“Spending intentionally” is the current buzzword in Financial Independence Retire Early (FIRE) circles.
This makes a lot of sense. If you read early FIRE books, you’ll see “frugal” or “frugality” instead. The problem with these is that people tend associate “frugal” with “cheap”, “low quality” and “not very fun”.
I go with “spending intentionally”. Sounds happier and puts the power on the right side of the equation (i.e. in the hands of the spender – you!). On a long enough timeline, psychology matters more than pure skill or talent.
Here’s what spending intentionally means to me.
Spending intentionally means having power and keeping control
Contrast these two ideas:
- “I was out in town and I saw these shoes. I thought those shoes would look good on me, so I bought them. They cost £100, on sale from £150.”
- “I needed some casual shoes, as mine were beyond repair. Being well presented is important to me. Most of my casual clothing is based around blue jeans, and I try to wear clothes that can be dressed up or down, to cover most social situations I find myself in. After careful consideration, I thought that these £200 Doc Martens would match most of my casual clothes, look great, last a long time and be easily maintained. I was happy to pay a premium for this outcome.”
In number 1, the power was in the hands of the shop. The shopper went to the high street and impulsively bought something. A “sale” sign made the shoes seem like a good value purchase. We know nothing about the shoes other than they looked nice, cost £100 and were on sale.
Compare that to number 2. The shopper was in control of the purchase. A variety of factors was considered. We know that they paid more for a particular pair of shoes, but we can see that a premium was paid for shoes that matched a whole wardrobe and that would hopefully last a long time. We can presume that the shopper owns few, good quality shoes, and that over time we can expect them to spend less overall on shoes than in number 1.
The shopper in number 2 was spending intentionally. The shopper in number 1 was not.
Spending intentionally means value for money and time
My favourite takeaway from Your Money or Your Life was the simple point that money is a measure of life energy.
Since most of us (me included) work to earn money, at least initially, then the money we spend is a measure of our lifetime we had to exchange to earn it.
Ideally, you want to spend less of your life on crap that doesn’t matter. It’s OK if more of it is spent up front, but overall we want the balance of our energy spent on stuff that matters and not on crap that doesn’t.
Spending intentionally and making deliberate decisions about what to buy is critical to this.
Think back to our two shoe shoppers. Number 1 will likely spend more on shoes over time than number 2. That’s cool if number 1 just really likes shoes, but if they don’t care much about shoes this is stupid.
Things I will intentionally pay a premium for
I care about some things and will pay a premium to gain them. Here’s a short, incomplete list, so you get the idea.
Build quality
Stuff that lasts and is well made usually means that I’d be happy to pay more. Shoes are a great example: I will comfortably pay £100 for gym trainers if I think they will last more than a year. I do also pay more for hobby stuff if it will last for a long time or won’t be made obsolete quickly, provided that it makes sense to do so.
Multi-function of frequent use
If something has more than one use in my life I’ll pay a premium for it. If it can only be used in certain circumstances, there is no chance that I’ll pay top dollar.
I absolutely thrash my laptop. I use it for this blog, my personal admin, learning to code as a hobby, as an entertainment device when I travel, as a research tool… and whatever else. I felt no regret in paying £1,000 for it.
Environmentally friendly
My partner is hot on environmental issues. I’m not so hardcore, but if there’s a more eco-friendly version of something I want then I’ll pay a premium.
My favourite material at the moment is bamboo. It grows like a weed and there are so many uses for it. I didn’t mind paying a bit more for a bamboo toothbrush and I quite like the bamboo socks. When we relocate, it’s likely we’ll buy a fix-it-up house, and I’d pay more for bamboo flooring or kitchen units given the opportunity.
Things I hate spending money on
I will intentionally spend less on stuff I don’t care about. Here are some examples:
Cars
I really don’t care what car is on my drive. In fact, I currently don’t have a car.
Around the corner from my house is a Skoda dealership. Passing that most days, I can see that a small hatchback registered in 2016 will set me back £12,000 on sticker price.
I actually need to drive (as opposed to “I would drive if I already had a car”) about 7 times per year. Maybe 12 if I’m exceptionally active that year in places without transport options. Each time costs me no more than £300 in hire car costs and fuel, but most of the time I pay £80 for a car club vehicle. Let’s say that’s around £2,000 per year, being generous.
Each time I drive, I get into a new and well-maintained vehicle. It’s always a vehicle fit for purpose, as I can hire anything from a hatchback to a van.
It would take me 6 years to get the value from that hatchback, ignoring the costs of maintaining, insuring, it and the opportunity costs of spending my time doing these things.
Furniture
I really hate spending money on home furniture. Furniture wise, I spend most of my time sleeping in my bed, eating at my table and sitting in my chair.
Well, apart from working from home, but I have a cheap desk and chair for that.
Everything else is either just decorative or performs only a minor function.
Thankfully, while the whole world is going to Ikea and Oak Furniture Land or wherever, their old stuff tends to cost pennies in Oxfam or Facebook Marketplace.
