Cutting Back On My Savings Rate For A Better Chance At Financial Independence

When it comes to budgeting and investing your money for financial independence it's generally well known that your savings rate - the amount you save as a percentage of what you earn - is more important than the actual amount of money you're saving. Due to this, an entire movement focusing on being extremely frugal was born as participants in the FIRE community tried to get their rate up as high as possible, in order to retire as early as possible. But at what point can you start to cut back on cutting back, to allow yourself to start enjoying some of the things in life that you've scrupulously forgone?

Cutting back on costs is required to achieve a high savings rate, especially towards the start of the journey towards financial independence. But it can get to the point where the seemingly simple pleasures of life are seen as too costly on the greater scale. Eventually, the nature of extreme frugality starts to cause negative impacts on your life and happiness. While nothing great ever comes easy or without sacrifice, it's important to realise that your life will change over time. If you're not changing your plans on getting to financial independence alongside it, you could soon find yourself struggling with an approach that is no longer working for you.

After working hard on your savings it can be difficult to cut back on cutting back.
After working hard on your savings it can be difficult to cut back on cutting back.

The cost of a high savings rate

When you hear things like being able to retire in just 10 years you immediately want to know how it can be done. The method is shockingly simple as described by Mr. Money Mustache in his popular article.

If you cut back on your living expenses enough and invest the remainder, using relatively conservative estimates you can almost be certain that you'll be knocking on the door of retirement in a much shorter time than the average person out there.

As an extreme example, an 18 year old with no debt who decides to go straight into work could realistically retire by their 30th birthday - if they save and invest around 60% of what they earn.

But what does this imply?

They've probably never, ever, gone out for a drink or a meal.

They don't really socialise since that could involve spending money.

They've not really been anywhere or seen anything.

They have less life experiences and memories than other people in their age group.

In their unwavering pursuit of a high savings rate their sole focus has only been on "the money". This level of focus is of course commendable - it's not easy to turn literally everything down in favour of saving - but it most likely has come at quite a cost.

In exchange for money our young protagonist has opted to spend their life's happiness and fulfilment instead.

In my opinion this is something that would be difficult to regain in the later years - at least in comparison to money.

The stress of spending

I was in my mid-20s when I first started my journey and did have a period of spending my money fast and loose before discovering the financial independence movement. However, once I learned about the savings rate calculation and the concept of early retirement, my story becomes not too different from the one above.

With a focus on a high savings rate to try and regain "lost ground", the act of spending money - even on the basics or essentials - started to become highly stressful.

"Could I have bought a cheaper equivalent of this instead and saved a little extra?"

Cutting the coffee from the coffee shop is easy - and still recommended - but there were other sacrifices being made that were less than ideal or even healthy.

Everything in life came under scrutiny in the never ending effort to try and squeeze out an extra couple of percentage points.

Move to a cheaper area that's less safe.

Share a house with even more people.

Buy lower quality groceries and food.

Stick with the uncomfortable chair even though it hurts my lower back.

"It's for the greater good - once I've reached financial independence I can give myself more freedom to buy things I enjoy" - I lied to myself.

Each item purchased would lead to a bunch of calculations or checking of spreadsheets and trackers to try and determine the overall impact, both in the short term and in the long term.

While it might have been interesting at the start of my journey it soon became mentally taxing to constantly need to keep track at such a detailed level.

Soon enough, the mere thought of spending money would become a source of stress for me.

A recovering frugalist

It took a number of years and many things had to happen, but I eventually found a way back onto a more reasonable financial path which is less demanding in terms of my savings rate yet still ensured I stayed on pace towards my goal of financial independence.

Once I realised I was being far too frugal I figured I needed to make some meaningful changes in order to regain control and reduce the negatives.

I decided to stop fooling myself that gratification could be delayed forever and that an important part of my journey towards financial independence involved enjoying life in the present.

There's the small obvious things such as giving myself more freedom to go socialise more often and enjoy that beer or get that pizza, but there were also bigger more deliberate changes that I made in order to swing the pendulum back towards a more balanced life.

I moved into a bigger flat, one that has a bigger living room and a second room which I could convert into an office space.

I got proper furniture such as a two meter long desk, an ergonomic office chair, a bookshelf, a good sofa, a nice dining table and cabinet, and a high-quality bed frame and mattress.

And I'm willing to do a bit more travel when it becomes safe to do so - hopefully soon.

All of this sounds like lifestyle inflation - and in a sense it is - but I believe there is real value being gained from doing this as opposed to someone who's simply trying to keep up with the Joneses.

Coming to terms with giving myself more freedom has helped reduce the stress of spending drastically, which no longer induces a sense of anxiety around the impacts on my progress towards financial independence.

The spending still needs to be controlled of course, but there is no longer an urge to get down to that unattainable zero.

The value from a higher cost of living

Setting up an office space in my new home gives a clear separation between "work" and "life".

In my previous flat this wasn't available as my work station was set up in my small living room. With work being "ever present" my work-from-home situation soon became living-at-work.

For someone looking to break free from the shackles of required employment, the situation couldn't get any worse.

Now, thanks to the separation I'm able to really disconnect and let myself recharge so that I'm better motivated and ready for when I next get to work.

Rather importantly, getting good quality furniture has really helped towards my comfort, relaxation, and therefore overall productivity.

I spend most of my time in my office - either writing this blog, working on product designs for my start up, or on my "day job" - so it has been really beneficial to have that comfortable chair, the ample desk space, and the bookshelf for all of my documents.

