10 Ways the Financially Independent Spend Less than Wage Slaves

Common wisdom holds that the Financially Independent (FI) outspend typical wage slaves. But the FI benefit from powerful paradoxes. Because they’ve nurtured small nest eggs into big nest eggs, they actually spend less on many expenses than those who live paycheck-to-paycheck.

Let’s compare the spending of the FI to that of the indebted; or to put it in a snappier way, let’s compare the wage savers to the wage slavers. Fair warning: for those uninitiated in the ways of fervent thrift, this might sting a bit (several times below, you’re asked to appraise your own finances).

Paradox No. 1: The FI don’t pay interest.
Most Americans are awash in debt from mortgages, student loans, auto loans, and/or credit cards. By ingrained habit, they buy first and pay later. Not so the with the FI. They’ve banished debt from their lives. In place of indebtedness they’ve built up impressive reserves. When they choose to spend, they tap into these reserves (or into their current income). Since they rarely borrow, they rarely pay moneylenders.

How much do you spend each month in interest? Multiply that figure by twelve. That’s your annual cost of being a debtor. That’s also the amount you could save each year by ditching your loans and paying out of pocket for purchases.

Paradox No. 2: The FI enjoy free housing.
Those who rent have no chance of ever recouping their housing costs. In contrast, those who buy homes and pay off their mortgages early can enjoy decades of rent-free or near rent-free living. Yes, it’s true that much depends upon the state of the housing market upon sale. But the longer anyone stays put in the same place, the more likely their accumulated appreciation will offset their mortgage interest, real estate taxes, repairs, remodels, and homeowners insurance.

And here’s a kicker: when married homeowners sell their appreciated home, they get to enjoy up to $500,000 in profits sheltered completely from any capital gains taxes. See IRS Publication 523. Renters don’t qualify for this lucrative tax break.

Paradox No. 3: The FI don’t spend for “show.”
Many debtors camouflage their financial distress by spending on showy luxuries: cars, watches, jewelry, the latest smartphones, and other baubles. This expensive facade telegraphs a false prosperity. But such status seekers condemn themselves to a downward spiral where (1) insecure finances trigger (2) luxurious spending which perpetuates (3) further insecurity. In contrast, the FI have no reason to show off. Most are comfortable enough in their financial security that they don’t need to broadcast it to the world at large. In FI households, Toyotas tend to replace Jaguars, Timexes replace Rolexes, birthstones replace diamonds, and Carhartt replaces Ralph Lauren. When you don’t need to spend for show, you tend to save a lot more dough.

How much do luxuries cost you each year? Could you comfortably shift such spending to your savings accounts? Which life result would you prefer: (1) having others perceive you as prosperous; or (2) having others perceive you as less than prosperous while you secretly enjoy a net worth that places you in the top 10 percent of American households?

Paradox No. 4: The FI skip insurance that most can’t live without.
Those who live paycheck-to-paycheck force themselves into buying certain insurance policies. There’s no responsible way for them to avoid this. They can’t possibly leave their dependents defenseless if death or disability stops the regular paycheck from coming in. But those who have saved enough get to live a different paradigm. They responsibly dodge insurance premiums because their existing assets are large enough to cover their dependents’ needs.

Not only do the FI save on life and disability insurance, they also can skip buying mortgage insurance (because their home’s equity exceeds 20 percent of its market value) and long term care insurance (their assets are substantial enough to cover this risk as well).

Paradox No. 5: The FI pay lower premiums.
The FI still pay for home, auto, and health insurance, but they pay lower premiums than wage slaves. Insurers offer price breaks in exchange for higher deductibles. Since the FI only need insurance to cover risks that would materially dent their net worth, they can afford to undertake the incremental risk that higher deductibles represent. The happy results are lower premiums.

Insurers also extend price breaks to consumers who boast superior credit ratings. Since the FI tend to score high, this provides yet another source of savings on premiums.

Paradox No. 6: The FI get paid to shop.
The FI pay off their credit cards each and every month without fail. They could use cash if they wanted to, but they prefer credit cards that offer reward points. An FI household can easily earn $600 or more each year through these rewards. In debtor households that carry credit card balances, any such rewards are wiped out by punitive interest rates.

According to the Federal Reserve Board, 55 percent of cardholders carry a monthly balance. Do you pay your cards off each and every month without fail? If not, how soon could you pay off all your outstanding balances?

