A large part of FIRE is cutting your living expenses as much as possible so that you can invest as much of your income as possible. There’s all sorts of other stuff that goes into FIRE, but that’s a big chunk right there. The problem is that there are a lot of living costs that can only be cut so far or are fixed. Everyone needs a roof over their heads, needs food and drink, clothes to wear and all the rest of it. Sure the amount you pay for those things can be reduced to some extent, but they’re never going to be zero.
Looking at my household living expenses I have essential non negotiable bills like rates, utilities like gas, electricity, internet, car registration and insurance, house insurance etc. Now obviously I can shop around for some of those but there is always going to be a cost. Then there are other essential expenses like food, petrol, car servicing, where there is generally room to reduce costs a bit, but again not to zero. I’m fortunate enough to have paid off my mortgage so I don’t have that to worry about, but otherwise I’d have to include that or rent as another expense. And yes, I get that a car is not technically “essential” but I have two kids under the age of 5 and I don’t really fancy trying to get them around exclusively on public transport where I live or walking everywhere.
I’m extremely fortunate in that my wife is quite frugal and pretty much buys as much as is possible when things are on special, compares prices between Aldi, Coles and Woolies all the time to make sure she’s getting the best deal, doesn’t care about buying brand names and in general spends as little money as she possibly can on grocery shopping. With a family of 4 (admittedly one of which is still just on breast milk and baby cereal) we spend about $155 a week on groceries vs the Australian average for similar families of $282 (https://www.moneysmart.gov.au/managing-your-money/budgeting/spending/australian-spending-habits) although the $282 presumably includes eating out which would push our number up closer to $190-200 a week.
I’m sure if we wanted to we could cut more out of the budget but we’re pretty happy with things there. Likewise she takes care of shopping around for the best deals on electricity, gas etc and I do the same for the internet. We pay about $60 a month between us for our mobile phones which gives us way more data than we use and has the usual unlimited local calls and texts. There are possibly better deals out there but we’re pretty happy with what we are paying.
Even with all of these costs reduced as much as possible with a lot of shopping around, we still spend about $17.5k a year on these sort of essential living costs. This is broken up into about $8k for groceries, $2.5k for car stuff (insurance, rego, servicing, petrol, RACV) and $7k for house stuff (rates, insurance, utility bills). This also doesn’t include stuff which I personally consider essential like personal insurance, health insurance, medical costs, kindergarten and swimming fees for kids, all of which pushes up the cost to about $30k. These are pretty much all expenses that are going to stay the same or even increase (kids schooling and sports) whether I’m working or retired.
Currently we actually spend (or at least budget) another $20k or so on things like $5k of eating out and entertainment, $2k for kids clothes and shoes (we adults very rarely buy new clothes for ourselves), another $3k for work travel, subscriptions and miscellaneous stuff. Plus the big one, $10k for travel as we have family in Europe to visit every couple of years plus various trips closer to home. None of this is essential, but it’s all stuff which we get enjoyment out of and is worth it to us.
In any case, those living costs of $18k to $30k a year depending on what you regard as being essential are going to be around for a very long time and are probably reasonably standard for most people, if not higher. Which means that when you’re looking at an early retirement you need to be thinking about how you’re going to pay those expenses (plus the nice to have extras!) for a very long time.
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Pretty similar numbers for us. We are a couple with two kids, and our budget is around $65,000. A big chunk of that is daycare though, at $20,000! Wowee how good is having kids huh!!
Home & utilities -$9,410
Insurance & financial -$4,200
Groceries -$10,400
Personal & medical -$4,384
Entertainment & eat-out -$11,280
Transport & auto -$4,214
Children -$20,170
Total: $65,000ish
I did a budget on the following website and it is really helpful to break it down:
https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps/budget-planner
Haha kids costs add up pretty quick that’s for sure. On the other hand having kids means it’s harder to do things like eat out regularly or go out drinking like we used to let alone get on a plane and go on a holiday so maybe it actually ends up saving us money!
It looks like your expenses are all pretty similar to ours which is reassuring, it’s hard to know what people spend on these sort of things in no small part because most people don’t actually know themselves! I do our budget up on a spreadsheet because I love spreadsheets but when I’ve looked at the Moneysmart calculator in the past it has seemed quite good.
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Fixed costs are the bulk of my budget! I’m 28 years old (single) and over 60% of my post tax income goes towards fixed costs, and a lot of that is to housing! 30K per year on mortgage (P&I) and 28K on investment property loan (P&I, but approx 21K tax deductible). Still, the long term returns on these still make the forced savings worth it. I can still comfortably afford to invest over 20% of my income while enjoying reasonable comfort, and with the mortgage I can even use debt recycling to tax advantage my investment plan. But yep, fixed costs are high!
The more frugal you are the more that fixed costs tend to make up your budget as well! Which is why I have reservations about lean FIRE, if there already isn’t much fat to cut then you’re in trouble if things go wrong.