Financial independence is all about optimizing your income and your expenses. About balancing wants and needs. About finding a happy medium between saving as much as possible and maximising your life enjoyment. Even though that’s clear to most of us, some unnecessary consumption is unavoidable. What about expensive hobbies, for example?
Everyone enjoys a hobby or two, so it’s only natural that they invoke expenses. If you’re a reader of this blog, there’s a high chance that one of your hobbies relates to personal finance or dividend growth investing. While those are relatively cheap pastimes to pursue, many other hobbies require a lot more capital to enjoy them to the fullest.
But where to draw the line between overspending on hobbies and keeping your savings rate up?
If we take a quick peek at my expenses from the past twelve months, for example, you’ll see that on average 20% of my total expenditure consists of nonessential spending. That’s quite a lot, all things considered! Because my savings rate hovers around 70% during the same time frame, I could easily boost it higher by as much as 6% simply by cutting out all frivolous expenses.
It’s interesting to see that I splurge once in a while. March, June, November and December are exceptionally high, mainly due to short holiday trips. November’s unnecessary expenses were furthermore boosted by the new graphics card I bought for my computer, arguably my favourite pastime.
Of course, these numbers are skewed heavily towards unnecessary spending because I’ve managed to reduce my basic cost of living to a minimum. Since I’m car-free I save about €400 every month, which translates to a 10% increase of my nonessential spending vis-a-vis basic costs, for example. The graph below illustrates this point beautifully as it also includes my savings rate.
Now the unnecessary expenses drop to only 7% on average of my total cashflow. That’s not much even though I have some rather expensive pastimes and hobbies, at least in my book.
For example, I’m currently typing this blog post on a PC worth a little over €3,000. Spending that much on a computer might seem ridiculous to many of you, but it’s not that much money at all when you take into account the countless hours of fun I’ve had with the thing; and what’s more, I even use it to make money on the side.
It’s a one-time expense – plus the usual upgrades every once in a while – that gives you enjoyment for a very long time, just like the mountain bike I bought a couple of years back. Even though the bike was rather expensive, especially at that time for me, I use the thing so often that it was worth every penny. And going out for a quick ride doesn’t cost me anything as long as there are freely accessible woods nearby.
Over the years I’ve had other expensive hobbies though. As some of you may know, I enjoy collecting classic Nintendo video games. Such a hobby brings recurring expenses with it since you’ll have to dig through your wallet every time you buy a new game. That’s why I’ve currently put collecting on hold. It’s not that I can’t justify the costs, but I’d rather spend my money elsewhere or not spend it at all.
There’s clearly room to pursue that hobby, so why not spend the money anyway?
This harkens back to what I said in the first paragraph and to something that many people forget. Financial independence isn’t about saving as much as possible per se; rather its aim is to balance wants and needs in order to maximise your happiness.
Adding another rare Super Nintendo game to the collection and the rush that comes with acquiring it doesn’t even come close to the feeling of freedom you get when pedalling through the forest at 30km/h, at least for me. That’s why I’d rather splurge on a new and much more expensive bike than a classic video game.
As you can see, not all optional expenses are equal!
The feeling of wanting something is a continuum. On one end you have your ridiculous wants like a brand-new Ferrari or a twelve bedroom mansion, while the opposite side is home to those wants that are close to your basic needs and are, as such, almost needs themselves.
I’ve said before that my only rule for financial freedom is to never, ever say no to drinks with friends. Even though this is clearly a want – I won’t die without those drinks – to me it feels like an absolute necessity to optimally and fully enjoy my life.
And even with such avoidable expenses I’m still living the life, as Weenie recently put it in a comment to my March savings rate. And as you can see from the graphs up top I’m still putting a way a very large percentage of my paycheck, completely free of any loss of life enjoyment. A frugal lifestyle clearly doesn’t mean you should become a hermit.
Make sure you have your financial priorities straight, but don’t forget to live a little!