Paradox No. 7: The FI pay lower taxes.
The FI know that the fastest way to build wealth is to shelter their income from taxes in federally approved savings accounts such as IRAs, 401(k)s, HSAs, SEPs, and others. They can afford to max out their contributions to these accounts because they’ve acquired the habit of spending much less than they make. As decades pass, they avoid hundreds of thousands in tax bills.

How much do you contribute each year to tax advantaged savings and retirement accounts? Do you contribute the maximum allowable by law?

Paradox No. 8: The FI waste less.
Common wisdom holds that the wealthy shouldn’t care a fig about smalltime household waste. But most of the FI have earned their wealth the old fashioned way—one dollar at a time. They’ve learned to abhor waste. Despite their accumulated wealth, they still dial back thermostats in the winter, they still wash clothes in cold water, and they still toss expiring foods into the freezer instead of the trashcan. In other words, they chill to the maxim of “waste not, want not.” In contrast, many wage slaves are stuck in a never-ending cycle of “waste much, want much.”

Do you regard saving electricity and reducing food spoilage as bothersome details? What steps have you taken to limit your household waste?

Paradox No. 9: The FI spend less on big ticket items.
The FI have achieved wealth because they’ve planned for it. While those living paycheck-to-paycheck have spent years playing checkers, they’ve spent years playing chess. As a result, the FI by habit are more proactive. For example, when a furnace shows signs of approaching failure, wage slaves stick their heads in the sand and pray the unit doesn’t fail in mid-winter. This puts them at the mercy of furnace salesmen. But when the FI are confronted with a failing furnace, they take the time to research replacements and shop around for the best prices well in advance of the actual failure. This approach doesn’t only pay off on furnaces, it works for all major purchases—appliances, repairs, remodels, and even vacations.

Do you face any crumbling household infrastructure? Have you made any plans to deal with it or are you instead relying upon the winds of fate?

Paradox No. 10: The FI divorce less often.
Nothing fractures nest eggs like breaking up nests. But the FI stand a better chance of avoiding divorce than couples who labor under huge debt loads. Why? Research shows that fiscal strife is a major cause of break-ups. Financial independence reduces these stressors and keeps FI couples out of divorce court.

Would building up a secure store of assets help your relationship?

*   *   *

Strange, isn’t it? The FI inhabit a paradise of paradoxes. They practice the virtue of saving and this begets still more savings on all kinds of living expenses. Whether we’re prosperous or debt-ridden, we all get one life to live. Does it make any sense to lurch precariously from paycheck to paycheck? Consider instead the peaceful path of the devout saver. Consider taking a pleasant stroll down the road of life instead of mounting an uphill struggle with a load of debt piled high upon your back. While debtors rave, savers save. Why not give the path of financial independence a try?

Photo by Vegar Nilsen

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55 Responses to 10 Ways the Financially Independent Spend Less than Wage Slaves

  1. CheapMom@SimpleCheapMom October 1, 2014 at 11:08 AM #

    Great post! We’re not financially independent yet, but just being frugal let me nod along with your post.
    CheapMom@SimpleCheapMom recently posted…Be Confident Managing Your Money With These Three Simple RulesMy Profile

    • A Noonan Moose October 1, 2014 at 11:11 AM #

      That’s great just so long as you “nod along” and don’t “nod off.” 😉 Thanks for stopping in again, CM!

  2. DivHut October 2, 2014 at 12:57 AM #

    These should be called the FI 10 Commandments. You know it’s basically all common sense, however living in a consumer oriented society we often toss common sense out the window. Thanks for sharing this list.
    DivHut recently posted…October Stock ConsiderationsMy Profile

    • A Noonan Moose October 2, 2014 at 7:18 AM #

      Thanks DH! It’s funny how the bigger the nest egg gets, the easier it gets to save!

  3. Mrs. Frugalwoods October 2, 2014 at 5:50 AM #

    Yep, agreed! #3 is so very true–we have a used car, used furniture, used clothes, used dog… basically everything we own was previously owned. And, #8, oh yeah! I had to throw out a few dead grapes last week and Mr. Frugalwoods and I looked at each other and realized that this was the first food we’d thrown out in weeks, if not months. It’s just a simpler, happier way of life, in my opinion. Thanks for this!
    Mrs. Frugalwoods recently posted…Frugal Hound Sniffs: Planting Our PenniesMy Profile

    • A Noonan Moose October 2, 2014 at 7:15 AM #

      Thanks for stopping by, Mrs. FW!

