No, I’m not here to criticise anyone or impose my values (and goals) on anyone else. This post is going to be a summary of a conversation I had with my brother about “Why will I achieve FI quicker than the ‘average’ person?”.
Why will I achieve FI quicker than the ‘average’ person?- Background
After my latest (November 2021) post about our monthly results, I got a Whatsapp message from my brother. The conversation we had was in Hebrew but I’ll do my best to translate.
“You’re into this whole FIRE thing and you’ll (probably) retire around the age of 42-44. That’s 20+ years earlier than the age the ‘average’* person retires.”
“I’m interested to know why, in your opinion, you’ll retire 20+ before the ‘average’ person? Is it because you’re so into this that you make sure you save and invest more? Is it because you understand that in order to retire early you have to learn to live with lower expenses? Or is it because the ‘average’ person doesn’t really understand that they can retire? Because at the end of the day, all you do is analyse numbers.”
I asked, just to clarify:
“Do you mean- Why I can and most can’t?”
I thought to myself that if he has that question, maybe some of you were wondering the same thing.
Why will I achieve FI quicker than the ‘average’ person?- My answer(s)
I gave him 8 reasons why I’m different from the ‘average’ person
1. Lifestyle inflation
Lifestyle inflation is one of FI’s biggest enemies. It’s when you get a raise and say “oh, now I can afford XYZ”. If you learn to maintain the same level of expenses even after you get a raise- you’re already ahead of the game.
I started a new job in January 2021. It pays (gross) roughly 25% more than my previous job. What did I do with that increase? throw it all into my workplace pension. I did it for 2 reasons.
Why I increased my pension contributions?
The first reason is that I don’t want to go over £50k annual taxable income. The main reason I try and keep my taxable income below £50k is that I hate paying high taxes. In my opinion, 42% (going up to 43.25% this April) is way too high. By contributing the difference between my salary and £50k, I avoid that (marginal) tax rate.
Another reason to keep my annual taxable income below £50k is that my personal situation means the tax is actually higher than 42%. because I’m a dad, I can get full child benefit by reducing my taxable income to (or below) £50k per year. That means that every pound I earn (and don’t contribute to pension) get hit twice. Once at a 42% (marginal) tax rate and once as a reduction in child benefit. I went into the details of this in a separate post.
The second reason I threw all the difference into my pension is to avoid lifestyle inflation. By increasing my pension contribution I made sure my net salary stays (almost) the same as before. By doing that, I don’t feel like I have a huge salary which I have to spend. This was an “automated” way for me/us to avoid lifestyle inflation.
An important note to add here is that our net salary already covers our expenses (and then some). Otherwise, this may not have been an option.
2. I earn a generous salary
We’re very fortunate to earn nice salaries, which more than cover our needs. I know that’s not the situation for everyone. If we earned less, maybe I would think/feel FI is not an option for me. I would probably be more focused on covering my expenses and making ends meet. Lazy FI Mum and I realise that we are very fortunate. Our salaries allow us to pursue FI and live a great (in our opinion) lifestyle.
Before I qualified as an accountant, I earned a lot less than I do now. I don’t think it’s feasible to compare the saving rates of high and lower earners. Although, my saving rate was higher back then haha. For people starting their careers or on low (in their opinion) salaries, I would suggest this approach instead of focusing on saving rate:
First, decide what your “minimum” spend is, it should be an amount that buys you a lifestyle that you can live on for 2-3 years without feeling super deprived. Let’s call that amount SLS (Sustainable Level of Spending).
Second, you need to decide the percentage of any increase that will go to savings, let’s call percentage MSR% (Marginal Saving Rate).
The formula (if you’re interested) to calculate the saving amount is:
(Net pay – SLS) * MSR%
I know, variables and formulas can be confusing so let’s go into an example.
Example 1- Net
Let’s meet Lazy FI person 1. He earns a gross salary of £31,285, which is the UK median salary based on the Statista website. Assuming he contributes 5% to his pension, that leaves him with a net of £23,686 (in 21/22) based on MSE’s calculator. Let’s call it £24,000 (he manages to find a way to earn an additional net amount of £312 a year). That’s £2,000 a month. With rent and going out, Lazy FI person 1 feels £2,000 is about right for his sustainable level of spending (SLS).
Now, the Lazy FI person 1 is keen on FI but is not keen on reducing his expenses. He decides to invest 80% (his MSR%) of any salary increase he gets. This number seems high but 20% of any future salary increase will still go towards increasing his expenses/lifestyle, which he’s already used to. Now, a year goes by and he gets a £5,000 (annual) raise.
Lazy FI person 1 doesn’t believe in pensions and thinks they’re a scam. However, he can’t be bothered to change the pension contributions and leaves it at 5%. I know some people like Lazy FI person 1.
How much will he save/invest?
Now he has a gross salary of £36,285, which (using the same calculator) would leave him with a net of £26,886. Let’s call it £27,000 (and assume his side hustle only earns him £114 net a year).
Until now, the full £2,000 was spent and nothing (except the 5% pension) was saved/invested. Now, we have an extra £3,000 a year, or £250 a month.
