting out of the city and exploring the wilderness? Do you like creative pursuits? Trying new and wonderful food? Fashion?

Each of these pursuits will have different resource requirements. That is, you’ll need to organise your life in a different way in order to achieve your range of goals. FI is an enabler, embracing it for its own sake is a quick way to become miserable.

Now that we have got that out of the way it is important to understand a few basics:

The concept of Minimaxing

In Game Theory the concept of Minimax (MM) relates to how we evaluate our choices. The objective being to minimise our worst possible loss and maximise our maximum possible gain in the various scenarios that we experience. Life can be thought of as a repeated game where our decisions all accumulate. As such, we wish to maximise the average rate at which we are moving forward through controlling what can be controlled and specifying

Deciding where to live

Probably the most impactful FI decision each of us will make is where to live. Cities, like jobs, have trade offs. To help determine where to live it’s important to rank what each of the cities provide you personally. Each individual will have different priorities. Some people enjoy beaches, some hiking, some skiing and snowboard. Others like the lifestyle a major city gives you whilst others are perfectly happy spending their hours on the latest blockbuster video game or movie. For some of us our family and social networks are all contained in a particular city. Our partner may be in a location or we may be searching for one. Different locations have different economic opportunities as well.

Simply put, choosing where to live is the most important decision you’ll make on your FI journey. There are two components to this:

  • Macro components, which country and city to live in?
  • Micro components, where in your chosen city should you live?

Here, the debate is often driven by so called High Cost of Living (HCOL) vs Low Cost of Living (LCOL) locations. All else being equal, a LCOL city will get you on the journey towards FI faster than a HCOL. However, the reality is that this also depends upon your earning potential and your hobbies.

FI, at its’ core, is all about challenging assumptions. The first assumption that should be driven out of your head is buying into a “dream house”. A dream house can be identified when all reason and thought goes out the window and the strange desire to lock away huge quantities of your cash flow on a single asset comes to the fore. House frenzy is particularly dangerous as we all have emotional connections to housing from our own childhoods. The fond memories of the experiences we shared growing up there will often lead to a heavy doze of nostalgia and searching for an equivalent.

In some cities with property bubbles personal finance experts are now changing the definition of what is considered a reasonable proportion of your take home pay to punt on housing. For some people this is now getting up to 50% of their take home wage if not higher. 50% of their working hours just dedicated towards a location they sleep in. Why? Because they bought a dream home or couldn’t contemplate the possibility of buying less house, in a different area or even just renting. The mania took hold and their only rational thought process was “buy before it is too late.”

Once you understand and internalise the concepts of FI and realise that minimising your expenses is one of the optimal pathways on the journey you’ll begin to look at cheaper accommodation. The following is a brief list of what you should look for on your search.

  • Can I be employed in the area?
  • Is it cycling or walking distance to my job (Reducing money and time spent on commuting has a massive ROI)
  • Is it close to amenities? Grocery stores? Libraries? Pool? Community Organisations?
  • Can I reduce costs by sharing with others? Do I want to share with others?
  • Is there a location where I can prepare my own food and store it to reduce costs?
  • Are the costs less than 10-15% of my take home income? The lower the better.
  • Will the home be cheap to operate? Efficient heating/cooling and other resources.

The goal of choosing accommodation in this fashion is to get the most amount of house for your dollar whilst remaining within acceptable expenditure limits. From personal experience I have noticed that my housing situation, once beyond a certain point, does not have any major impact upon my personal happiness. Ergo, I’m comfortable staying in lower cost accomodation at this stage in my life in order to maximise the amount of money available for other pursuits.

Take my own personal situation as an example. I was previously living with two others in a shared house where we were able to reduce all of our expenditures together. We all got on well and although there was some tension from time to time we were all ultimately happy with the arrangement. Then. I got a different job, one that required shift work at offset (from the mainstream office worker) hours and including working from home night shifts.

