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Friday, 25 August 2017

The Holy Trinity of Financial Success

For most people three primary expenses dominate their expenses - housing, transport and food. 

In my case they take up 37.5%, 0% and 6% of my expenses - in that order. Lower expenses are a key path to Financial Independence, which is why finance bloggers spend so much time talking about food.

By keeping my expenses lower, I'm fast-tracking my path to Financial Independence, and I'm doing it on a pretty cushy lifestyle.

According to MoneySMART our the three biggest expenses at any life stage are Housing, Food and Transport. With the exception of single folks under 35 who are spending a little more on recreation - maybe it all the dating they're doing! Maybe they need some more frugal date ideas like these.

While frugality can be used to target any part of your life, slashing the big expenses will have the best outcomes - and you can do it without compromising your happiness.

Cheap house 

While my housing expenses make up 37.5% of my budget at a whopping $15,000 a year, I also bring in $7,800 a year in 'rent'. I started house shopping before Mr. FIRE and I decided we wanted to live together. I planned to have a room-mate to help offset the costs. 

During the house hunt Mr. FIRE pointed at the maybe he could be my housemate. Since the house (and the mortgage!) are entirely in my name, Mr. FIRE pays me rent. As a result the net expense of my house is only $7,200 a year, or a measly $600 a month.
My house isn't quite this small,
but tiny houses are gorgeous!

This cost includes all the bills, repairs, maintenance and upgrades. 

After crunching the numbers I could have bought a much pricier property (even without Mr. FIRE or another room mate!) but by choosing a smaller (but still super comfortable!) home I slashed my housing costs.

Initially, the plan was to put Mr. FIRE's rent payments directly into my mortgage. With an extra $300 a fortnight, I would have cut my mortgage repayment time in half, and saved $88,000 in interest payments.

Instead, I'm choosing to leverage my mortgage and invest instead. Assuming a 7% return, Mr. FIRE's rent will be worth over $200,000 in fifteen years. I'll still owe $150,000 on my mortgage, but I'll be $50,000 better off. 

While some people might prefer to have no debt, my $200,000 in investments will generate more than my mortgage will be costing - winning! All through choosing a smaller house and getting a 'room mate'.

Cheap food

According to MoneySMART the average young couple are spending $200 a week on food. In contrast, I budget $200 a month and I assume Mr. FIRE spends the same. Hopefully one day I'll convince him to track his spending so I can report this accurately!

While I have a love of frugal foods, baking my own sweets, making homemade snacks, and I have learned some great meat-free dishes to keep the cost down, these fancy tricks aren't the core of why I spend so little.

The main reason my food costs are so low is simple - I cook for myself, and we very rarely go out to eat. In my Epic Food Week post I outlined how I stay on top of my food budget, and keep food waste down.

You can make these are home ridiculously easily!
You just need sauce and cheese. Pineapple is also
a brilliant addition, or sun dried tomatoes.
One of our favourite lazy meals is chicken schnitzels and chips. This is a basic pub meal that normally costs around $18 each. In contrast, we make it at home ourselves for less than $3.50 each. We could do it for even cheaper, but we like to top our schnitzels with sweet chilli sauce and melted cheese, delicious!

Plus we don't have to shout over bad pub music to talk to each other, deal with obnoxious Friday night crowds or find parking. Instead we have cheap delicious food in the comfort of our own home.

If we were to go out once a week for schnitzels (rather than eating at home) we would be spending an extra $15 a week each. This small change is worth $800 a year, or over $11,000 in 10 years. 

Of course, not many people could go out for dinner and only spend $18 each. While $18 meals exist,  it's more common to find meals ranging from $20-$30. Add a beer or wine on top of that and you're looking at another $5-$8. It's not unrealistic to spend $30+ on one meal.

On average Australian's go out to eat 2-3 times a week. By learning to cook delicious food at home and dropping your restaurant trips to once or twice a month you can save almost $300 a month and still enjoy fancy date nights.

With such big savings, it's easy to see why Finance Bloggers talk about food so much!

Cheap transport

The final category in the Holy Trinity of Finances is transport. For most people this means cars. A friend of mine working as a second year teacher has just taken out an $8,000 loan for a new car. In a public school teachers salary this is more than 10% of her pre-tax annual income.

On a 5 year loan, the repayments are $42 a week, which means 4% of her take home pay is taken up by her car loan payments, before she even starts driving.

Add in another $600 a year in insurance, $600 for registration, and $50 a week on petrol, her car is costing almost $6,000 a year. 11% of her take home pay is spent on maintaining a car.

This cost isn't including maintenance, regular services, road trips, and any other little expenses that crop up along the way. I don't say this to shame her, this is the normal way that most people manage their transport.

When couples move in together, they tend to both bring a car to the relationship - as Mr. FIRE and I did. However, after living together for four months, my car looked like this:

I haven't owned a car in two and a half years, I just ride a bike everywhere instead. When Mr FIRE and I moved in together I bought a property that was half an hour ride from work, and fifteen minutes from roller derby training. On occasion I need to go further afield, and either I borrow Mr. FIRE's car or get a lift with a friend.

Over two and a half years, my transport costs look something like this:

  • First Bike : $600
  • Bike accessories : $300 (lights, panniers and a rack)
  • Second bike : $550 (Some jerk stole my bike!)
  • Replacement bike accessories : $150
  • Replacement bike lights ($100 - seriously, my lights were stolen a month after I bought them)
  • Bike service : $80
  • Various at home maintenance parts : $100
  • Total : $1880 in two and a half years - $14 a week

Biking everywhere costs me $14 a week. If my bike hadn't been stolen, it would be a measly $10 a week. In contrast my teacher-friend with her $8,000 car loan is spending ten times as much, at $115 a week!

