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Spending Pillar of Financial Independence

After looking at the earning pillar of financial independence, we now move to the spending pillar.

The spending pillar of financial independence is about bringing mindfulness into your major spending decisions.

While the very mention of lowering your expenses may trigger thoughts of extreme frugality, that is not the best way of going about it.

Just like going on a crash diet that may work for a short term but not is sustainable for the long term.

The approach you adopt to bringing your expenses down will dictate if you are set to reap long term benefits from a lifestyle change.

This spending pillar of financial independence is an immensely powerful tool due to 3 specific reasons.

Why is the Spending Pillar Important

There are 3 reasons why lowering your spending is such a vital component as you plan your early retirement in India.

You Get 100% Bang for Your Buck

The earning pillar of boosting your income normally requires you to incur some cost to generate that income.

For instance, your day job requires you to spend money on your daily commute, proper attire and attending professional events.

For every 100 rupees you earn, you may end up spending 30 rupees as the cost of generating that income. Effectively, the net contribution to your saving pot will only be 70 rupees.

When it comes to lowering your spending, you get the full bang for your buck.

When you spend 100 rupees less on something, the whole of 100 rupees goes straight to your saving pot.

There is no dilution between money not spent and money saved – The impact is 100%.

This makes decisions about lowering your spending very powerful.

You are in Control

When it comes to boosting your income, you are dependent on external forces.

Yes, your skills and knowledge matters but still you don’t entirely control the outcome.

How much a company is willing to pay you as a salary, what your bonus will be or what your customers will pay you for a side gig is not under your control.

Someone else is always in the picture making that decision for you.

On the other hand, how much you spend on something is completely under your control.

There is no one dictating how much to spend on housing, transport, clothes, food etc.

It is entirely up to you.

Therefore, should you decide to lower your spending it will have an immediate and real impact on the money going out of your hands.

The fact that you can control your spending based on your personal choices makes it an immensely powerful pillar of financial freedom.

Your Spending Decides Your Retirement Corpus

The whole point of financial freedom is to build a retirement corpus that generates a passive income to cover your living expenses.

How much money you need to retire at 45 in India is a multiple of your annual spending.

We spend so much time analysing if your corpus should be 25, 35, or 50 times your expected annual living costs.

It is even more important to figure out what that annual expense should really be.

The lower your living expenses, the lower will be the retirement corpus required to achieve financial independence.

The lower the retirement corpus you need, the sooner you can retire from your day job.

Now that we have seen the power of lowering your spending how do we go about it?

How to Lower Your Spending

When it comes to saving money, the usual suggestions are the same.

Cut down on your daily cups of coffee, buy stuff during the “sale” period or get loyalty cards with cashback etc.

When you are striving for financial independence, you need to think about lowering your spending from an entirely different angle.

Reaching for financial independence is not about drinking less coffee or buying things at a discount sale.

Those are just vanity metrics for a short-term feel-good effect.

Financial independence requires you to rethink the entire lifestyle that you are currently living or will be comfortable living in the future.

To use corporate jargon – You need to focus on Strategic Cost Cutting.

Here are few ways to lower your spending:

spending pillar finanancial independence

Get in Control of Your Cash Flows

The first step to lower your spending starts with understanding the money flows of your personal finance life.

You need to start tracking where every single rupee of your income comes from and where you are spending it.

You need to start watching like a hawk every rupee that you are earning and spending.

Track all your means of spending – money going out in cash, through mobile apps, credit cards and debits to your bank account.

Increasingly as our payments are going digital it is important to remain aware of the dangers of a cashless lifestyle too.

After you have done this for a month or two, you will start to see a picture emerge.

You will be able to see which buckets (housing /kids /food/ transport/entertainment etc.) are sucking up your cash.

This sets the stage for analysing which expenses can be cut down completely from your monthly spending or replaced with more economical substitutes.

The focus should be on areas that make up the major chunk of your expenses. 80% of the value in cutting spending comes from 20% of the areas.

Eliminate Debt

Debt means that you are spending money today that you have not even earned.

