Live Rich on Less: 3 Habits to Jumpstart Saving

Hey there, Individual Investor!

Conscious consumption isn't just about saving pennies—it's about revolutionizing your financial future.

In a world where keeping up with the Joneses has become a full-time job, many budget-savvy individuals find themselves trapped in a cycle of overspending and undersaving. The constant pressure to maintain a certain lifestyle can leave even the most financially prudent feeling overwhelmed and off-track for their retirement goals.

Traditional budgeting advice often falls short, focusing on cutting out small luxuries without addressing the root of our spending habits. These approaches rarely lead to sustainable changes or significant savings.

Mindful Money: The Key to Living Rich on Less

Your financial freedom is a function of how much you spend. Recall from my last letter the formula for calculating your Freedom Number.

Financial Freedom = Annual Expenses X 25

Remember this because you'll need it in a minute. Now, let's explore three conscious consumption habits that can help you live a rich life while spending less and potentially retiring years earlier than you ever thought possible.

Value-Based Spending

A single recurring expense can have a big impact on your financial future. 

Remember the formula to calculate your early retirement number is to multiply your annual expenses by 25. 

Freedom Number = Annual Expenses X 25

If you want to see how a single recurring expense will impact that number, you can use this formula. 

Recurring Expense Impact = Monthly Expense X 12 Months X 25. 

For example, I spent over $400/mo in dinning out in 2021, If I continue this habit, I will need: $400/mo X 12 months = $4800/year X 25 = $120,000. 

In other words, I will need an additional $120,000 saved to support this habit. 

Now ask yourself, is this recurring expense worth my freedom? 

Start by identifying what truly brings joy and fulfillment to your life. This isn't about deprivation; it's about intentional allocation of resources.

• Step 1: List your top five values or life priorities.
• Step 2: Review your recent expenses and categorize them based on how well they align with these values.
• Step 3: Calculate the impact that they have on your freedom number using the formula above and ask yourself if these expenses are really worth your freedom?  
• Step 4: Gradually reduce spending on items that don't align with your core values and redirect those funds to savings or value-aligned experiences.

For example, Sarah, a nature enthusiast, realized she was spending $200 monthly on cable TV she rarely watched. By cutting this expense and redirecting the money to weekend hiking trips and a growing investment account, she found herself more fulfilled and closer to her financial independence goals.

The 30-Day Rule

Implement a waiting period for non-essential purchases to curb impulse buying and ensure your spending aligns with your long-term goals.

• Step 1: When you feel the urge to make a non-essential purchase, write it down along with the date and price.
• Step 2: Wait 30 days before revisiting the item.
• Step 3: After 30 days, if you still want the item and it aligns with your values, consider purchasing it. If not, celebrate the money saved.

Mark, an avid tech enthusiast, used this method to avoid buying a new Tesla on impulse. Instead of buying a Tesla for $60K, he bought a sensible, used daily driver for $20K and invested the other $40K. 

That $60K car actually costs more than you think because you lose the opportunity to invest the difference. 

You can use a simple investment calculator from my favorite financial calculator website to see what it is costing you. 

At 10% compounding (100-year average of S&P index fund), that $40K he saved will be worth: 

10 Years - $103,749.00

20 Years - $269,100.00

Lifestyle Design Experiments

Instead of assuming you need certain things to be happy, experiment with different lifestyle choices to find your personal sweet spot of contentment and savings.

• Step 1: Choose an area of your life where you spend significantly (e.g., housing, transportation, or food). These three categories tend to be the largest budget items and can have a big impact on your expenses. 
• Step 2: Design a 3-month experiment to drastically reduce expenses in this area.
• Step 3: Evaluate how the changes affected your happiness and finances, then adjust accordingly.

Lisa and her partner conducted a "tiny living" experiment, moving from their spacious apartment to a small, efficient studio for three months. They discovered they were happier with less space and fewer possessions, leading to a permanent downsize that allowed them to increase their savings rate by 20%.

Conclusion

By adopting these conscious consumption habits, you're not just saving money; you're redesigning your life around what truly matters to you. This approach can lead to significant increases in your savings rate, potentially shaving years off your working life and bringing early retirement within reach.

The power of these habits lies in their ability to align your spending with your values and long-term goals. As you implement these strategies, you may find that living rich has more to do with experiences, relationships, and personal growth than with material possessions.

Ready to transform your financial future? Start by choosing one of these habits to implement this week. Which will it be: value-based spending, the 30-day rule, or a lifestyle design experiment?

Action Step

Ready to transform your financial future? Start by choosing one of these habits to implement this week. Which will it be: value-based spending, the 30-day rule, or a lifestyle design experiment?