Let's consider this cost over ten years. Assuming that I have to replace my bike every 3 years for whatever reasons (thieves are the worst!) I'll continue spending $14 a week. In ten years, I'll spend $7,280.

In the same time frame, assuming that my friend replaces her car in five years, and therefore her payments remain constant, she will spend $59,800!!

Considered another way - I save $100 a week compared to her, if I invest this savings, I'll have $75,000 in ten years.

Spend less, cycle more, retire early to cheese and wine!
Or considered yet another way, I like to look at how much I need invested to cover the cost with passive income. To cover the $14 a week cost of owning a bike, I need to invest $18,200. However to cover the $115 a week of car ownership, I would need to invest almost $150,000!

The Holy Trinity of Financial Success

Put together, food, housing and transport form the three biggest expense of our lives. Following the normal path you can easily spend $40,000 a year on these three main expenses. With a few lifestyle changes like a smaller home with a roommate, cooking great food at home (maybe even eating some meatless meals)  and swapping out car trips for walking, or riding, you can save thousands of dollars a year.

Plus, with a smaller house, there is less to clean.


  1. I wish I could bike to work. But my work is half an hour drive away from home, let alone by bike, and that's on a good day. When I purchased my house, I was travelling for work as a peripatetic teacher and at the furthest point, my schools were 1 hour plus drive apart from each other. So cycling is but a far-off dream.

    When I lived in the country, I was 5 minutes drive away and walking was the preferred mode of transport unless we were carrying lots of books and marking. It was great!! And so much cheaper, but then whatever I saved on that was spent on petrol driving the 3 hours getting into Adelaide on the weekend, haha.

    1. Work for me is half an hour by car, bike or bus - that's how bad the traffic is!

      Can you take public transport? Not only will it be cheaper, but you can sneak a nap in at the same time :)

    2. Ah, you know Adelaide. Our public transport system is not the most connected. For me to get to work by public transport, it's at least 2 buses and one of them only comes once an hour.

      I also need to travel between worksites and when only 15 minutes is given to travel sometimes, that's fairly impossible.

    3. The husband takes the bus to work, and it takes him an hour to get into his workplace (2 buses) when it would only take 20 minutes by car even in peak hour traffic. It also cost almost twice as much as my monthly petrol allowance (of course you need to factor in car rego / maintenance as well.. so that's not the only cost to consider)

    4. Yay for Adelaide right? If you're on the train line it seems to be okay, sometimes.

      I have a friend who lives a couple of Ks out from the airport and there are only 2 busses she can catch, the latest one runs around 8:30pm. Our public transport is terrible

  2. I think you made a smart choice starting out with an affordable housing option, that is where I think most people get into trouble.

    Right now our triangle is a square because child care costs more than food and transport, but it is good to know that if you focus on getting these 3 major expenses under control you will go a long way to reigning in your costs.

    1. Oh man I never even thought of the Holy Square! I do love my DINK life :)

      I guess if you can get three out of four under control, you can splash out on number 4 - and kids are kinda important ff you have them

  3. I like framing these as the "Holy Trinity of Financial Success" :) It always amazes me how much room for improvement can be found if you look critically and don't take the "norm" as a rule. Have a great weekend! :)

    1. I guess the other part of the holy trinity I didn't cover is how much impact small changes make.

      1% off my annual travel spend is a measly $13, but if I can get 1% off part of the Holy Trinity - it can be worth $700 a year (housing).

      Normal sucks! :p

  4. YES! All the experts tell you to reduce your "wants", but eff that. I reduce my needs so I can spend more on my wants! I think the secret is to make sure your housing is cheap to begin with. Once you're settled in, it's pretty hard to move to a cheaper place.

    1. Absolutely! Why do people always talk like your needs are set in stone? Needs make up a much bigger portion of your budget, so if you get smart you can spend less on your Needs, more on your Wants and STILL end up saving more!

  5. I like the idea of calling it a holy trinity - like you said, a small change in one of these areas is hundreds of dollars. Enough to double people's savings rates, which in the US is an average of 6% I think. Going from 6% to 12% brings your retirement 16 YEARS closer.

    I also think it's easy to focus on "the wants for our needs". We need shelter, but we don't need 2000 square feet in this EXACT location with ALL these features. You want that. You need transportation, but you don't need the latest SUV with advanced AWD tech. You want that. Or at least you think you do.

    1. I think there is a blog post in that :D I WANT to live in a two story mansion with an indoor pool and a water slide in my closet, but I definitely don't NEED to :D

  6. I love looking at the big expenses too! That's why I stay in this relatively average apartment at 8.9% of my budget. It is much cheaper than the bigger/nicer places, but it works for me now.
    Unfortunately I don't calculate transport or food to that extent, though know they fit into my overall 44% budget.
    I do agree though that choosing wisely on these big expenses has a much bigger impact than cutting back on a latte (and I'm not even a coffee drinker!)

    1. You're housing is 8.9% ?? Wow! That's impressive. Nice work :)

      If I knock $50 a week off my housing, I can drink coffee... that's how it works right?

  7. Thank you for sharing. This article is very helpful and Inspirational. Excellent!


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