Outside of the office, the sofa and dining table means I can now eat my lunch and dinners in a separate space from my work.

It sounds obvious but I think it's also easy to overlook how having this break from the screen really helps you stay productive overall.

Finally, the high-quality bed frame and mattress really helps me get a good night's sleep which further helps me de-stress and recover in general.

All of this comes with a higher cost of living - be it as a one off purchase or a recurring expense such as higher rent - which undoubtedly reduces my savings rate and pushes back my goal by some amount of time.

But I've been able to get some real value from it in return.

If I was moving into a bigger space with a room that wasn't being put to good use, or buying furniture that served no real purpose, then it would be a completely different story.

However, as things stand I feel I've found a much better harmony between my life and my work - and while it might mean I'm working slightly longer due to a lower savings rate it at least means the remainder of my journey towards financial independence becomes much more enjoyable and fulfilling.

The snowball effect

For all of us working on financial independence we look toward the future where the returns on our investments have started to eclipse what we put in ourselves - on average at least.

Yet the growth is slow and seemingly inconsequential towards the start, hence the need for us to make big contributions from our income in order to push ourselves forward.

To ignore such efforts where I made the sacrifices and struggled through the frugality would do those years an injustice. The option to cut back on my savings rate didn't magically appear out of nowhere.

But the truth is that I have now been on this journey long enough where the fruits of my labour are starting to yield results that have a real impact on my progress.

Compound interest is starting to take a hold and the snowball is in full effect.

I recently wrote an article where I spoke about the different stages of financial independence and on that scale I would be between stage 4 and stage 5, out of a total of 7 stages.

Being at this stage has really given me a lot of freedom and flexibility to make decisions on my spending and has allowed me to spend a bit more freely without the impacts being as severe on my overall progress or speed towards the goal.

In a simple example to illustrate:

Imagine I earn a salary of £50,000 a year but didn't have any investments.

If I increase my expenditure by about £300 a month - moved to a bigger home, bought some furniture, socialise more, and things like that - the additional cost of £3,600 over the year would have an impact of minus 7.2% on my savings rate.

Now, imagine I earn the same salary but also have an investment portfolio of £50,000, which would take about two and a half years to achieve at a 50% savings rate. Using a 7% rate of return on average the investment portfolio would increase my earnings by about £3,500 a year.

This would mean that the extra £300 increase in expenditure now has a lower impact overall at minus 6.7%.

£3,600 ÷ (£50,000 + £3,500) = ~6.7%

The difference isn't huge but it's certainly going in the right direction.

As my investment portfolio continues to grow, the impact of that extra expenditure continues to drop. Eventually it gets to a point where the impact could equate to only a few additional months of needing to work.

To some, needing to keep going a little bit longer might sound insufferable - but the real choice to me seems to be between "suffering" those extra few months, maybe an extra year - or, suffering all the way through from now until you reach your goal, which could actually still take a number of years to achieve.

When there's enough momentum and strength behind your financial growth, you can start to ride it all the way to your goal.
When there's enough momentum and strength behind your financial growth, you can start to ride it all the way to your goal.

Being realistic about the plan

Being in my mid-20s when I first started working towards financial independence it was easy to make the big sacrifices.

After all, the impacts of my decisions would only really affect myself.

However, as the years have passed by I've found more and more need to take additional factors into account when calculating the impacts of my financial decisions.

I'm now in my early-30s and soon to be married. Eventually I hope there'll be children. Maybe we'll purchase a property. Maybe we'll even move country - who knows.

But basically, life has continued to develop and the decisions made back then can no longer be applied to the present day.

This is a mistake I feel is easy to make, especially for many newcomers to the financial independence movement. We lay out the path from now until the end with the assumption that nothing will ever change.

The number is the number.

Yet this approach is quite unrealistic.

It leads to all sorts of problems, especially when our wants and needs have moved on - often without our realising.

I'm appreciative of the effort I put in during my earlier years, which now affords me this level of flexibility, but it also eventually led me to a place that made things extremely difficult and demoralising.

Thankfully, through a number of events and by continuing to write this blog - which forces me to think deeply about this topic - I've managed to pull myself out and have re-aligned myself to a plan that's more realistic yet has had little impact on the end result.

By cutting back on the amount I save and adapting to my changing needs, I feel as though I've increased my chances of reaching financial independence.

Final Scribbles

My journey towards financial independence still has a number of years left in it and I'm sure there'll be many trials ahead of me that I'm going to need to overcome.

But by going through this experience where I went way too frugal and then had to pull myself back from the abyss, I feel as though I'm far better equipped to continue on this path than ever before.

I feel that there's an underlying tone to the term "financial independence retire early" that makes us feel as though we can't be happy unless we're able to walk away from the office without any care for the consequences.

Being financially independent is of course the goal we should all continue to strive for, but the true result we actually want - in my belief - is to actually live a happy and fulfilling life.

And to that end, it might better - possibly even beneficial overall - for us to allow ourselves to spend a little bit more.

It's somewhat ironic considering the "mathematics" behind the movement, yet something that I think many of us should reflect on.


Don't wait for some magical number before you start "living". Life is full of surprises and you'll never be able to plan it perfectly. If you're doing sensible things with your money you'll eventually reach your goal. So start living now. The longer you wait, the less time you'll have. Money can be made, but time cannot. You are the barrier to the life you want to live, not a 4% safe withdrawal rate.

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