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Tuesday, December 10, 2013

It doesn't matter what you spend your money on!

        On every forum and blog about financial independence and early retirement (FIRE) and even other finance and frugality blogs that aren't specifically about FIRE, you will find copious lists and mentions of the worst ways to spend your money.

Premium cable TV, storage units, gambling, cars, and the notorious Starbucks coffee, are all among the items frequently mentioned on lists of some of the worst ways to spend your money.

There are a host of metrics by which you can judge whether something is 'good' to purchase or not (health implications, environmental impact, opportunity costs, etc), but when it comes to financial independence, I am going to tell you something a little different:


Yeah you heard me right. It doesn't matter if you are spending your money on coffee, cable, cars, maid services, or whatever. When it comes to FIRE, the only thing that matters is this:

The amount of time it takes to build up enough assets to support your current lifestyle is nothing more than a function of savings rate. What percentage of of your income you are able to save. That's it.

What affects your time to retirement is if you save 50% of your income, or 75%.

What does NOT affect your time to retirement is if you spend that money on pedicures, or beans and rice.

I often tell people that as an average American, you can have pretty much ANYTHING you want, but you can't have EVERYTHING you want, and this supports that theory. In terms of early retirement, you can choose to spend your money on whatever it is you want, as long as you are keeping your overall expenses low as a percentage of your income. This may mean sacrificing other things, but that's ok. Everybody is different, and what may be a pointless waste of money to one person can be a huge quality of life issue to somebody else. Just keep that savings rate high and you are on the path to FIRE!

-The Money Monk

1 comment:

  1. I agree with you! What you spend does not matter, how much does. Simple concept really, but I don't think people like to think.