You are spending the income that you may (or may not) earn tomorrow.

You may have built up debt for consumption (clothes, cars, furniture) or something more productive (house or college education).

No matter what the purpose of the debt was, eliminating it should be your highest priority when it comes to cutting spending.

Debt is also a source of emotional anxiety which can impact your work performance as well as social relationships.

Typically, the cost of debt is much higher than what an investment will deliver for you.

Therefore, instead of focussing on investing your savings, your primary focus should be to eliminate any debt you have.

Don’t Buy a House Early

As you start your career and get your first income you have the maximum degrees of freedom.

You are fully in control and can make life & career decisions with minimal constraints.

As you progress in life things begin to change once you get married.

Your spouse now starts to have an influence on the personal decisions you make.

You no longer have the same degree of freedom when making life choices since you are now impacting two lives with each life or career choice you make.

It is no longer only about you.

Once you become a parent, your degrees of freedom are further reduced.

Life and career decisions need to make sense for your entire family.

This is also the stage when conventional wisdom says that you should buy a house.

But here is thing: Buying a house at this stage will further limit your degrees of freedom.

You will invest a lot of your money and emotions into your house.

It means that you will be much less willing to relocate should another career opportunity show up in a different city or country.

Staying on rent allows to you to maximise your opportunity to grab an alternative job offer without a house (or a housing loan) weighing you down.

Increasing mobility is the norm of our working lives now.

We have no idea how things will look in the next 5-10 years.

Lesser the constraints you have on your mobility, the better your chances of latching on to attractive career opportunities when they show up.

Be Wary of Life-Style Creep

If there is one major thing that keeps people with high incomes stuck in their soul sucking jobs, it is life-style creep.

Without realising the core reason for their unhappiness, they fall into the trap of seeking happiness by spending more money.

Since this does not seem to bring us happiness, we keep throwing even more money at this problem.

As our incomes rise, we start spending on stuff without even realising it.

It happens slowly and steadily over several years rather than one single spending decision.

We all get influenced by our peer group.

If everyone around you is spending money on the latest gadgets, subscriptions, or outings to fine dining restaurants you too are likely to follow suit.

Things that were just luxuries in the past start taking the shape of necessities.

Life-style creep is the biggest enemy of your savings rate.

The only way to boost your savings rate is to keep your expenses in check even as your income rises over the years.

Align Your Spending with Your Life Values

The focus on cutting spending should not be equated to embrace of extreme frugality.

That can lead to the emotional fatigue of saving money.

The objective of financial freedom is not to subject oneself to years of misery.

Instead, the intention is to prioritise spending on things that you personally value.

Cutting down on things that are not important to you is much less painful than you realise.

At the start it may feel like everything that you spend on is just as important.

As you start to ponder this on a deeper level you will start to realise your spending priorities.

The objective here is to bring mindfulness into your spending.

Once you start noticing the things you are spending on, you will realise that not all spending brings you the same level of joy.

You may be buying stuff to impress people around you, but the harsh fact is that no one is noticing.

People are far too occupied with their own lives.

Understanding the concept of contentment and financial satisfaction is critical.

Our minds are tuned to always wanting more of everything.

Once you bring mindfulness into your spending and start questioning your routine decisions, contentment will follow.


The right level of spending is a personal balance between extravagance and frugality.

There are no correct answers on what your exact level of spending should be.

When aiming for early retirement your spending should be viewed from a strategic point of view.

Rather than pinching pennies it involves a complete re-assessment of your spending patterns and how well they tie up with your long-term goals.

Early retirement is not about giving up on instant gratification completely.

There is little point in living the best years of life in self-denial while hoping for a tomorrow which may be vastly different from what you have imagined.

The objective of lowering your expenses is to bring it in line with your core values.

This second pillar of financial freedom involves spending only on things that bring you real satisfaction.

It is about recognising the craving for instant gratification but not ignoring it entirely.

It is much easier to avoid temptations rather than resist them.

We will next look at the investing pillar of financial independence.

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