  4. Mel October 2, 2014 at 6:55 AM #

    In two states, if you can show documents that you have enough money in the bank (although it is a very high sum), you could technically forgo car insurance too – although I really don’t think it’s worth it.

    You could also add that when you’re not living paycheck to paycheck you have better opportunities to take advantage of deals. You can stock up on stuff when the price is right instead of being forced to only buy exactly what you need when you desperately need it.

    I’m not nearly Financially Independent, but I am Financially Secure and that also let me take a job with a much higher wage at one point because I had a few grand saved up to move to another part of the country. If I couldn’t’ve afforded the move, I wouldn’t’ve been able to take the nearly $20,000 pay raise.
    Mel recently posted…How to Save Money on Black PantsMy Profile

    • A Noonan Moose October 2, 2014 at 7:15 AM #

      Good points Mel! The larger your nest egg, the greater your opportunities!

  5. Lance @ Healthy Wealthy Income October 2, 2014 at 6:57 AM #

    Not rocket science, but there is a pattern between those that value money and like to keep it and those who freely give it away and wonder and complain later on that they have no money. Guess we can be proactive or reactive in life.
    Lance @ Healthy Wealthy Income recently posted…Why Are You Afraid to be Rich?My Profile

    • A Noonan Moose October 2, 2014 at 7:11 AM #

      I totally agree that financial independence definitely IS NOT rocket science. But then why is it that so many people live paycheck-to-paycheck? Thanks for dropping by Lance!

      • Mark October 10, 2014 at 6:57 PM #

        Reminds me of a radio piece on youth employment that went something like this: “He had to get a car to get to his job at MacDonald s. Why did he have a job? So, he could buy a car” .

        • A Noonan Moose October 10, 2014 at 7:02 PM #

          So which came first: the McChicken or the McEgg? 😉

  6. Ced @ Fugging Debt October 2, 2014 at 7:15 AM #

    Great list.

    It’s a different mentality all together that wage slaves don’t grasp. The good thing is that you can change from a wage slave to FI. It takes changing of habits and patience.
    Ced @ Fugging Debt recently posted…Financial Podcasts I’m Listening ToMy Profile

    • A Noonan Moose October 2, 2014 at 7:26 AM #

      I agree. For most, household spending seems to be a matter of rote or routine. I think that’s why the financially independent tend to keep spending less even after the original need for it has largely disappeared. Thanks for taking the time to comment, Ced!

  7. No More Waffles October 4, 2014 at 2:47 AM #


    Excellent list! These ten simple rules should be explained to everyone in high school. A lot of people would be so much better with their finances when they’re confronted with the advantages of living a frugal FI life.

    Thanks for sharing,
    No More Waffles recently posted…Savings Rate for September 2014My Profile

    • A Noonan Moose October 4, 2014 at 7:40 AM #

      Thanks NMW!

  8. dojo October 4, 2014 at 4:00 AM #

    Excellent points. The only thing I wouldn’t do is to put my health/comfort in danger for few bucks. I do throw expiring food, I do warm up the house during winter and NEVER wash anything with cold water, especially during winter. I keep our clothes clean and use the washing machine every 2-3 days (we also have a baby and she’s dressed with something clean each day – even more times/day, if she’s vomiting or sweating).

    Other than that … really good advice list and so true …
    dojo recently posted…What’s the Fastest Way for a Housewife to Save 20,000?My Profile

  9. Richard @ FrugalityMagazine.com October 4, 2014 at 12:04 PM #

    I love this! Just discovered your blog and it looks like you’ll be seeing more of me here! While financial independence is a long way off for me right now I’m fighting hard to get there as soon as possible.

    • A Noonan Moose October 4, 2014 at 5:22 PM #

      Thanks so much Richard! Hope to see you here again soon!