As such, my lifestyle was directly impacting others lives and we made the mutual decision to part ways. I am now in an apartment for myself, in close proximity to a large number of amenities and public transport. Yes it is more expensive, but there are some tax benefits and some peace of mind components. I could probably get a cheaper place. But for the moment that is not what I am optimising towards. Quality of life is winning out.

What to do (or Study)

There are many components to a career, passion, aptitude, financial remuneration and other opportunities that it may provide. Some careers may give a lot of fulfilment, but not be financially remunerative. Others pay very well but often leave people completely burnt out at the end of the day and in a state of misery.

When looking at FI we’re not thinking about “moonshots”, situations that aren’t replicable across a wide range of situations and environments. A moonshot is you getting hired into a friends company with a large ownership stake that spikes in value. Winning the lottery is another example of a moonshot as is getting in early on a wildly increasing value class (Bitcoin, leveraged property in a property bubble, tulips, South Sea shares, Maddoff investment funds).

Instead, we’re looking for situations that have a high consistent rate of return. These situations should be replicable across a wide range of environments and should not be dependent upon a particular time and place. Dumping all of your money on Apple shares before it took off is a moonshot. We want to remove the element of luck from the environment. This is not to say you shouldn’t take chances. If you know what you’re doing then that’s a great option. But you should be measured in your approach to risk.

As such, a few career paths stand out as winners and a few as losers on the financial side of things. When working towards FI your expenses will dictate how much capital you need but your income dictates how fast you get there. As such, there is a bias towards high paying jobs such as those involved in STEM or Finance if you’re looking for white collar work.

Blue collar trades are also extremely lucrative at the moment due to the strong government bias towards higher education leading to supply side scarcity. It’s not unheard of for a skilled electrician, builder or plumber to be earning into the six figures at the moment. As an ancillary benefit, these trades have a huge carry over into your day to day life as you’re able to take care of your own requirements without having to pay the high contracting fees. How long this will continue is an unknown quantity however.

Auto Mechanics are another such field, however, with the current trends in the car industry towards electric vehicles this may not be a long term sustainable career path. Electric vehicles have much fewer moving parts so they need less maintenance over all. As such, when looking at these skills you must be aware of the prevailing trends in society so that you can avoid having a “stranded skill set.”

If you’re going into the white collar world the two safest jobs are Medicine and (traditional) Engineering. Software Engineering is quickly rising up to become a highly lucrative speciality though this is heavily location dependent. Software Engineers appear to earn a lot of money in certain clustered locales. But, the experience is very different in other regions. European software devs have much lower income than American devs for example.

Jobs that you should avoid are generic degrees that do not differentiate you, unless you are at a pedigree school. When you undertake a generic degree such as psychology or commerce (though I know many excellent people who have studied in both) you don’t have any specialised skills to differentiate yourself from the masses. Scarcity and high demand skills are what breed high salaries. Abundance can only have the impact of depressing wages. Law as a degree has become over saturated. Some lawyers, those who make it on to the partner track will do incredibly well for themselves. But the unemployment statistics for the median lawyer are fairly grim.

The most consistent path towards FI on the other hand is to own and run your own business. To see why this is possible we can look at the simple math. When you’re working for someone else you will produce a certain amount of value, V. For this value your employer will pay you a salary, S. Over time, V >> S as otherwise you are a net loss to the employer and you are likely to be fired.

Your employers profit margin, P, can be defined as P = V – S. As such, it’s in their best interests to maximise the value they extract from your work whilst minimising how much they pay you for it.

When you run your own business on the other hand, V – O = S. You are able to capture much more of the value you produce, however there are some overheads, O, that you must pay as a consequence. These overheads are largely fixed. Thus, produce more value, earn more. It can be that simple.

The reason for this discrepancy is the concept of risk. Something you should be familiar with from the sections on investing. As a general rule. The higher the risk you take on the greater the potential reward. When working for a business your risk is low, but potentially catastrophic. Even when the business is losing money, your salary will still be paid. But, if this continues for too long the company will go out of business and you’ll be left without a job.

