1. You know how much you spend each year
The first step to gaining control of your finances, is understanding your outgoings. Everyone has their own approach for gathering the numbers and the level of detail you want to keep. You could be comfortable knowing you spend £2k a month. Or you may want a more granular breakdown. Either is acceptable, and not having a breakdown should not stop you. Tracking expenses is a process that can be refined with time; I’ve found my system and categories evolve naturally. I’d urge you to keep it simple and use an approach that works for you. Don’t over-engineer it, or make a complex system. If you are in debt, or wanting to save more it is even more imperative that you know these numbers. Moreover, you need to truly feel and understand your numbers as they relate to your income. As Charles Dickens wrote:
Annual income twenty pounds, annual expenditure nineteen pounds nineteen shillings and six pence, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery
2. Keeping up with the Jones is well forgotten
Humans are social beings, we enjoying spending time with our tribes. It’s only natural to compare ourselves to others, as we have been benchmarked against our peers all our lives. Babies on growth charts, kids on school results and adults on signs of success. But all comparisons are not equal, and if you find yourself comparing your material possessions with others it’s a slippery slope. If you feel the pressure to conform, it can lead to lots of mindless spending that doesn’t enrich your own happiness. People on the financial independence path have rejected the idea that you should be judged by possessions, and and instead stealth wealth is common. You hang out with your tribe as you like their company, not because you want a shot in their car/boat or admire their house.
3. Your spending aligns with your values
When you reject the pressure to conform, you are now on your own path. If you were to write a list of the 10 most important activities to you personally, in order 1 to 10. Then work then a list of the 10 things that you spend most of your discretionary spending on, in order again. And I’m sure you guess what comes next how aligned are your lists? Is your number one activity the same on both list? Do you spend money on items that aren’t on your important list? Make sure every penny has a purpose, and you are only spending your hard earned cash on things you value. As part of my journey, I’ve taken a conscious effort to align my values and discretionary spending. I love theatre tickets and value the experience a lot, but that doesn’t everyone else values them the same.
4. You have learned to judge purchases on value not price
Another sign of a happy frugal person on the journey, is how they make purchases. Items are purchased that are necessary and bring joy (I sound a bit KonMari here). And it’s not necessarily the cheapest item purchased. Or the highest quality. It’s the right balance of quality and price to suit your needs. Here is where buy it for life comes in. If you are going to use it all the time and have space to store it, you may elect for an expensive item. On the other hand, if you are wanting to use an item temporarily, you may elect for a secondhand or bargain basement purchase.
5. You have learned what makes you content and happy
As in real true happiness. You have learned it is not money or an abundance of material possessions or likes on a social media platform. Having spent time reflecting you have come to really truly understand yourself. You have learned your strengths and your flaws, and how your individual mind works. You feel a purpose in life. Stoicism is embraced, wholeheartedly. You know what you can control, and if it bothers you, you do something about it. Alongside this, you know what you can’t control (hello brexit/Trump etc) and make peace with this. Reducing news exposure helps massively here.
6. You fill your time with free or frugal hobbies
Knowing what makes you happy as an individual, you have plenty of frugal hobbies and pastimes. These can include solitary pursuits such as reading (hello library) and learning. And also more social pursuits such as hiking and running. You make time for your hobbies, and understand their role in keeping you happy and fulfilled.
7. But you also have a splurge hobby
Whether it is skiing, expensive holidays or gourmet restaurants, there is always room in the budget for activities that you get value from. The key is to pick the splurges that matter to you, and to only have a few of them. Whether it’s an annual theme park pass, a classic car or a concert habit, it’s an expense that bring you more happiness and help makes you you.
8. You are motivated by short term targets
Whether it’s a weight loss target, a PB in a sport or plain old net worth target, you have a few things you are aiming towards. You are secretly very chuffed when you meet these mini targets, but don’t beat yourself up if you miss the target. You develop an internal drive and resilience, that keeps you going through good and bad times. At the end of the month you look forward to updating your spreadsheet and seeing how the numbers are coming along.
9. You have a big long term plan for when you are FI
You are saving and investing for a reason. They may not be fully developed, but you have an idea and plans for what you want to do when you reach financial independence. Whether that is to spend more time at home with children or older parents; or to just the freedom to work a different way. You may be similar to me and harbour dreams of a nomadic travel lifestyle, or just welcome the opportunity to travel more. You know by working towards FI you are making your dreams a reality, and moving one step closer each day.
10. You know FI is about freedom rather than the money
Lots of people are motivated by the desire to not work. Look how many people pay the lottery tax each week, with the dream of quitting work give as the man reason. However I’d propose that the true benefit of financial independence is the freedom rather than the early retirement. It’s about much more than the cold hard cash (or index funds). The freedom to not have to work. Freedom to donate your time to a cause you believe in. Freedom to travel. Or just relax.
Over to you
I’m on a journey to financial independence, aiming to be financially independent and retire before 40. It’s been a gradual evolution over the last few years, but I have noticed a few clear signs of progress on my journey. You can read about why I started Ms ZiYou or get more see what I’ve learned about my personality.. So what about you?
- Are you on the journey?
- What does financial independence really mean to you?
- What will you do with your freedom?
This post is being shared as part of #finsavsat