  10. DividendDeveloper October 8, 2014 at 12:33 PM #

    Love this list. Reminds me of ‘The Millionaire Next Door’ and other titles. These are the things that the ‘real rich’ (in the sense that they’re FI) do, that so many of the pretenders do. Real affluent people don’t need Range Rovers and 5,000 sqft homes. I will say I disagree with #2 though. I’m a renter and I intend to stay that way for a long time. The convenience of being able to move when and where I want with no notice is amazing, as is having my landlord take care of all maintenance. Yeah, I’m not building equity, but I also am not paying property tax, repair costs, labor, many bills, and God knows what else homeowners have to deal with. Maybe I’ll suffer in terms of net worth and monthly expenditures, yeah, but but the freedom and convenience is worth it for me. You really have to weigh what’s more important to you, I suppose.
    DividendDeveloper recently posted…Dividend Stock Analysis – PNRMy Profile

    • isa r October 10, 2014 at 10:08 AM #

      I agree. Renting actually works out financially because we rent below our means and invest all the money we’re saving. So that’s how we build “equity”. Given the ridiculous price of housing and high property taxes in Canada right now, this is definitely the way to go at this point. Later on we’ll be able to plunk down cash for a more reasonably priced house… If we want to. Lots of advantages to renting..

  11. Elephant Eater October 9, 2014 at 3:27 AM #

    I found this post on RockStar Finance and liked it so much I linked it in my most recent post at my blog and recommended it to my readers. This post really simplifies how and why financial independence works, by making little decisions and taking little actions which build on and feed one another. Great job, I’ll be stopping back.

    Elephant Eater recently posted…Starting on the Right FootMy Profile

    • A Noonan Moose October 9, 2014 at 6:43 AM #

      Thanks very much EE!

  12. Dividend Family Guy October 9, 2014 at 10:47 AM #

    You nailed it. Great article. Just have my mortgage and a few more months on my car as debt. Can’t wait to reap the benefits you point out.

    • A Noonan Moose October 9, 2014 at 1:36 PM #

      Congrats on getting to the end of that car loan! Thanks for stoppin in DFG!

  13. Mr. Twister October 10, 2014 at 9:02 AM #

    Pretty much sums it up for me as a moderately FI. I’ve hardly read a post where I can agree to all 10 points. Even the furnace example is exactly what we just did. This is exactly our lifestyle (yeah, I drive a Toyota until it falls apart), although I tend to spend quite a bit on “small” ticket items, things that hardly make a dent in my finances but I consider luxuries, like toys, gadgets, software, games.
    One aspect not mentioned above and not true for every FI is that we also strive to live a healthy lifestyle, so less money and time spend at the pharmacy or for medical expenses.

    • A Noonan Moose October 10, 2014 at 9:20 AM #

      I totally agree about the importance of investing in your health. Thanks so much for stopping in!

  14. Rebecca October 10, 2014 at 9:10 AM #

    We are track to be FI before we are 50. We made some bad choices in our 20s and 30s but are now on track. Even with a baby on the way, our financial plan is still in place. Debt free at about age 48? THAT’S Freedom.

  15. Commenter 41 October 10, 2014 at 11:58 AM #

    Your comments on housing are horribly one-sided… you conveniently ignore the cost of property taxes, maintenance, heating/cooling and fluctuating property values — all things a renter does not need to worry about.

  16. Cam October 10, 2014 at 1:41 PM #

    Good article and wise tips.

    Re: No. 5 and “Insurers also extend price breaks to consumers who boast superior credit ratings. Since the FI tend to score high, this provides yet another source of savings on premiums.” True, but (at least in Canada) to maintain a high credit rating, you need to have active sources of credit at all times to maintain a high score. If you pay off all lines of credit and cut up credit cards, then the credit rating agencies have nothing to base a credit rating on – with the end result that your credit rating will start to drop. If you don’t need more credit or insurance, then maybe not a concern, but most of us do.

    Also beware of joint credit accounts – the spouse named as ‘primary account holder’ gains the credit rating benefits of using and paying off monthly balances on time, but the ‘secondary account holder’ does not. Important to always keep a credit card in your own name and use it at least a few times a year. Also good to have in case of emergencies.

    Agree 100% that paying off monthly balances on time and not allowing high interest rate charges to compound is key.
    Cam recently posted…Ten music events in Toronto this week: Oct. 10 to 16My Profile

    • A Noonan Moose October 10, 2014 at 2:01 PM #

      Great points Cam! Thanks for commenting!

  17. Raven October 10, 2014 at 5:03 PM #

    Your points are bang on.

