How to Reduce Expenses: 3 Practical Tips From an Early Retiree

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This article is an excerpt from the Shortform book guide to "Early Retirement Extreme" by Jacob Lund Fisker. Shortform has the world's best summaries and analyses of books you should be reading.

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Do you have debt? Do you buy things that don’t really add to your life? How could your life be different if you had a lower cost of living?

Jacob Lund Fisker permanently retired at age 33. He shows how you, too, can retire at an extremely early age. Fisker urges you to avoid unnecessary debt, stop buying things you don’t need, and maximize the value of every purchase.

Continue reading to learn the details of Fisker’s advice on how to reduce expenses and buy yourself more freedom in life.

How to Reduce Expenses

According to Fisker, most people can do without many things they think they “need.” As you lower your annual expenses, the time it takes to save for retirement drops rapidly. Lowering your expenses not only leaves you with more income to save—it also means you’ll be free of that expense every year you’re retired, so you don’t have to save as much before retiring.

(Shortform note: Fisker suggests cutting your expenses as much as possible, a retirement strategy known online as “Lean FIRE.” However, other early retirement experts advocate a strategy called “Fat FIRE,” which involves aggressively seeking ways to increase your income and delaying your retirement to attain a fund large enough to support a lavish lifestyle after retiring that’s full of travel and other costly experiences. Fat FIRE requires a far greater fund size than Lean FIRE, since (as Fisker explains) recurring expenses require you to save an additional sum for every year of retirement. However, exponential growth from pre-retirement investments arguably makes this more attainable than it might seem.)

Fisker shares three tips on how to reduce expenses. Let’s take a look at each one.

Tip #1: Avoid Unnecessary Debt

As mentioned earlier, minimizing your living expenses means refraining from taking on debt of any kind, including auto loans, mortgages, and student loans. Now, let’s discuss how to do this.

You Don’t Need Auto Loans

If you need to buy a car, Fisker recommends saving up and paying for it in cash to avoid taking on debt. That said, he says it’s better not to own a car at all, if possible, as it’s one of the biggest expenses the average person has. On top of the cost of the car itself, fuel, maintenance, and insurance costs can add up and significantly delay your retirement.

The best way to avoid owning a car is to plan ahead when choosing where to live. As long as you live close enough to walk, run, or cycle to your workplace and a grocery store, you can live without a car. Additionally, walking, running, or cycling every day is a great source of exercise, improving your overall health and helping avoid unnecessary health care costs.

You Don’t Need a Mortgage

Many adults believe that the most responsible housing decision they can make is to invest in real estate by taking out a mortgage and purchasing a “starter home.” Fisker disagrees, arguing that, although you gain equity as you pay off your mortgage, this addition to your net worth is more or less counterbalanced by the interest you have to pay. For this reason, purchasing a home with a mortgage is no safer than investing the principal of any other loan. Although it’s possible to make money as your house appreciates in value, it’s always possible for the housing market to decline.

Because real estate is an uncertain investment, Fisker argues that renting a place to live can be more economical than buying a home. Sometimes, you can make more money by taking what you would spend on a mortgage and investing it elsewhere. Whether it’s more profitable to rent or buy depends on the strength of the real estate market relative to other investment markets. Instead of worrying about the value of your home as an investment, Fisker recommends viewing it as just another living expense.

If you do want to own a home, Fisker suggests saving up and paying for it in cash to avoid paying mortgage interest entirely. This is especially possible if you choose to buy a small home—Fisker argues that most people buy houses that are too large and expensive, which serve as mere status symbols and places to hold unneeded possessions. By living somewhere smaller, you can massively reduce your annual expenses, regardless of whether you rent or buy.

You Don’t Need Student Loans

Fisker acknowledges that college degrees have some value, but he claims that much of the time they’re not worth the investment. You need a college degree to gain access to a number of white-collar jobs; however, skill-based jobs like elevator mechanic or cable installer often pay just as well and allow you to start saving immediately rather than paying off debt.

