My First steps Towards FI

Overview: When I started this process towards improving my finances and hopefully one day achieving FIRE, I felt I needed to understand some of my habits, so I tracked my spending’s for a few months and learnt I was being very reckless with my spending. (Something I probably already knew) After I understood my own spending habits I was able to create myself a budget to try improve my own savings. I started small and very slowly tweaked my allowances to reduce the unnecessary spending and increase my savings. Through this process I have now been able to save 30% of my take home salary each month and that is increasing the more I work on it. Here is how I did it.

Step 1 – Know what you are spending.

During my research into the FIRE movement, I found one of the most common starting places for others on this journey of financial improvement was to first know how much you actually earn together with how much you are spending. Understanding what you are spending your money on, allows you to understand how much you are saving or more importantly and how much you could be saving.

I don’t know about you, but for me it was really difficult to keep on-top of exactly how much I was spending and what I was spending on. I therefore started with setting up a basic spreadsheet to track my spending habits. It’s important to note that at this stage tracking my spending habits was not intended to stop me from spending money, or doing the things I enjoyed, but rather I hoped it would allow me to look back at the end of each month and see what I spent on.

I was shocked at some of the things I spent on and how much was simply due to me being lazy. But we will get to that.

I started by brainstorming some Categories for anticipated spending. These included monthly bills such as

• Health insurance,

• Rent &

• Utilities.

I also listed other expenses I knew I would have such as

• Subscriptions,

• Coffees,

• Take away food, and

• Socially going out with friends.

Anything I thought I would spend money on in the month ahead.

During the next few months I tracked how I spent money by logging every expense on an excel file. Every entry listed; the date, amount spent, general category and a description. It looked a little like this.

After the first month, I started to see things I could change day to day that would help me save. For example, I realised I was spending more than $150 on coffee and over $300 on lunches per month while at work. By simply making the decision to bring a home-made lunch a few times a week and making a coffee at home before I left for work I could go from spending upwards of $450 each month to less than $100. That is $350 extra savings per month by being a little bit more prepaid and let’s face it, less lazy. I didn’t want to cut all food and coffees out completely because I still wanted to enjoy myself. So I limited myself to buying lunch only on Fridays when my co-workers all got lunch together, and allowed myself to get 2 coffees out per week.

A few small changes to my spending habits like that quickly increased my savings from a few hundred per month to around $2,000.

Step 2 - Setting up the Budget.

After a few months of following my spending habits I decided it was time to formally put together my Budget.

During my research into the FIRE movement I found that many people who started their own FIRE journey spoke about the 50,30,20 Rule for starting a budget. So I decided it would be a good place to start. Before I go into exactly what the 50,30,20 concept is, let me say that this was only a guide. There is no One Rule. For me this gave me a starting point, if I got there fast or slow I didn’t mind because I knew I could always adjust the goal posts if I felt I was being stretched too thin. For me, I felt that this was a great starting point and I often still refer to it when adding and changing things in my budget.

The 50,30,20 Rule suggests the following. From your take home salary, you should be spending

No more that 50% on your Needs,

No more than 30% on your wants, &

Saving At least 20% of your income monthly.

What are your wants and needs? Simply put Needs are the things you need to live your life. These may include Rent, Water Bills, Supermarket shopping etc. Wants are the things you like to have, the things you enjoy but you don’t need them to get by. This maximum of 30% meant for me I could still enjoy myself, go out, see movies with friends, Order Uber eats occasionally. However it also meant I would still be able to save if I could stick to it.

Using the same categories I had created for tracking my spending I started to create my budgeting template. Separating “Needs” from “Wants” I allocated an allowance per month based on the spending history I had kept. Putting in figures that I felt I was comfortable to spend and reducing the ones I felt would be a good starting point for me to cut back.

I quickly learnt that sometimes even though each month I would budget to save 20% of my take home salary, I was able to (without trying too hard) save more that.

I still budget every month. I am working on increasing my savings rate all the time, and I have reached a point of financial security where I have more than one year’s expenses saved in case of an emergency. This would not have happened if I had not been budgeting.