By now you’ve heard me rant about pursuing financial independence (having enough passive income to cover your expenses) and you’ve heard me rant about frugality (not buying dumb sh*t).  If you don’t give those ideas any context, they can each come across as pointless pursuits.

If you haven’t been slapped across the face with the ‘aha!’ moment, then I’m guessing you’ve felt something similar to this while reading my posts on financial independence:

“Oh, it must be nice for them to be able to pursue this rich person lifestyle of Financial Independence.”

Or this, when you’ve read my posts on frugality:

“Ha, what a weirdo.”

Pursuing financial independence isn’t just for rich people.

If you don’t spend money like an asshole you’ll need to save up around a million dollars to be financially independent.  That may seem impossibly far off, but consider this: 62% of millionaires earn a household income of less than $100,000.<– Real stat.

If you're interested in learning more about the surprising habits of millionaires, check out this afford anything podcast episode featuring Chris Hogan.

Did that number jump out to you as much as it did to me?  The majority of millionaires got that way by making a combined income of less than $100,000.  I would have thought most millionaires make several hundred thousand dollars per year.

So How Did They Get to be Millionaires?

They all read Burrito Bowl Diaries and/or lived frugally.  They spent less than they earned, shared Burrito Bowl Diary articles, and they invested the difference.  You don’t have to become a millionaire overnight.  People view millionaires the same now as they did in the 1900s, even though a million dollars isn’t even close to the same amount in today’s currency.

When we say you need to have close to a million dollars to reach financial independence, that’s a very doable number.  You’re not trying to become Scrooge McDuck here, or someone who wears a monocle.

Financial Independence and Frugality are NOT Two Unrelated Ideas.

They work in tandem with each other.  There is no mythical number you must reach in order to be financially independent.  It all depends on your expenses.  If your expenses are $0 per month, (congratulations!!) you’ve successfully reached financial independence!

The higher your expenses are, the larger the number you’ll need to reach FI.  Someone could have a net worth of 5 million dollars, and not be financially independent. Someone else could have a net worth of $500,000 and be financially independent.

That’s where frugality comes into play.  If I continually have a $500 per month car payment then I’ll need an additional $150,000 invested to be able to passively and perpetually cover that car payment.

If you can learn to embrace stoicism, and be a little more frugal, you can shave $150,000 off your FI number by driving around a paid off car.

You can choose to live in a three bedroom house in a nicer part of town. OR, a one bedroom house in a less fancy neighborhood.  Either one is a fine choice, depending on what you value.

If you really don’t care about those extra two bedrooms, or safety, why are you paying for it?  Just kidding about the safety part.  But seriously, you don’t have to have glass over ALL your windows.

To passively cover the difference between paying $1,500 or $2,500 per month for your home you’d need an additional $300,000 invested.

Extra space and living in a cool neighborhood is nice, but is it worth an extra $300,000?

Just by making those two choices- paid off car vs. financing a new car, and how expensive of a house you choose to live in- your FI number can easily swing almost half a million dollars.

Frugality isn’t about cutting out parts of your life that make you happy.  Frugality is about cutting out parts of your life that aren’t making you happy.

On the flip-side, you can pursue a FI number where you don’t have to be so frugal.  You can budget for driving a nice new car.  You can bake living in a cool part of town into your FI casserole.

But, you have to plan for it.

FI isn’t a strict number, it’s whatever number you need to cover your expenses.

Frugality leads to saving money, and saving money is incredibly beneficial because it creates a buffer between you and your expenses.  This means if you suddenly lose your job your quality of life doesn’t have to suffer, because you’ve been living below your means.  Even if you have no plan of reaching financial independence, frugality can be a life saver.

If you can be frugal for even a few months, your future self will thank you.  Some day, you’re going to come across hard times where earning money is more difficult than it is right now.  If you’ve put a little money away, those hard times will barely feel like a blip on your radar.  If you haven’t, those hard times will feel like you’re getting hit with a pillow full of rubber dicks.

If you want to see how the expenses in your life are affecting your FI number, use this formula:

(monthly expense x 12) x 25 = amount of additional investments needed

Ex: ($500 car payment x 12 months) x 25 = $150,000

Ex: ($100 gym membership x 12 months) x25 = $30,000

multiplying your yearly expense by 25 is the same as dividing it by .04.  We use .04 because the 4% rule says you can spend 4% of your total investments every year with a very high probability you'll never run out of money.

In closing, frugality is important.  Saving money is important.  You are important.  Amen.

Here are a few more articles that basically relate to this article.  I think you’ll really like them.

The 4% Rule- How to Know When You’ve Reached Financial Independence

If You Just Save a Little Bit, It’s Not Really Worth It. Ya Know?

Why Pursue FI- The Pros and Cons of the Frugal Lifestyle

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