When working for yourself you’re exposing yourself to much more variability in income and risk. As such, you exist in a world where the risk is high, but the consequences are often much lower. When you have multiple clients, multiple diverse income streams, the loss of any one client will cause a decline in your income. But, it’s not the same as a catastrophic job loss caused by a company going under.

This concept has been illustrated by Nassim Nicholas Taleb in his book Antifragile. In it, he argues that the salaried worker has the illusion of safety. Their job seems safe right up to the point where the axe comes down. An individual who has multiple income streams is under no such illusion. They can see the impact of losing a client directly in their bank account. They’re safer precisely because they know they’re less safe.

To compound matters, salaried roles often come with the ability to take on greater debt commitments. Imagine servicing a mortgage which is a multiple of your annual income and suddenly losing your job. The stress and anxiety will be enormous.

To truly snowball the benefit you should be looking for opportunities where success will increase your future options. A successful business owner will have more capital that he can deploy to obtain even higher returns in the future. Same with an investor. An individual who flips houses as their day job will have more capital and experience as they get better at their job. A salaried job can also be snowballed, by investing the extra income into income earning assets such as securities or bonds. Snowballing your working environment is crucial towards achieving FI

Transportation Requirements

Moving yourself and belongings is a major expense for most people. Car’s are expenses and for many of us they are our biggest individual expense outside of housing. Public transport can also be very expensive. In my city, a weeks worth of Public Transport comes out to $43 (AUD, 2018) at this stage. Over a year this adds up to thousands of dollars.

Cars have their own costs as well, outside of the standard fuel costs for driving them. Registration fees, regular servicing and maintenance as well as insurance all impose a high fixed cost on vehicle ownership before you’ve even driven a single mile.

But, personal transportation is also a massive enabler. It enables us to do things we ordinarily wouldn’t (try using public transportation to go on a camping trip for example) which can greatly expand our quality of life. They may also be required to get us to and from our jobs, as such they can also be income enablers. A job where you’ve got to take 90 minutes of public transport commuting to go backwards and forwards (each way) will very quickly suck up all of your time.

As such, choose the form of transportation that is right for you. Can you cycle as part of your day to day commute and have a smaller, more efficient, vehicle for activities? Perfect. Do that. Can you live walking distance from your work, great. Do you hate the outdoors or don’t mind taking taxi’s/uber for occasional trips within your city. Then that will do.

Cars are great when you need to get outside of your local area. But if all you’re doing is short trips here and there within a wider transportation mesh then they may not be as necessary. Think carefully about your situation and see how it fits into your overall lifestyle requirements.

Vacations, Travel and Holidays

Vacations, Travel and Holiday are an interesting subject of conversation, particularly with anyone aged 18-35. Within this bracket the focus is mainly on travel, travel, travel at the expense of all other life experience. In this world view, travel should be undertaken to as many and as far flung destinations as possible. Iceland, China, Chile, Turkey, Hawaii, Canada, Alaska. These are all destinations which have the aura of the exotic surrounding them. It’s not uncommon for people to be proud of the fact that their incessant drive for travel is driving them towards borderline bankruptcy in some cases.

Travel is a wonderful and worthwhile experience but the current fetishisation of the concept with no regard for costs or alternative experiences is a little bit much. It is possible to have incredible experiences without completely bankrupting yourself in both local and international destinations.

To understand this we need to understand the four major costs of travel:

  • Air Transport (if required)
  • Domestic Transport (either internally or after an international flight)
  • Accommodation
  • Food

There will of course be experiences that cost money throughout this. But they are usually things you will enjoy doing, the above list is simply the bare necessities to survive whilst your away from your primary space of residence.

The first consideration is to decide, relaxation based vacation or experiencing seeking travel? Destination style holidays will often cost more money than local. Flights are often expensive, especially compared to a tank of gas and staying at hotels will often dramatically increase costs. What if you could fly to a destination and then pick up a cheap rental car  to go camping along the way? How would this impact your costs. Are you comfortable sleeping in a dorm bed in a hostel, meeting great people? What if your flights were free through the concept of credit card churning.