What he will do is take 80% of that and save/invest it. Now he’s saving £2,400 (£3,000 * 80%) a year or £200 a month. That’s a great start! If he continues to do that with future pay raises, he’ll do great.
We can also use our formula to get to the same results.
(Net pay – SLS) * MSR%
(£27,000 – £24,000) * 80% = £2,400
(£2,250 – £2,000) * 80% = £200
Example 2- Gross
Now Let’s meet Lazy FI person 2. Lazy FI Person 2 earns a gross salary of £20,000. Assuming he contributes 5% to his pension, that leaves him with a net of £16,464 (in 21/22) based on MSE’s calculator. That’s £1,372 a month. He sees this amount as his SLS.
However, Lazy FI person 2 is different from Lazy FI person 1 in a few ways:
First, He believes in pensions and will only save into his pension. Second, he “only” wants to save 60% of any future increase (his MSR%). Third, he will do so from his gross salary.
Every year, he expects his salary to rise by £1,000.
How much will he save/invest?
Initially, he earned £20,000 (gross) and saved 5%, that’s £1,000.
After the first year, he wants to increase his pension contributions by
(£21,000 – £20,000) * 60% = £600. These are annual figures.
If we add that to the original contributions he had, we have a total contribution of £1,600 a year.
Each year, his pension contributions will increase by £600 (which is his salary increase * his MSR). The remaining £400 will go towards increasing his expenses/lifestyle. However, we have to remember that these £400 will incur tax so the net amount will be smaller.
3. We don’t drink and don’t eat out a lot
Let me clarify the drinking part of “We don’t drink and don’t eat out a lot”. I don’t drink very often, rarely at home and never alone. Lazy FI Mum Never drink (alcohol), never. Part of the Jewish wedding ceremony is drinking wine, when we got married, she drank grape juice (it’s allowed, don’t worry).
Anyway, I have friends that spend more on wine than on food when they go out, I’m not like that and that was the point I was trying to make to my brother.
I know some people that spend a ridiculous (in my opinion) proportion of their salaries on eating/going out. We all have our own priorities in life and that’s fine. I still think we spend less on eating/going out than the ‘average’ person. When I/we do go out, I try to do it through Mystery Dining or FirstTable.co.uk.
I wrote enough about Mystery dining and you have the link to my separate post. However, I don’t think I mention First Table before.
First Table is a very cool website which you can use to book a table in a restaurant (at specific times). You pay £5 to book the table (up to 4 people). In return, you get 50% off ALL the food (not drinks) that was ordered to your table. Some of my favourite restaurants are on this website so it’s a great deal for us.
If anyone knows of a way to save on Nando’s beside a Nando’s card, please let me know in the comments section.
Back to my point, I see some of my friends spend a lot of money on restaurants (food+wine). The fact that we don’t, will help us to achieve FI quicker.
4. I always look for “tricks” to pay less for things or earn more
You already know this one is true.
A few examples of “tricks” for paying less are Mystery Dining and First Table that I mentioned above. I also use my corporate discount website and check if they have a discount before any online purchase I make. We also use a cashback credit card, which I’ll write a separate post about, I’m a big fan!
One example of a “trick” to earning more is one I mentioned above too. It’s increasing your child benefit entitlement with pension contributions.
Another one is the tax hack I shared with you 2 weeks ago. This tax hack involves changing your pension contribution throughout the year instead of keeping the amount constant. You can pay less NI doing that, read the post if this sounds interesting. I started an experiment with my salaries and I’ll post an update at the end of the tax year.
By buying the same things for less or earning a little more, I** can achieve FI quicker than the ‘average’ person.
5. My hobby earns me money
I know some people who spend a lot of money on their hobbies. It can be ongoing fees or an initial spend on equipment. Luckily, my two biggest hobbies are FI and teaching.
Most of the FI material is available for free on the internet or in my local library.
Teaching, as you know, earns me money. That puts me in a super fortunate position. Not only do I not spend money on my hobby- I get paid to do it!
This, of course, will help me achieve FI quicker than the ‘average’ person.
6. My motivation is high
Lazy FI Mum loves her job, she never wants to retire. I don’t love my job. I don’t hate it, it’s fine, but I don’t love it.
Feeling that way means that the thought of working in a similar job until I’m almost 70 scares the s**t out of me. That’s just not happening. Before I became a dad, FI was a way to prevent that but I wasn’t in a hurry to reach FI.
Once I became a dad and realised that FI could mean spending time with my daughter (and her future siblings), my motivation went through the roof!
I’ve heard stories about dads that stay in the office late on purpose. They do so because they want to get home after the kids are asleep. That way they don’t have to “deal” with showering them and putting them to bed.
This week, I finished work early so I can take my daughter to Carnaby street to see the lights. She loves lights and butterflies. She had a blast and I enjoyed seeing her happy and excited. All in all, I probably had more fun than her. When we got home, I bathed her and then Lazy FI Mum and I put her to bed. To look for ways to miss that? I want to reach FI so I can have more of that!
To be honest, I feel sorry for these dads. On the other side, maybe they feel sorry for me for not loving my job.
My family is my “why to FI” and that really motivates me to reach FI.
