Financial independence comes from the combination of having enough money and spending sufficiently little so that interest from the former covers the expenses of the later. The biggest sources of personal expenses are generally

  1. Children
  2. Housing
  3. Transport
  4. Food
  5. Taxes

Reducing expenses in these areas will make a much larger impact that token efforts such as using CFLs, turning the thermostat down, line drying, getting books from the library or buying less.

As far as children go, the choice comes down to having them or not having them. In our economic system those who don’t have children are economically better off than those who do. As such children can be considered a luxury. In other places, for instance, when children are seen as a retirement insurance or cheap labor, the opposite may hold.

Sometimes I also talk about ways to reduce housing costs. Since people rarely move, this is not a big source of continuous commentary. Suffice to say, there are some big savings to be had by living in a room and sharing kitchen, bathroom, etc. with a lot of other people or living in a very small home such as a cottage, a boat, an RV or a van. Since such savings are stupendous compared to the cost of living in a larger place, these should not be ignored. They could mean the difference between retiring in 5 years or 10 years.

Transport is next. Transport typically means paying for one or more cars instead of saving for financial independence. However, not only does one have to consider the cost of the car and its eventual replacement. There is also insurance, gas, and general maintenance. Most people are culturally not ready to accept any alternative means of transportation. Cycling is one such mean. Cycling is competitive in time with any car commute that take 30 minutes. If they are shorter, the bicycle wins. For rides shorter than 5 minutes, walking may be faster. However, for many people riding 5 miles on a bicycle or walking a couple of miles is a big deal though. This is due to low expectations of what actually constitutes being in shape. This is not surprising when “overweight” is the new “average”. Hence, many rants are dedicated to resetting the image of what level of physical conditioning should be normal and expected.

Another big category is food. I’m told that some people spend $400/month/person for food. This is enough to feed a car and could easily be reduced down to $100/month/person or less with the rest going towards financial independence instead of the gut (rescale according to regional prices, I’m using California pricing). Therefore I also talk a lot about food. Besides, I somewhat enjoy cooking.

I do not talk a lot about taxes, because I’m still new to the US tax system. Expect more revelations (at least to me) to follow though.

The best thing you can do right now though is to start (re)considering how many additional children you want, where to live, how to get from point A to point B, and how to minimize taxes. Then you can worry about CFLs later.

Much thanks goes to ML for the donation.

Originally posted 2008-04-28 07:37:51.