These are all important questions to ask yourself. Too often when it comes to vacations we through the baby out with the bath water. Because we’re going on holiday we decide to not think about cost at all, a situation that increases our anxiety and stress levels when we come back and check our bank accounts. Instead, be honest with yourself up front and figure out what you are and are not willing to do.

Many people are able to travel on incredibly frugal budgets, they may not be staying in the most high end or luxurious accommodation, but they are still having wonderful experiences. Decide what you’re willing to go without and what your total budget will be and your vacation will be a lot easier along the way.

Controlling Food Expenditures

Let’s be honest. Food is one of those pleasures in life which almost everyone enjoys. Sitting down to a nice meal with friends is an excellent social bonding experience and tends to give us all the warm fuzzies. There’s a reason that many of our holidays are based around sharing exorbitant amounts of food with other people and going to the extra mile. I’ll give you a hint, it comes from historical feast days and other such occasions.

This section is not about those days. Having an expensive day of eating will not destroy your finances over the long term so long as it remains occasional. What will kill your expenses is eating at restaurants or take outs for every meal and going for only the most expensive forms of ingredients. Heading out to bars will also do a number on both your finances and your health in the long run so be aware of that.

Enter home cooking and in particular, Meal Prepping.

Meal Prepping

Meal Prepping is the solution for those of us who want to satisfy all of the above points, to eat healthily, to save money and to have food that tastes good. But who don’t necessarily have the time and schedule that permits cooking each of your meals from scratch every night of the week.

The average individual can spend anywhere from 20 minutes to two hours a day on preparing food. No matter what way you cut it that is a substantial amount of time. Prep work, cleaning up, the cooking itself, serving the meals. It is easy to spend an hour or more per major meal.

When Meal Prepping you seek to compress this experience by front loading all of the pain into a single batch. Instead of cooking a decent, individualised, meal for every dinner you will make a large batch of meals that can be eaten over the next several days. This can range from as few as 4-5 additional meals to a full weeks worth of eating, more than 20 meals. On occasion I have meal prepped anywhere from a single set of meals (say five for lunches to take to work) to an entire weeks worth of meals, complete with different options and food choices over the week.

Some hardcore preppers will go beyond this again and use large freezers to prepare even more meals. For these people it’s not uncommon to have upwards of 50 meals stored if not more. Cooking in this case becomes a once per fortnight or once per week activity.

Even if you’re not hardcore, prepping can save you a huge amount of time and energy which ensuring you’re eating healthily. Having prepared meals will remove the all too common question of what should we have for dinner? To get started you’ll need a few basic recipes and some containers to store the food in. There’s a small learning curve whilst you get used to things, if anything it takes more time at the beginning because you don’t cook in an efficient fashion.

But what if you’re a foodie? Someone who loves cooking and the meals that result? This does not necessarily mean that meal prepping is not for you. Personally, I love cooking but I also like having healthy lunches available. As such, I meal prep almost all of my lunches and breakfasts and about half of my dinners.

I find that cooking the other half from scratch means I don’t consider cooking to be a chore, nor do I spend all of my finances on fresh food and groceries. I’m able to accomplish both.

As an added benefit, meal prepping means you can often carefully control your calories and macronutrients. As such, it’s a natural complement to any exercise regime or body recomposition program. You’ll find that you’re able to tick multiple boxes at once:

  • Reducing expenditure on food
  • Saving time spent cooking each week
  • Ensuring you’re hitting your macronutrient profiles to support your health and fitness goals
  • Have great tasting food

Better yet, if you’re meal prepping it makes it very easy to follow the 80:20 rule when it comes to diet. If you know that you’ve got your basics covered for the average day, then, when those non average days come around you’re free to enjoy yourself or be disrupted. Safe, in the knowledge that tomorrow you’ll be back on the horse again.

