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Live a life of luxurious frugality

What if I told you there is a way to live frugally, while still enjoying select creature comforts. Guilt free. For life. I believe there is.
Much of the Financial Independence and Early Retirement ethos is rooted in frugality.

Spend less than you earn

Delay gratification

Live within your means

It is difficult to disagree with the logic of these arguments, but when taken to their Jacob Lund Fisker style extreme they can certainly make for a miserable existence!

Frugality is no fun

I love the concept of Financial Independence. I love having Jim Collins style FU money. I love being able to pick and choose my clients, my working patterns, and most importantly how I will spend my time.

However I also love my Amazon Prime.

I love watching Formula 1 and Cricket, and despite resenting the hell out of the fact they are locked away behind a pay wall (I’m looking at you Bernie Ecclestone and Rupert Murdoch!) I must confess I pay to watch them anyway.

If frugality means I can’t have those, then I say bollocks to that!

Formula 1: One of life's little luxuries

People my age have baby boomer parents, which means we had depression era grandparents.

Those tough old folks could pinch a penny harder than Ebenezer Scrooge. They were the “waste not, want not” generation who would do crazy things like wash aluminium foil and use it again, and would buy heirloom quality furniture because they “weren’t rich enough to buy cheap things that wouldn’t last”.

Basically they were the anti-millennials, were the purportedly aimless hopeless useless youth of today to actually resemble the “spend it while you’ve got it, live for today” stereotype they have been assigned by popular culture.

What if I were to tell you that there is a way to live frugally like our grandparents, while still enjoying select creature comforts that will bring you much Millennial style happiness? Guilt free. For life.

I believe there is.

Have your cake and eat it too... everybody loves cake!

For each of life’s little luxuries you wish to enjoy, establish a self-renewing passive income stream to pay for it.

Take a Netflix subscription for example.

Currently that costs £5.99 per month, or £72 per year.

At the time of writing the HSBC MSCI World UCITS ETF global index tracker pays out a dividend yield of 1.88%. By all means pick a fund of your own, I chose this one for the example because it mimics the global stock market.

Therefore were you to the invest £3,830 (£72 annual fee / 1.88% dividend yield), your investment would throw off an income stream capable of providing you with a lifetime of guilt free Netflix goodness.

Amazon Prime? Invest £4202.

Sky Sports? This one requires a bit of soul searching, you would need to invest £21,696… which is nearing the average UK annual wage of £24,700.

I found adopting this approach provided a feeling of progress on my own journey towards Financial Independence. By investing £75,000 I should never need worry about paying my gas and electricity bills again. Another £12,765 meant my mobile phone bills should be covered forever. And so on.

Live a life of luxurious frugality
Relaxing like a boss!
What this shows is that it is certainly possible to enjoy the finer things in life, without unduly compromising your savings rate.

Inevitably nothing in life is truly free, so you will need to make some prioritisation decisions. Below is a table illustrating some of the common everyday expenditures, and how much you would need to invest in order to have those bills perpetually paid for by your passive investment cash flow.


So what?

Hopefully this post has shown that it is possible to still achieve Financial Independence without living like a Trappist Monk. Don't be a miserable bastard delaying all gratification until you arrive at the destination, enjoy the journey along the way!

8 comments :

Physician on FIRE said...

Using the 1.88% dividend only, you'd need 53x your annual spending to live completely off dividends only, which is a mighty high hurdle. I think many of us would be comfortable living off 3% to 4% of our net worth, but that does require selling some assets to cover your spending needs or buying investments with a higher dividend yield.

Cheers!
-PoF

Slow Dad said...

Indeed PoF.

Many folks want to enjoy their Netflix while they are saving up for their FIRE goals, an evening being entralled by Tyrion Lannister or Frank Underwood is potentially a lower cost than a night in the pub. During the accumulation phase of their journey I would hope they aren't selling off their investments to cover their living costs! :-)

I intentionally picked a global fund to illustrate the concept, as it demonstrates the approach is possible for everyone rather than just investors in the US market. The low yield was also intentional, as the "4% safe withdrawal rate" unfortunately doesn't hold up so well for investments outside of the US's generous tax advantaged investment account regime, nor has every market performed so well as the S&P500.

There are certainly much higher returns to be found if an investor seeks them out, so readers should by all means apply their own yield number if they can beat the dividend yield offered by a global index tracker.

firevlondon.com said...

Well said, slow_dad.
To me FIRE via frugality is a pretty desparate form of FIRE. True FIRE is FIRE without compromising your lifestyle. This is at its most challenging if your lifestyle is expensive. As a confirmed London-lover, recognising that London's lifestyle is about as expensive as anywhere, my FIRE challenge is thus to be able to be able to live the life I want (never mind NFLX, I'm an Everyman Cinema lover!) without needing to work. Roughly speaking I think this needs £2m+ saved. But in other respects all the normal rules apply.

Slow Dad said...

Fire V London I knew the Everyman ticket prices were steep, but at a £2m price of admission you must be breathing the rarified air of Hampstead!

Seriously though, I think the number largely depends on housing costs and choices. A £2m pile throws off a before tax cash flow of ~£40k using the very conservative yield figure from above. That is a fairly comfortable existence for someone who also owns their own residence outright. However if that ~£40k also needs to cover paying the rent then they could forget about living near an Everyman cinema.

Miss Mazuma said...

I love this point of view. Man, I've been out of the loop the past week and today I have learned more than the past month! Seriously, offsetting costs via investments is a great way to eat that cake! By the way, I don't trust anyone that doesn't like cake...or dogs. :)

I am happy to say that my NFLX stock has gained some momentum in the past few days. CMG, on the other hand, wouldn't be worth a single burrito a month at this pace! I need to rethink my portfolio now! ;)

Slow Dad said...

Thanks Miss Mazuma.

Cake, Dogs, Netflix, and Burritos... that is a balanced lifestyle right there, all the food groups plus some exercise and entertainment. If you've got all that then you're winning at life!

weenie said...

Adopting some frugal tendancies is a good idea when still in accumulation phase but to go all out would frankly make life extremely dull - so much so that it would be easy to go off the rails and turn the opposite of being frugal.

The 50% savings rate I've been setting myself for these past couple of years has been a challenge only because I choose to continue to have an "interesting" life which includes overseas holidays, expensive gym membership, social outings, music festivals/gigs etc.

I do however have some way to go before my dividend income will cover all such 'fun expenses' but I'm working on that!

Slow Dad said...

Thanks weenie. I agree, I life that isn't "interesting" isn't one worth leading! People trade away so much of their time working and commuting and otherwise doing things they seem not to enjoy, so being able to find the happy and have some fun is super important.

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