Pillars of Financial Independence by Frugal Alien

People sometimes ask me how we are able to save over 50% of our take home pay. Well below is the answer to this.  This post is long!​
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​1. Housing

One of the biggest expenses we all have is our housing cost. Not many people are lucky enough to live mortgage or rent-free. There are a couple of considerations which everyone should take into account when deciding where to live.
First and very often an important factor for all is the size of the property. Very often people find themselves living in large houses far from work which they hardly use due to working all the time. We found ourselves the happiest when living in a tiny apartment a few years ago. It was very warm, the neighbours were fairly decent most of the time and the bills were minimal.
We are always considering the following:

1. Is it close to our workplaces
2. What is the cost
3. What will the ongoing cost be (bills, mortgage or rent)
4. Standard of accommodation​​

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 "Happy wife = happy life! "

​The above four are satisfied because Mrs Frugal can walk to work, this cuts down the cost of having an additional car. It also saves time which is handy since we have a dog called Obi-Wan Kenobi. Mrs Frugal can see him during her lunch break which is great. It makes her and the dog happy. Happy wife = happy life! Oh and yes I am a Star Wars nerd.
 
Rent has to be lower than the local rate, this is usually because the property is not of an amazing standard with a cheap finish and or is outdated. These things don’t bother us too much as long as it can be kept warm, can be cleaned and maintained, and there is no mould.
Since we delayed getting onto the housing ladder due to Brexit we had the flexibility of where to live. We are currently considering buying a property, which is a completely new topic all on its own. Let's just say that we are not looking at the top of our budget and that I will need to learn a lot of DYI.

2. Saving vs investing, savings rate and automation

Sooooo everyone’s favourite topic of saving money. This is a very broad topic, but the key things to consider here are:

1. Increase your savings rate – it doesn’t matter whether you save 1% or 10% of your take-home pay. Try to increase it, hopefully by following some of the tips included in this post.
2. Create an emergency fund – different people have a different level of tolerability when it comes to this. Some say it should be at least three months expenses, some say six or twelve is better. It depends on the situation and where you are on your FI journey.
3. Invest rather than just save money. Banks are now offering very low rates of return on any savings you may keep with them. A bank is possibly good to keep your emergency fund in, but not your overall money. Inflation will eat away at it faster than you can gain any interest. By keeping your money in the bank you are losing money in the long run. Low cost index funds are your best friends.
4. Automate your savings by creating direct debits and standing orders. You’ll soon get used to not having that money to play with!

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“Poor people pay interest.
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Rich people earn interest” 

3. Transportation
Now, this topic might be confrontational to some. Especially those with expensive German cars on finance or on lease.

1. Don’t drive if you don’t have too. The cost of car ownership is very high with insurance, tax and maintenance to pay your car costs a lot more than you might think. Add it all up and cry.
2. Never buy a brand new car
3. Car’s value depreciates very quickly in the first three years, so don’t buy a brand new car.
4. Don’t buy cars on finance unless it is a zero % finance. Depreciation together with potential interest on car loan is financial suicide in the short and medium-term. The saying goes “Poor people pay interest. Rich people earn interest” Don’t even get me started on car leasing!

4. Housing essentials
We are talking about things such as gas and electricity supplier, insurance and broadband which I see as housing essentials. Shop around and find the best deal for you. There are many comparison websites out there. I used comparethemarket.com, confused.com and others. Click on the link below to see what you could save and support my blog at the same time! I do this every year!

5. Housing extras – mobile phones, cable and other
Now we are getting into territory where people get very defensive. For some reason, people are very protective about their ridiculous mobile phone contract deals, Sky TV or other cable TV packages. They always try to justify that it is fine to pay in the region of £100 for their brand new iPhone 27 and an incredible TV package.
I’m not here to judge, but let me tell you what we have.
Mrs Frugal has a sim only contract for £12 with three and I do too. We use old iPhones 6 and we are usually around 5 years behind on mobile phone technology. My phone does all I need it to do and I am not paying a ridiculous amount of money for that. We also have a Netflix subscription for those rare times when we actually watch TV.  Total cost of £30 per month.

​6. Gym membership
This one is simple. If you attend gym regularly and you get real value out of that then so be it, but if not cancel the bloody thing, get some weights and used elliptical machine.

Congratulations on getting so far!
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"Set a goal!"
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7. Side hustles
There are multiple ways you can make additional income. Most of us can gain some additional income by working on the side. Amazon Flex, other courier jobs, teaching instruments, creating online content, such as blogs or YouTube channel. Comment below if you start a blog, I will happily take a look.
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8. Have a long term goal - 4% rule
Those of you who are unfamiliar with 4% rule. It is a rule of thumb which states that to be able to say that you are financially independent you should have wealth which consists of 25 times your annual expenses. This means that you can allocate this in low-risk index funds and draw down 4% of your money each year in perpetuity. So, what would that amount be for you? How long would it take you to get there?