Liquid Calories and Alcohol

One thing that does bear mentioning is the impact of liquid calories and alcohol on the quest towards FI. It should be no surprise to anyone who has been around the hospitality industry but drinks are exorbitantly expense. Paying $5 for a coffee in the morning, that requires $0.40 of raw ingredients represents a phenomenal mark up. Fruit juice, smoothies, bottled water and alcohol all represent beverages that have a phenomenal mark up above. If you can’t go without these items then seek to plan out ahead and look for lower cost alternatives. A water filter at home along with a good quality drinking bottle can easily replace buying water. Making your own fruit juices and smoothies, not only means that you can control the ingredients, you can also make it just the way you want.

Eating Out

Unfortunately (or perhaps fortunately depending upon what way you look at it), I live in a food obsessed city where the cultural norm is to head out for dinner/drinks as a form of socialisation. I’m also in my mid to late twenties which does have an impact on this. But, what does this all cost us?

For me personally the situation isn’t pretty at all. Over the past ten months for which I have full records I’ve spent:

  1. $2700 on dining out
  2. $1250 on alcohol
  3. $1000 on dating related expenses (usually food/alcohol, don’t judge me).

For a grand total of $5,000. In ten months. Is this the best use of my money? No. Can I afford it. Yes.

For me, the question is not necessarily one of cost. I have met or exceeded all of my saving and investment goals over that time period. Instead. It is one of value for money. For me, this money often meant getting out and spending time with friends. Trying new places and I’ve had some great experiences doing it. On the other hand. It’s also expensive as my grocery bill is fairly constant regardless of how much i spend when going out. ($4700 over ten months). As such, I have spent about $1000 every month on food and dining related expenses.

Is this excessive. I don’t know. I’ve enjoyed it however and I’ll need to reassess the value it brings to my life from a holistic perspective a little bit later.

Hobbies and Self Actualisation

One of the common arguments directed against the hunt for Financial Independence is that it is completely self limiting. Simply put, that there isn’t enough fun in the lifestyle to make it a realistic alternative. For some people this may be true, if your idea of fun consists of living a luxurious lifestyle where restaurants are common (which by the section above is apparently me), brand new cars (I drive a ten year old POS so I’m good here) are a regular occurrence and you live in a giant house (Share housing/renting low cost accomodation so I’m good here too). If your idea of a vacation is going to a luxury resort on a tropic island then FI may not be for you.

But, FI and hobbies are completely compatible, including surprisingly expensive hobbies. One of the most common mistakes that people make on the FI journey is to completely cut out all of the parts which make their lives enjoyable. In doing this they miss the entire meaning of FI. FI isn’t about sticking it to the man or not working. Instead, it’s about giving yourself the time and freedom to pursue what makes you happy free from financial constraints.

Personally, I’m interested in reading, writing, circus, physical exercise, outdoor pursuits and music. My expenditures on these hobbies typically tend to reflect these interests and I get a lot of enjoyment and fulfillment out of them. For others, they may be interested in photography, cycling, classic cars or home renovation. There is no right answer here, however, there is a better approach to hobbies that may be of interest.

An example of a FI like approach to hobbies is to think about the overall cost per use as opposed to the up front sticker cost. The cost of a tent may be high to begin with, but compared to a hotel room and given that you can use the tent many many times the long run marginal cost may be very low. FI thinking would have you buy the best equipment for your needs, quality items that you know you’re going to use continuously.

An example of an anti FI hobby would be one that has a series of recurring costs that have no potential economies of scale in sight. Many consumer goods fall into this space, as are hobbies where newer and better versions come out continuously. I do however make one exception to this rule. Access to high quality training and education is often very worthwhile in the beginning. Doing a few surfing lessons for example can be seen as part of the upfront cost of the hobby. You may not necessarily do them forever but they’re an excellent way to get started and build confidence and skills.