My favourite example is our TV unit. TV corner units fell out of fashion a while ago, but I don’t want to put holes in my wall so we decided to get one for the TV and the games console. We paid £5 for a perfectly functioning dark wood and glass TV corner unit that does the job beautifully.
I honestly wouldn’t buy a wardrobe new anymore. The nice pair of 1950s walnut wardrobes we have cost us about £200 all in and I have labelled shelves for my pants and pyjamas.
Brand names
I do own some brand named items, but “loyalty to a brand” is a stupid concept that needs to Get In The Sea.
The exception to this might be specialist hobby kit. I will usually pay more for Bridgedale hiking socks, but that’s because in my experience the longevity of them is unparalleled. I paid more for a Roland electronic drum kit when I sold my acoustic drum kit because I wanted the build quality and availability of spares that these drum kits offer.
I would not pay more for a polo shirt with a logo on it over a plain one, not unless it was better quality. Most of my casual tops are plain coloured t-shirts from Rapanui, which usually cost me about £8 and come in colours that match any kinds of jeans or shorts I can find on the cheap.
Why spending intentionally is important for financial independence
To become financially independent, you need to spend less than you bring in. That should be obvious to anyone.
This creates a surplus of cash, which can them be put to work to generate “passive income“.
Doing this over time creates the means to financial freedom, since consistently having a surplus will one day mean that your passive income should one day be bigger than your spending. You will be financially independent!
You cannot create a consistent income surplus until you control your spending.
Most people aren’t spending intentionally…
It’s entirely possible to be a reactive, unintentional spender and achieve financial independence. That’s how most of the UK works! Everyone puts aside a pension amount which is taken from their pay and then they freely spend what they have left.
However, by spending intentionally, you give yourself the control to increase this amount and control when you can be financially independent.
Here’s a cheeky embedded tool from the ONS, based on the 2017 data. As you go through it, you can see that the trend if for households to live beyond their means. Five years on, with increasing inflation, I wonder if this has changed much?
I can’t prove that this is unintentional spending. No-one can do that, not really. But, I can show this graph on car ownership…
As you would expect public transport to become more available over time, and as things like car clubs, electric scooters and the cycle to work scheme have appeared since 2003, you’d expect the number of cars/ vans per household to decrease. Nope.
But hasn’t the cost of living gone up? Aren’t people struggling to buy essentials?
This does clash with the idea that households are spending more on “essentials”. The problem is that what is “essential” is down to perception as much as actual need.
For an indication: the Living Wage Foundation states that a living wage is £9.90 per hour outside of London (or £11.05 per hour within London). This comes to around £21,000 per year for a 40-hour week, or £23,000 inside London. (Note: this figure gets revised in September each year).
The presumption here is that if you earn more than this you should have money to invest for your future, assuming you spend intentionally and don’t inflate your lifestyle unintentionally!
Except that the evidence suggests people aren’t confident about paying more into pensions and investments.
…and it isn’t working out for them
The state pension age in the UK is presently 66 and is rising to 68. It might rise again.
Below is a table of data I pinched from the Office of National Statistics, showing the expected retirement ages of the surveyed UK population by region as of June 2017.
| Area | Retire before 60 | Retire age 60-64 | Retire age 65-69 | Retire age 70+ |
|---|---|---|---|---|
| England | 7% | 19% | 59% | 15% |
| Wales | 4% | 26% | 56% | 13% |
| Scotland | 5% | 28% | 58% | 10% |
More people think they’ll retire in their 70s than before age 60, based on this data that pre-dates COVID-19 and present inflation.
While we can’t say for sure why this is, my suspicion is that spending too much on stuff that doesn’t matter or that doesn’t last is a contributing factor here. There are other factors, life in the UK isn’t cheap and some people really do live to work, but it can’t all be down to this.
The sad fact is that in a given room you’re twice as likely to meet someone who thinks they will work until they drop as you are to meet someone who plans an early retirement.
We live in a time of exceptional technology and automation, but we still don’t think we’ll have enough money put aside to cover retirement spending – certainly not while young and fit enough to enjoy the freedom.
By getting good at spending intentionally, you’re putting yourself firmly in control of the situation. You can get a good feeling of what you’re likely to be spending in retirement, and you can free up money to invest for it.
This makes sure you can choose which one of those columns in the table you belong to.
In short: spending intentionally means controlling your money, not letting your money control you.
You could achieve financial independence without getting good at spending intentionally. Anything is possible I guess.
However, if you choose to get good at spending intentionally, you take control. You will know what you need and how much money you need to get it. You can measure, which means you can manage the process.
The collateral benefit is that you will have less useless crap in your house, and the stuff you do have might be better quality.
What’s not to love?
Don’t delay – if you’re not already spending intentionally, make your life easier and adopt the approach. Take control of your situation and you’ll find the financial independence campaign so much easier.
It’s working for me.
