I think most of you (and me as well) want to reach FI. In order to do so, we need to save and invest as much as we can (sustainably, while enjoying the journey as well, it’s a balance). The amount you can save and invest is a direct result of 2 factors: your income and your expenses. Today, I want to talk about your expenses. Well, actually, about OUR expenses (because I’m so self-absorbed). I thought it would be a nice idea to share how we save money in each of our categories.
Warning: this post contains a lot of links to other posts I wrote (otherwise, this would have been a book).
As you know, I calculate our savings rate every single period. All I really need for this calculation is just our total income and our total expenses. 2 numbers, that’s it. However, if I only looked at 2 numbers, I wouldn’t be able to get a decent insight into where our money is going.
That’s why our expenses are broken down into 11 different categories (actually, it’s 17, but I grouped some categories together). I will try and focus on each category individually to show you where we run a tight ship and where we (consciously) spend a lot of money (in our opinion).
OK, let’s meet our lovely categories:
- Housing
- Bills
- Going out/Eating out
- Groceries
- Kids
- Cleaner
- Clothing
- Transport
- Health
- Holiday
- Misc/One-offs
In this post, I’ll cover the first 4 categories. The other categories will be covered in part 2 (or maybe we’ll need a part 3, let’s see)
1. Housing
As I mentioned in the past, we own our flat outright (we have a mortgage but we own 100% of our flat) but we didn’t always.
For a few years, we only owned a share of our flat via the shared ownership scheme. I went into detail about the pros and cons of shared ownership in this post:
Buying a shared ownership property – Lazy Fi Dad
When we part-owned our flat, we had the best deal ever. Part of our flat had a mortgage (so we were slowly paying it off) but the other part was my favourite. The rent via this scheme is so “subsidised” that it makes sense to own as little as possible! That’s because the less you own, the more “subsidised” rent you get. Alternatively, you can look at it this way: Buying an extra share of your flat “saves” you a percentage of very cheap rent, doesn’t sound tempting, does it?
If I looked at similar flats (not shared ownership) in our area, what we paid mortgage + rent was less than the average rent around here, that’s crazy! Shared ownership definitely helped us save money in the Housing category.
I know there are some horror stories about shared ownership out there but our experience has been amazing. In addition to the pros, I think it is important to be aware of the cons of shared ownership, I listed them in the post mentioned above. Funny enough, one of the cons is the “exit plan”, which made us buy the remainder of our flat (a process called “staircasing”) and give up that “subsidised” rent.
That was our best “hack” in the housing category. However, I think it is important to understand that you don’t have to own your own place to succeed financially. Let’s take 2 very extreme scenarios in the hope it will prove my point.
Example
A flat you like is available for sale or rent, you can choose (and can afford both options).
Other flats in the area offer the same deal with similar numbers.
Scenario 1: The flat costs £500,000 and the monthly rent is £10,000.
Scenario 2: The flat costs £500,000 and the monthly rent is £500.
What would you choose in scenario 1? What would you choose in scenario 2?
I think that most of you would choose to buy in scenario 1 and rent in scenario 2. Why is that?
It’s because sometimes the numbers just don’t make sense in one of the options.
In scenario 1, the annual rent is £120,000. If you divide that by the price of the flat you would get a gross rental yield of 24%. In that scenario, it makes no (financial*) sense to be the tenant and rent, it just doesn’t! I would much rather be the owner than the tenant in this scenario.
In scenario 2, the annual rent is £6,000. Now the gross rental yield is 1.2%. In this scenario, it makes no (financial) sense to own. If these are the numbers, I would rather be the tenant.
In our building, some flats are rented (in the open market) and we talk to our neighbours so we know how much they pay. I can assure you that in our specific scenario, it makes more sense to own.
Overall, I still think that most people (especially those who aren’t too interested in their finances) should own their home. I went into the reasons for my opinion in this post:
Why most people should own their home – Lazy Fi Dad
*There are non-financial benefits to owning like the sense of security/stability. On the other hand, there are also non-financial benefits to renting like the flexibility of moving around and also the sense of security knowing you’re not liable for big repairs. In the examples above, I discussed financial considerations only.
2. Bills
I don’t think there’s a lot to do about energy bills. We were lucky enough to lock in a fixed tariff before these crazy hikes but that’s all it was, luck. There’s nothing to learn here so let’s focus on actionable items.
The main actionable item we have is our entertainment/communication bills. I’m talking about television & streaming, broadband, and phone.