7. I married someone that’s on board with this journey
I married an amazing woman. Then, we got divorced and I met Lazy FI Mum.
I’m joking, of course, Lazy FI Mum is the amazing woman I’m talking about.
A question that gets asked SO OFTEN in the FI community is: “How do I get my partner on board?”. It’s such a common issue. In that sense (and others), I’m very lucky. Lazy FI Mum is a natural saver. She always spent less than she earned. She didn’t have to go into debt to learn her lesson (like I did).
Most importantly, she’s cool with the whole FI journey. It actually fits perfectly with her life plan. She wants to continue working, I want to be a full stay-at-home dad (while I teach a few hours a day/week). She also wants the safety that comes with FI. However, she’s not interested enough in the numbers to dive as deep as I do. That way, she gets the benefits of all these tricks and the only price*** she has to pay is to listen to me explain it to her.
While I’m complimenting her, she’s also very ambitious and beautiful. She’s also an amazing, loving, and caring mum and wife.
The fact that I married the right person will help me tremendously to achieve FI quicker than the ‘average’ person.
8. The UK system is awesome!
I love the UK system, the ability to “manipulate” your taxable income using pension, the generous ISA allowances and so much more. It’s a really investor/saver-friendly system. I wrote a guest post about it for FIology. I find that pursuing and achieving FI in the UK is a lot easier than in Israel (my only comparison) but I’ll let you guys know once we move back.
The benefits and incentives we have in the UK to save and invest are amazing. They have been, and still are, a huge reason for why we’ll achieve FI quicker than the ‘average’ person.
Why will I achieve FI quicker than the ‘average’ person?- The conversation continues
After I sent him my 8 reasons****, he responded: “OK, so it all boils down to saving a lot, keeping your lifestyle/expense level steady, and calculating when you have enough to retire”.
I said: “It’s not just saving, you have to invest it too. Avoiding lifestyle inflation is one way. It’s a numbers game, that’s why I like it”.
What most people miss
Then he said: “I wonder what most people miss. Maybe it’s more about them not being able to retire (they don’t have enough money) than about them not knowing that they can (they have enough money but aren’t aware of the possibility of early retirement)”.
I definitely agree with that. I think it’s quite rare that people have enough money to retire “by mistake”, although I’ve heard a few stories like that in the FI community. I’ve heard “I’ve always been a saver, then I discovered FI and realised I already achieved it”. I think this is a lot less common than people reaching retirement age without enough money to cover their expenses.
I then told him lifestyle inflation is what I think most people miss.
About a year ago, my wider family was discussing retirement (in Israel, I was in the UK and not part of this conversation). My brother mentioned he wants to get to a level of income and maintain it, which means that any raise (and promotion) will be translated to fewer hours/days rather than more money. My brother’s goal is to earn that amount in the least amount of weekly hours/days of work. Anyway, one relative told him that’s not possible because expenses go up with income.
I reminded my brother of that story and said that’s a perfect example of what people miss.
An important note: Some people’s goal is to increase their lifestyle and expenses as much as possible, that’s fine. Not my goal but we’re all different. When my brother and I say “what do people miss?”, we don’t mean they’re wrong or whatever, we are all responsible for our own lives and make our own decisions. We mean “what’s preventing them from achieving FI?”.
Essentially, my answer to the question “Why will I achieve FI quicker than the ‘average’ person?” is:
It’s easy beating someone in a race when the other person isn’t even aware of the race and/or is running to a different finish line. Maybe they are aware of the race but not interested in participating?
Having said that, I don’t think FI is a race. You don’t have to get there before someone else. That’s what I love about the FI community, people share knowledge and help so much. It’s more of a team effort available to anyone willing to join the journey,
I also mentioned to him that I think not knowing that FI is even an option means they have no motivation to spend less. Maybe if they knew, they’d change their priorities. Maybe they’d still decide to prioritise the present over the future, who knows?
The ‘average’ person prioritises the present over the future so much.
My brother concluded with “Interesting topic, I hope I’ll maintain my level of expenses even when I earn more”*****.
This is when I suggested only saving and investing a percentage of future pay rises, he liked that idea.
This post isn’t about how great my family and I are or why we personally will achieve FI quicker than the ‘average’ person. It’s about comparing FI people with non-FI people and highlighting some differences. It’s about why people who are into this whole FI world will achieve FI quicker than the ‘average’ person. My brother specifically asked about me so there are a few personal examples.
If you have other differences that I missed, please share them. I learn so much from your comments, I love it.
*When we say ‘average’ person in this conversation we mean the stereotypical non-FI person. They maybe save 5-15% of their income and they increase their expenses along with salary increases. My brother and I know a few people like that.
** I use “I” and “We” throughout the post but mean the same. Lazy FI Mum and I have joint finances so “we” is appropriate. However, my brother asked about me specifically. Don’t worry, the Lazy FI Family are a team.
*** I’m sure sometimes (“most times” is more accurate), she thinks the price is just not worth it.
**** Don’t worry, I sent him the headlines, I did not send him a 2,000+ word response, can you imagine?
***** Background: He’s still a student at university. He will definitely earn a lot more in the future.