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We’ve all seen tales of financial success floating around the internet: “I retired at 29 with $2.5 million in the bank” or “I am saving 60% of my paycheck every month.”
Many of these extreme saving successes are the result of something called FIRE (Financial Independence and Early Retirement) it turns out, a phrase coined by Vicki Robin, the co-author of the now culty personal finance book Your Money or Your Life, first published in 1992.
The premise of FIRE is pretty simple: that you should equate every dollar you spend to “hours of life energy.” Think of it in real-world terms and say you make $400 dollars a day and you want to buy a $200 smartphone. Is said smartphone really worth half of a day?
FIRE believers (and there is a growing community on sites like Reddit) want to blow up the notion that you have to work for decades in order to just buy more and more stuff.
And while the FIRE principles are pretty difficult in practice (particularly in cities with a high cost of living like New York City and San Francisco) some of the tenets are good jumping off points to start saving, whether or not you have it in you to start putting away more than half of your paycheck.
Here are the top five ways that everyone can learn a thing or two from the movement:
1. Save First, Spend Second
Instead of putting money that you don’t end up spending into your savings account, start your month by putting a chunk of your paycheck into a savings account, and making due with what you have left. If this seems like a tough first step, apps like Digit track your spending and then stash away money, so you won’t even miss it, automatically. The bottom line is figure out a way to save any way you can.
2. Track Every Dollar You Spend
It’s easy to let overspending fall through the cracks when you aren’t keeping a very tight eye on where your money is going. It’s a pretty common piece of advice to keep a food diary when you go on a diet, and the same thing works when you are going on a money diet. Keep track of every penny. Not only will doing this help you weed out what you don’t need to be spending on, it will help you identify areas where you could be saving. For instance, you aren’t going to cut out buying groceries, but you could start using an app like Ibotta to get cash back every time you do.
3. Cut Down On The Amount You Are Spending Socializing
One of the big budget busters is spending money hanging out with friends and family, and that is because so much of socializing happens at restaurants and bars, where things cost money. Instead of complaining to friends and family that you don’t want to spend money going out, take the initiative to plan activities that won’t cost very much like a hike or a movie night at home, and watch the savings pile up.
4. Stop Paying For Conveniences
You don’t need to pay someone to clean your house, mow your lawn, or dye your hair (the list goes on and on). Think about what you are paying people to do for you in your day to day life, and start doing these things yourself. The savings will be huge.
5. Only Shop For What You Actually Need
If every time you bought something you asked, “Do I really need this?” can you imagine the amount of money you would save? The number of things you would prevent yourself from buying? Try it. Yes, you really need to buy bread, but no, you really don’t need to buy that new pair of shoes.
Feature Image: Adam Katz Sinding/Le 21ème
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