In regard to the college education itself, Fisker argues that most college programs won’t add much value to your life. He claims that most students in higher education are looking for the credentials necessary for a white-collar job and nothing more. Colleges looking to attract students have changed to cater to these desires, offering increasingly easy, entertaining classes with little true educational value.

Tip #2: Don’t Buy Things You Don’t Need

To reduce your living expenses, buy less stuff, says Fisker. This, however, is easier said than done. How do you keep yourself from buying things you don’t need?

One tactic Fisker recommends is to cut out impulse buying entirely with a “wish list.” Whenever you feel the urge to buy something, add it to a list and move on with your day. Allow yourself to buy something only after it’s been on the list for 30 days. This way, you have time to adjust to life without that item, and you may discover that you don’t want or need it as much as you thought.

(Shortform note: When you’re tempted to buy something you don’t need, you may struggle to muster the willpower to simply write it down and move on. You may find it easier to curb your impulse buying with a tactic called the “Envelope System.” To do this, identify a type of product that you habitually overspend on, such as clothes or snack foods, and budget how much you’re willing to spend on it for the next two weeks. Put this physical cash in an envelope and only allow yourself to buy that product with the cash from that envelope. This constraint, which makes it more physically and psychologically difficult to overspend, will hopefully reduce the amount of willpower you need to exert to avoid impulse purchases.)

Another money-saving tactic Fisker suggests is to stretch your ability to deprive yourself. Choose one major expense in your life and cut back to an extent that feels extreme for a set period of time. Afterward, you’ll feel comfortable spending much less than you used to on that expense—and the new normal will feel indulgent in comparison to the extreme deprivation you put yourself through. For example, if you spend $60 a month on various movie streaming subscriptions, try canceling all of the services for nine months. After those nine months, you’ll have found other sources of entertainment and will feel content paying for just one streaming service at a time.

(Shortform note: This tactic has its roots in ancient Greece: The Stoic philosopher Seneca intentionally set aside days to practice poverty, eating less, wearing ragged clothes, and sleeping in a less comfortable home. By temporarily making a life of deprivation his new normal, Seneca hoped to overcome his fear of losing everything. This highlights an additional advantage of Fisker’s version of the exercise: You may find yourself feeling less anxious as you recognize that unexpected financial hardship wouldn’t necessarily be so bad.)

Tip #3: Maximize the Value of Every Purchase

Fisker recommends reducing your living expenses by maximizing the value of every purchase. Many products produced nowadays are built cheaply so consumers can use them up, throw them away, and buy new ones, as this is the financial model that’s most profitable for the companies selling them. To avoid falling into this trap, buy quality products that last. Even if they’re a bit more expensive, it’s cost-effective in the long run if you get many years of use.

Another way to escape the cycle of purchase and disposal is to look for opportunities to buy things used or pick them up for free—these opportunities are everywhere on online marketplaces. Likewise, Fisker recommends selling your possessions when you’re done with them.

(Shortform note: In contrast to the linear economy that Fisker describes, in which consumers use up products, throw them away, and buy new ones, some experts promote the idea of a circular economy in which companies design products to last as long as possible, facilitate the sharing of products between consumers, and recycle the material to make new products. By living the frugal lifestyle Fisker recommends here, you’re not only saving money, but you’re also pushing our current system toward a circular economy: Your money goes to companies that make quality goods and to online platforms that support the exchange of goods between consumers.)

Exercise: Make Progress Toward Early Retirement

According to Fisker, to retire early you need to minimize your living expenses. Think about how you might make progress toward this goal. Brainstorm three different lifestyle adjustments you could make to reduce your living expenses: one that would save an extreme amount of money, one that would save a moderate amount, and an easy one that would save a little. For example, you could sell your house and move into a much cheaper one (extreme), learn to fix your own car instead of going to a mechanic (moderate), or get a library card instead of buying books (easy).

How to Reduce Expenses: 3 Practical Tips From an Early Retiree