Television & Streaming.
We use Freeview- that’s it. We don’t pay money for having hundreds of channels and a fancy TV box. Well… actually… our TV box can record programmes so it’s pretty fancy in my opinion.
However, the reason we don’t need so many channels is because we subscribe to 2 different streaming services: Prime Video and Disney+. Before you start shouting, hear me out.
Prime Video is a free bonus for having an Amazon Prime account. An Amazon Prime account is an expense we decided is worth the money for us. Having products arrive the next day is worth the price Amazon is charging us for a Prime account. There is no saving tip here, I recommend making decisions based on a “value for money” approach. I actually mention Prime Video just for full disclosure, I don’t think I’ve watched anything on it for 2 years (since I watched all the seasons of House).
Disney+ is an interesting (and actionable) one. I actually like to content that Disney+ offers me and my kids. However, I’m not sure I would pay the price they’re currently asking. Yes, I know I said we subscribed to it, I didn’t say we paid for it. We used Tesco Clubcard points to buy enough vouchers to allow us to watch Disney+ for the next year for free. That’s how we save money on Disney+. After this year, we’ll reassess.
Broadband
As both Lazy FI Mum and I work from home most of the week, we need a strong and reliable internet connection. In addition, I teach Excel and a disconnection during a course can result in me losing a client. We don’t pay a lot for internet (thanks to Fibre Optic installed in our neighbourhood) but to be completely honest, I would pay even triple what we pay now if those were the prices, it would still be worth it for us.
Phone
I think the phone category can be a very easy win for people trying to save money.
Purchase your handset (phone) outright
In the vast majority of cases, it is a better deal to purchase your handset outright and get a sim-only deal from your mobile provider. Not only do the mobile providers charge more for the handset (phone), but they also usually use a 24-month contract, which pushes you to upgrade your phone every 2 years!
My phone will soon be 4 years old, I am still nowhere near reaching the point of replacing it. It’s not because I don’t use it a lot, I use it ALL THE TIME (I’m addicted to it). It’s just that it still runs fast enough for me.
Purchasing your handset outright is a pretty easy way to save money on your phone bill.
Sim- use virtual operators
Big mobile providers will try and tempt you with Offers (O2 do a great job at this with their O2 Priority). If you decide these offers are worth the extra money, that’s fine. However, the basic service of a mobile provider is decent reception, that’s about it. If that’s all you care about (or us- that’s the case), you can sometimes get the same reception for cheaper by signing up with a Virtual operator.
Virtual operators are companies that buy access to another mobile provider’s network. They then use this access to provide reception to their customers. I know that was a bit confusing so let’s talk reality.
There are only 4 mobile networks in the UK: Vodafone, EE, O2, and Three.
All the other names you know use one of these 4 networks and get the same reception as the “big name”. For example, Tesco Mobile use O2’s network, and Virgin Mobile use EE’s network. That means that I will get the same reception whether I get an O2 sim or a Tesco Mobile sim. I will also get the same reception whether I get a Virgin mobile sim or an EE sim.
If the perks don’t mean a lot to you and you just care about reception, check out the Virtual operators.
It is important to mention that customer service will differ but I can’t remember the last time I needed my mobile provider’s customer service. I’m OK with waiting a bit longer on the line once every few years in exchange for a cheaper bill. Funny enough, my last sentence assumed that “real” mobile providers have better customer support than virtual operators, I’m not sure that’s the case.
Anyway, just in case it wasn’t clear, we use a virtual operator and save money on our phone bill by doing so.
3. Going out / Eating out
My best tip in this category is to have kids, you will naturally go out less. I joke, of course. I love my kids and my life as a dad, I don’t miss my previous life (not being a dad) at all. Let’s see how we really save money in this category.
Going out
Our main way of saving money on going out is to try and do free (or almost free) stuff. That’s what we do.
I love going outdoors. Whenever the weather allows it, I go with the kids to Epping Forest, I found a route that takes roughly 1.5-2 hours to walk AND is pram-friendly! It is my favourite spot in London. We also like Hampstead Heath (although it doesn’t feel as “natural” as Epping Forest). If we want something more local, we have a pond with ducks and a small playground within walking distance from our home.
In addition, we are huge fans of libraries. Our local library is a great option when it rains. My kids play there, colour (the reception has colouring pages and crayons) and yes, we also read books.
But what about meeting friends?