Some examples of high up front, but low running cost, hobbies are:

  • Rock Climbing (Harness/Shoes/Chalk Bag)
  • Musical Instruments (Instrument)
  • Paragliding (Initial Equipment)
  • Surfing/Kayaking/Stand Up Paddle Board (Initial Gear)
  • Woodworking, DIY and Crafting (Tools)
  • Road Cycling and Mountain Biking (Bikes)
  • Hiking and Camping (Tent/Bag/Shoes)
  • Writing
  • Painting, Drawing and other creative pursuits
  • Photography
  • Exercise
  • Bodybuilding

You’ll notice that there are two common themes in this list:

  • Outdoor activities
  • Creative activities

This shouldn’t be a surprise. Getting involved in the outdoors is a very low cost activity where transportation is the only major expense once you’ve got the initial equipment. As such, the marginal cost per use of the activity is essentially zero and the more you do it the lower the long run average  cost (as the equipment cost is spread across more uses).

Creative activities are also very cheap, once some initial tools and equipment have been bought. A good quality set of woodworking tools can last a lifetime. A piano will last years if it has been properly taken care of, as will a guitar. Creative hobbies allow you to entertain yourself so to speak with the pursuit of self mastery.

Now, there is one major caveat to this list. Activities that have a high start cost which you never actually end up following through on. For many of us, our closets are littered with equipment from hobbies that we always planned to get into but never followed through on. In my own for example there was expensive archery equipment, aerial straps gear and a few other items that I most definitely did not get a good return on investment from.

As such, I suggest renting this equipment to begin with, reducing the upfront equipment until you’re sure that you actually want to pursue something and only once you have established that you’re going to stick with it, buying the expensive equipment and reducing the cost per use. For things that we only do occasionally it makes a lot of sense to rent, but there is an element of personal psychology to this. For some people, having a sunk cost often leads to committing to an activity to avoid the feeling that the money was wasted. If this is you, great, committing to an activity, including financially, can be a great motivational tool. But it’s not necessarily the most “rational financial decision”.

On the other hand, there are many examples of hobbies with continuous recurring costs. These hobbies are what I term pay to play. They require some form of ongoing subscription like cost in order to continue to do them. If you’re unable to break the relationship between cost and the hobby then you may be in trouble. There can be cheaper alternatives but they often require substantial more work. The following are basic examples of pay to play hobbies:

  • * Yoga Classes ($200/month where I live)
  • Trying new restaurants (foodie)
  • Drinking alcohol at bars
  • Collecting various items
  • Expensive Gym Classes (Crossfit etc)
  • High end consumables
  • Fashion (though this can be offset if the items you’re buying are very high quality and expected to last. Cost per wear here!)

You’ll notice that these activities could be lower cost. There’s nothing stopping you from practising Yoga anywhere, not just in a class. However, what makes these hobbies pay to play is that once the money dries up the thrill and benefits often dry up as well. If you have to keep paying ever increasing amounts on a hobby in order to succeed then you’re in a pay to play loop. If you’re completely set on continuing a pay to play activity then you can take steps to minimise the outlay but it does require more effort.

Drawing it all together

Now that we’ve gone through some of the basics it’s time to illustrate how this works in practice, to highlight that it is possible to have a high savings rate as well as living your life the way you want to. It just requires some careful choices and an understanding of what is actually important to you.

Learn to cook and take care of yourself

First things first, learn to cook. Food is a massive expense for many of us and the more we eat out the more we spend on food. Having to pay a subsidy for labour, rent, electricity and profit margins as part of your meal is always going to blow your budget out. It’s also not as healthy, often sugary and filled with salt. Things you want to eliminate anyway if you’re going to be getting your shit together.

So start cooking and planning out your food so that you’re never left in a situation where you have to pay an exorbitant markup in order to feed yourself. Cooking healthy food has massive flow on benefits to other areas of your life as well. You may start sleeping better, you may start exercising more.

