One thing that made a big impact on me when I was trying to make the synthesis of the information available in ERE’s book and forum is the concept of spending vs depreciation.
Basically, we can divide our spendings in two categories :
- The first category is Spendings that are not very impacted by the depreciation of what you bought. They usually meet one of these three criteria :
1.Something that you bought for your whole lifetime. it can be expensive but you know that it is so good quality that you’ll never have to pay for it again.
2.Something that you bought second hand. It has already been subjected to a good chunk of depreciation and you know that, if needed, you will be able to sell it for the same price that what you paid for. For instance : My touring bike is worth 1500 CHF new, but I bought it second-hand in excellent quality for 250CHF. I know that if I need to sell it again, I’ll be able to sell it for at least the same price.
3.Something that is so cheap compared to its value that it can almost be considered free. For instance, the furniture available on these kind of second hand Facebook groups : https://www.facebook.com/groups/848619798561876/
I got an IKEA wardrobe for free there, and I regularly see other ads for the same furniture for less than 30CHF (people are moving and want to get rid quickly of their furniture).
- The second category of spending is the one that is severely impacted by depreciation. These spendings become rapidly worthless, and have to be renewed regularly. For instance :
-The food
-A monthly rent
-Most services
-Taxes
-Health insurance
Ideally, we want to minimize the amount of spending that falls into the second category. We do that by looking at our spending and trying to internalize all the skills that would prevent these spendings. For instance, learning plumbing to not have to call the plumber, learning how to cut yourself your hair to not go to the hairdresser, and so on.
That’s also why it is so interesting at the end to have your own home with a garden to produce your food. The target would then be, if these concepts are applied, that your only 2nd category spendings are your taxes and health insurance.
When most of your spending is done on stuffs that don’t need to be renewed, your cost of life becomes suddenly very low!
I hope that this concept will make as big an impact on you as it did on me 