You can meet friends at your/their home. Have a nice meal and a long conversation. No law says you’re only allowed to meet your friends at restaurants, cafes, or bars.
Another definition of “free”
There’s another way of interpreting “free” and that is “marginally free”. For example, my kids LOVE the zoo so we have an annual pass. Once I paid for the annual pass, there is no additional cost for each visit so it is “marginally free”. By the rate we go to the zoo, it really is almost free (per visit). For us, going to the zoo (which we already paid for) is a way to save money and have a great day out.
Eating out
Eating out is expensive if you pay full price but there are ways to save money by (legally) not paying full price:
The first option is (you guessed it) Mystery Dining. I use HGEM Mystery Dining and am very happy with it. You can read about it here:
Mystery dining- How to eat out for free – Lazy Fi Dad
It is one of my biggest life hacks. I’ve been reimbursed around £10,000 (meaning £10,000 worth of free food) since I started.
The second option is to use an app called TheFork (referral link, if you sign up, we both get bonus Yums- their version of points, more on that below).
TheFork sometimes allows you to book a table at a restaurant and get 50% off food (not drink) without paying a booking fee.
In addition, every time you book a table you get at least 100 Yums. 1,000 Yums can be used to take £20 off your bill in certain restaurants and 2,000 Yums can be used to take £50 off your bill in the same restaurants. Our local Mexican restaurant accepts Yums so that’s an easy win for us and a way we save money on eating out.
Before I started using Thefork I used FirstTable, which is the third option.
FirstTable allows you to book a table at quieter times and get 50% off the food menu (again, not drink). The downside of FirstTable compared to TheFork is that FirstTable offers fewer slots throughout the day, especially at peak times. In addition, the biggest disadvantage is that they charge £5 per booking. If I can’t find a restaurant I want to visit on TheFork, only then would I check FirstTable.
It’s still a good deal because I once booked a table for 4 people in a restaurant and the food bill got to over £100 so we saved more than £50 by paying £5. However, I still check TheFork first.
Oh, one last thing that saves us LOADS of money eating out is that Lazy FI Mum doesn’t drink alcohol, I also rarely drink. We know people that spend more on wine when they go out than they spend on food. We’re happy with soft drinks.
Yes, “not eating out” would be an even more effective way to save money but if we’re already eating out (we are and we will), why not reduce the bill?
4. Groceries
This can be summed up pretty easily- If you compare our total grocery bill to other people, we barely save money on groceries.
It goes back to the “Value for money” approach. I believe that once you go into the supermarket (instead of eating out) you’ve already won. Buy (almost) anything you want. Sadly, a lot of healthy products are very expensive, it’s up to you to decide what’s worth it and what isn’t (and, obviously, also ask yourself “What can I afford?”). We shop (in-store and online) in many different shops for different products.
I think the most extreme example I have is that I order my mayonnaise from Hunter & Gather. Yes, I order mayonnaise separately from the rest of our groceries. Let me share with you my thought process:
Their large (250g) mayonnaise costs £6, it lasts us 2-3 weeks. a larger size to Helmans costs around £3, let’s say it would be £1.50 if they sold 250g products. Is 4 times the price a lot? From a percentage point, yes! But an extra £4.50 (let’s just call it a fiver) every 2-3 weeks is not a lot of money for us. In addition, I believe it’s a lot healthier than other products.
Now, if we extrapolate this approach and pay quadruple for ALL of our groceries, then we would have a problem, but we don’t do that.
We actually buy a lot of the supermarkets’ own brand products.
We usually try them once. If we like them, we stick with them. If we don’t, we go back to the big brand names. Trying your local supermarket’s own brand is a great way to save on your grocery bill.
However, at the end of the day, our grocery bill is very high for a family of 4. Are we ok with it? Yes, we are still projected to hit a 55% savings rate this year (which I’m more than happy with) and it’s something we value that helps us enjoy the journey.
Summary
The 2 main things I wanted to share here are:
- You can cut expenses in almost every expense category.
- The “value for money” approach works very well for us. Of course, we could cut expenses even further but what would that get us? A 60% saving rate? 70%? As I said at the beginning of this post, the journey to FI is about finding the balance between saving enough for tomorrow and still enjoying the journey. If you’re saving a lot but feel deprived (a subjective feeling), you will either drop the FI dream (and maybe even write articles about why FI doesn’t work) or, worse, feel miserable for years. I can honestly say that we’re enjoying the journey and feel we are living a great life.
Anyway, see you in part 2, have a great weekend!