In the book, Essentialism by Greg McKeown, this strategy is known as above all else, protect the asset. You’re the asset in this case. If you’re not taking care of yourself then what’s the point of pursuing FI (or anything). You’ll burn out, blow out, and end up worse than you started with a healthy dose of misery potentially thrown in. Protect the asset before you do anything else.

Remove Pay to Play Activities

Secondly, sit down and look at all of your activities that are pay to play. How much are you spending chasing the latest fashions? How much are you spending in order to be seen to be trendy. Chasing after social status activities is the quickest way to screw your financial independence goals.

Figure out your debt

Thirdly, look at the debt you have in your life and figure out how to eliminate it. There are many strategies you can find online and I’ve written about a few of them in this series. Paying money for the privilege of consumption is the antithesis of the financially independent mindset. Debt can be used in a positive fashion but long term consumer credit is not positive. If you truly can’t cut the dedication to credit cards then get rid of them, pay only with money you have in your accounts or better yet with cash. Identify how to link money coming in and out of your accounts with your own activities.

Track Expenses

Fourth, start tracking all of your expenses. Every single one of them. You don’t need to persist with this longer term but you need to have an understand as to where your money is going. What are your major expenses in a clear tabulated fashion broken down by month. Without a solid grasp of the numbers you’re doomed to continue overpaying for things that you don’t really need.


Fifth, start eliminating. Eliminating any expenditure which doesn’t bring you a sense of joy and happiness (outside of your core financial responsibilities). If you hate restaurants, stop going, if you’re not a fashionista then buy some good quality clothes, invest in some tailoring services to get a great fit and call it a day. Figure out what you’re willing to go without and ruthlessly stick to it. Ruthlessly being the operative word here.

Pay yourself first

Sixth, start paying yourself first. Once you get paid your first expenditure must always be into your savings and investment accounts. It’s not consumption, it’s not food or alcohol or the latest gadget. The first expenditure is always into your investment accounts. You will never achieve FI if you’re not willing to place your own financial health above consumption based activities.

This has the effect of breaking the paycheck to paycheck mentality. If you start thinking to yourself, oh, I can’t afford this, I need to wait until I get paid. Then the reality is, you can’t afford this period. You don’t have the financial sense of self in order to stick to a financial strategy for long enough in order to reap the benefits. Once you have mastery of your own expenses then you’re essentially indifferent as to when you spend money with respect to your paycheck. One account will simply be drawn down a bit and then topped up at the next paycheck or over time. Not a huge deal. As a caveat, I make an exception here for managing cash flow which is a skill in and of itself.

Believe that it’s possible

Seventh, believe that it is possible. Most of us don’t really believe that we can accomplish anything. We have a giant impostor syndrome lurking deep within our minds. We don’t want to try anything as the perceived social cost of failing is so high. But there is an interesting trick you can use her. Figure out what actually happens if you fail at what I’ve outlined above.

If you fail you’ll:

  • Have a better financial footing than when you started
  • Have less debt
  • Be a better cook and likely healthier
  • Will be aware as to what things actually cost with respect to your time
  • Will have a greater understanding of financial knowledge
  • Have attempted a few new hobbies and got out into the world.

This all sounds positive awful. In fact, you should never attempt anything since the cost of failure is just so damn high in this situation.

Build a social support network

Finally, it’s important to build out a network of people who are also on the journey towards self development. If all your friends want to do is sit around and smoke weed or get fucked up every weekend then you’re going to struggle to set and achieve big goals. Simply put, you’re not in an environment which encourages success.

People like to believe that we live in a land of opportunity and that everyone has the potential for success. This is true, to a certain extent. But, what it does not illustrate is the  impact that being in an environment with like minded peers has. When you’re surrounded by people who are successful you don’t become intimidated by it. You figure out that if someone else can do it, then maybe you can too.

Do not discount the impact this has.


Hopefully by now you can see that the road towards FI is one that requires some planning, some struggle and some effort. Do not be put off by this.

Even if you fail, you’ll still come out in a substantially better position than when you started.

So what do you have to lose?

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