    We lived this way for 26 years. At 47 I lost my job and decided I was not having fun at work anymore, so I retired with a paid-for house and a 7 figure investment portfolio. We still live frugally not because we have to, but because it feels right to us.

    Financial independence means that no employer can ever impact your life by terminating your employment.

    • A Noonan Moose October 10, 2014 at 5:30 PM #

      Full control over your financial destiny = happiness. Thanks so much for the inspiring comment!

  18. KB October 10, 2014 at 8:47 PM #

    A great list, including some less obvious points that are nevertheless true (#4,5,7,9,10). Rob Carrick at the Globe and Mail linked to this post, which is how I found it.

    One point I’d add, is that over their lifetimes, wage savers usually spend less time with their nose to the grind stone. Not just because they’re not spending on frivolities, but because every dollar saved earns investment income for the rest of the saver’s life. At some point, those invested dollars do all the income earning and the wage saver never needs to punch a clock again. Another way wage slaves “spend” more, and something that can’t ever be recouped (time).

    • A Noonan Moose October 10, 2014 at 9:17 PM #

      You make such a good point KB. A time eventually arrives when a person begins to value incremental hours more than incremental dollars. When this time arrives, wage savers have the means to take the appropriate action. Thanks for dropping in today!

  19. Maggie October 10, 2014 at 10:58 PM #

    One point I would add is that FI’s manage their vacation time differently. This past June I spent 6 weeks in Sydney Australia. I flew Business Class direct from Vancouver, all on points and then stayed in a wonderful 3 bed/3 bath warehouse conversion townhome for my entire stay. All done through homeexchange.com which costs me less than $200/year. The holiday cost me virtually nothing and yet I was far more comfortable than I would have been staying in a hotel. I receive an offer to exchange my condo in Vancouver almost every two weeks.

    • A Noonan Moose October 11, 2014 at 12:04 AM #

      Sweet! 🙂 Thanks for sharing this Maggie!

  20. doogie October 11, 2014 at 9:35 AM #

    I would add Paradox 11: The FI give away more to others. They can afford to be generous and share with others. The most generous people I know are all FI

  21. Rob DeLuca October 11, 2014 at 3:18 PM #

    What a wonderful article. Being FI, (myself and wife), the article described us with a 100% accuracy

    • A Noonan Moose October 11, 2014 at 3:30 PM #

      Glad to hear it Rob! Thanks so much for stopping by!

  22. Free to Pursue October 15, 2014 at 5:50 AM #

    I’m happy to say we are guilty on all counts. What a great list!

    It reminded me of a quote by Robert B. Reich: “Being rich changes the very nature of desire…happiness diminishes rapidly after the first flush of acquisitive excitement. That second piece of pie never tastes quite as good as the first.”

    Want vs need changes when you feel you have “enough”, doesn’t it…

    Additional note for #5: being mortgage free also gives you a discount on your home insurance.

  23. Myles Money October 18, 2014 at 11:23 AM #

    I feel very lucky that I was brought up in a frugal household — it’s in my blood and it confuses me when I see other young people wasting money, buying shiny toys on credit and then paying the minimum balance each month (or having their parents pay it, if they’re lucky). They haven’t projected themselves into the future and they’re not considering the additional costs associated with borrowing.
    Myles Money recently posted…Leftover Lunch | #FrugalFridayMy Profile

    • A Noonan Moose October 18, 2014 at 12:35 PM #

      Yup. All to often, the accrual of interest is of little interest. Thanks for stopping by MM!

  24. Frank May 27, 2015 at 11:35 PM #

    This is excellent! I just stumbled upon your website, and I have nine tabs open for your articles I intend on reading next.

    Your ideas are both inspiring and reaffirming to me, as my wife and I have proactively focused on little things we can do each day that have a cumulative impact–directly and indirectly. Re-using Ziplock bags, for example, won’t catapult a household into financial independence, but the frugal mindset such actions encourage most certainly can.

    Looks like I’ve got some reading to do here. Thanks for sharing your insight with the world.
    Frank recently posted…Back When I Was a MurdererMy Profile

    • A Noonan Moose May 28, 2015 at 11:22 AM #

      Thanks very much Frank–we reuse Ziplocs too!

  25. Alice September 9, 2016 at 4:08 AM #

    Nice article.I just have my mortgage,house and car.Now very difficult for me to wait for the benefits you provided above.
    Keep it up!


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