Consumption 

In the previous post, we saw that our monthly consumption greatly influences how much we need to save for early retirement. So what are reasonable ways to reduce consumption?

Frugality

Frugality became something like a trend recently. There is much more information out there than I can cover here. Check this, this, this, or google yourself to hundreds of additional pages.

To me, it seems like frugality can become a bit of an obsession. Most frugalists will tell you that cutting expenses will enrich your life, but in reality, every cut is a sacrifice that should be made consciously. This is most important if you have family members who did not choose to live frugal: your kids. Yes, kids should learn that money is a finite resource and has to be earned. But you should consider carefully what it means for your kids to be the only ones with old clothes and without a cell phone (just to name two examples).

My goal is to give a few ideas to reduce spending in a reasonable way without turning my back to mainstream society.

Housing

In most developed countries, people spend around 15-20% of their income on housing (rent and/or mortgage). In urban areas and for single households, it can be much more than that. That is a significant amount, but it takes long-term planning to reduce it.

There are two main factors to your housing expenses: size and location; and size is the easier one. How much space do you and your family really need? Do all kids need their own room? Do you need a bedroom and a study, or can you combine? How large a living room do you need? Do you use a potential guest room often enough to make it worthwhile compared to a hotel room?

There are no clear answers to this, rather it depends on what we are used to and what society standards are. Again, think twice about your kids. It should be possible for them to invite their friends without too much hassle.

Then about location. Certainly, housing expenses are much lower where fewer people live and work. After all, that is the first cornerstone of Plan G. However, for most people that means commuting to work, which costs money for transport and precious time. An interesting option is to work from home, at least some days. Whether that is possible, depends a lot on what kind of job you have, on your work style, and finally on your boss.

As a side note, I personally think that remote working can solve a major problem of modern societies: increasing urbanization and consequently the decline of rural areas. There should be an incentive for both employers and employees because they can share the employees’ savings in housing costs and other costs of living. In other words, if you as an employee spend less because you can live in the countryside, you might accept a lower salary. I am not quite sure if we need better technology for telepresence (some more advanced video conferencing), if the disadvantages are just too many, or if it just needs time for companies to realize the benefits.

Food

Between a simple, home-cooked meal and a fancy restaurant dinner, there is a huge price range for our daily calorie intake. People in most developed countries spend between 10-15% of their income on food, so this is another big chunk of our expenses.

The single-best trick for cutting food expenses is preparing food at home rather than eating out. Cooking food is labor-intensive and cannot be outsourced to low-income countries. It should therefore not surprise me that a dinner for two can easily cost as much as the grocery shopping for a whole week (but often it still does). To put it simply: Eating out is a luxury and should be appreciated as such.

What about simpler lunches during work? It is the same story. In my case, I spend around three to five times as much for a restaurant lunch compared to the food I bring from home. Since I make that decision five times a week, the impact on my food expenses is even bigger. Also, my lunch break is shorter when I eat home-cooked food, which might compensate for the time I spend cooking. However, there is a huge downside of bringing my food from home: It is just not as social, at least not for me. I eat my food in a lunchroom, but I most often go there alone. If I eat in a restaurant, I most often join my colleagues.

So cooking at home is a good trick. What about the price of groceries? Discount stores can be a good alternative to expensive supermarkets. However, I would advise against compromising on quality. Continue to eat healthy (fresh fruits and vegetables), ecological, and locally produced.

An easy way to reduce grocery prices is by cutting down on meat consumption. At the same time, your diet will be healthier, more ethical, and better for the climate.

Transportation

Most of us spend another 10% of our income on transportation. The exact number depends a lot on our living situation. An astonishing 90% of the transportation costs are caused by private vehicles (see here). Of course, this does not mean I can save 90% of my individual costs by getting rid of my car. In that case, I will have higher costs for public transportation, a bike, maybe car rental. But I encourage every car owner to calculate all costs (tax, fuel, maintenance, loss of value) and compare this to the costs of a life without an own car.

If you stick to your car, try to resist the urge to buy a new car. The loss of value is just outrageous during the first year or even month. A car is one of those things that almost never increases in value. Think twice before making such an investment.

Status Symbols

I suppose a brand new car is one example of a status symbol. In general, spending money for the sake of money spending (i.e., buying a status symbol) is the frugalist’s nightmare. However, this can be a necessity: Think about clothes in the office, especially in customer-facing roles. Thrifty clothes will not be acceptable, but maybe not even a cheap brand.

The right approach to status symbols is to question them: Does my baby really need to wear an expensive brand? Will people even notice my luxury watch? In general, do I want to show-off, or could an understatement lifestyle actually be more fun?

Climate

Let me end by another side note. When writing this in 2019, climate change and our carbon footprint is a huge topic; for a good reason, I think. The money we spend on consumption can be used as a rough order-of-magnitude for our carbon footprint. Obviously, a dollar spent on fuel has a much higher footprint than the dollar spent on isolating my house. But my point is that on average, there should be roughly a linear relation between spending and carbon emission. So reducing consumption not only prepares you for early retirement, it is also great for the climate.

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