Surviving Tough Times
8 Simple Rules to Spending Less and Enjoying Life More
Ok, let's be honest. The economy is not going to get better
anytime soon. Rising costs and lowered incomes are putting
pressure on our budgets. The traditional virtue of New England
thrift is essential. All of us will be required to design a
financial regimen, one that protects our families and our
homes. This isn't new. It has been done in the not too distant
past. We can and will do it.
Of course, the Frugal Yankee has a few pointers to help you. It is the ABCs of Frugality. The,first step is relatively easy, but in its simplicity lies the,core of smart planning. Here then, are 8 simple rules to,spending less and enjoying life.
A. Get the Data
Make a list of monthly expenses. It's pretty easy to know your
mortgage payment, utility bills, or auto insurance premiums.
Yet most people don't pencil to groceries, gas, dry cleaning,
etc. Grab a small notebook and start tracking everything. Know
where your money goes. If you know where it goes, it is easier
to stop unnecessary outflow. It'll be easier to keep necessary
expenditures reined in.
Here's what you do. Write down every penny you spend including credit card. Then add it up. Once it is down in black and white, understanding is self-evident. Many times the big surprise is the cost of restaurants.
B. Now Annualize Everything
Knowing what you spend on a monthly or even a weekly basis is just the start. Multiply that number into a yearly cost. If
you spend $4 a day on two cups of coffee, that's $1400 a year.
A couple who eats dinner out twice a week could spend $5,000 a year. There's nothing wrong with that if it's important to
you. Too many of us have gotten into habits and we don't
realize the cost. Ask yourself, "Is it worth it? Is it worth,
say, the $5000? Or could that money be used differently?"
C. Smart Credit Card Use
The most abused area of personal finance is the credit card.
Time delays and indecipherable bills obscure spending. Studies
have more than suggested people will spend less money when
cash is used. Remember that when using your card, you should
ask yourself if it's really a good deal?
Being honest is the first awareness. We do use credit cards. They're very convenient. But carrying a balance is throwing away money. Therefore the first financial priority is paying off cards.
Cut all spending to the bone. Although it may seem daunting,
start by paying off the lowest balance first. It'll give
positive feedback. Then pay the balance each month before the
due date. Credit card companies are constantly looking for new
and exciting ways to get more money out of your pocket. They
add all fees. They shorten grace periods. They raise interest
rates if the wind decides to change direction.
Some folks recommend dropping all your cards except one or two. Others suggest keeping the cards, but not using them. The unused balance will augment your credit rating. Everyone's situation is slightly different. Use the one that enhances your
financial picture.
If you have significant balances and your interest rate is
unattractive, action is required. Start by paying more than
the minimum on time. After a period, call the company and
negotiate the fees and the interest. If there is a negative
response, start making plans to change companies.
When you begin your search for new credit cards, look for
companies with no annual fee. Rewards programs sound great,
but if there is no payoff to the tune of $50, no fee is better. That $50 stays in your pocket. Rewards plus an annual
fee serves the credit card company, not you. I have one last
note on rewards programs. Be sure the reward is cash or
something you'll use.
D. Sea of Debt
Our culture has fostered debt. It was the engine driving the
economy. Remember when a certain politician invoked mall
spending with patriotism? It makes sense for the national
economy, but not individually. Not drowning in a sea of red
ink is a healthy way to live, but it requires being savvy to
keep afloat.
For example, check interest rates on mortgages, auto loans,
school loans, or any other debt. Develop a plan for extra
payments on those loans with the highest rates. As debts are
whittled down, monthly living expenses will drop.
Use debit cards with care. Items bought with them may not be
protected. Loss of a card and use by someone nefarious may not be protected. And several studies have shown people spend more with a card, any card, than if they used cash. That is
something to keep in the forefront of your mind.
There is a great quote for the father of our country George
Washington: "To contract new debts is not the way to pay old
ones." Knowing debt will drag you down is a major step towards frugality.
E. Align Your Values
Have you ever defined the family's financial goals? Is a
college fund part of it? Or perhaps a new house for an
expanding family is needed. Whatever it is, stepping back with
clear goals makes it easier to match philosophy to actions.
Actions like moving to a smaller, less expensive house may
make sense. Upgrades on housing services like heat may make
sense. That second car may be impractical. The course of
action becomes evident when the numbers are presented and the goals defined. Be courageous in your examination and don't rationalize.
F. Waste Not
Knowing where money is going is a start. Understanding areas
to spend less is the another step. Some typical issues:
- Cable Services: The average TV watcher focuses on 12
channels, and some watch even less. Do you really need the
other 150 channels? Consider dropping all but the stations you
want. Estimated savings: $1000 a year.
- Communication: With landlines, cell phones, Internet phones, and even email, we have so many ways to communicate with each other. They've been built up over time.
Take a step back and analyze your needs. If you have a cell phone, do you need a landline's long distance service? If you have a cell phone, are you on a contract with lots of roll over minutes? Is you cell contract on a family plan? If any of these exist in your home, you probably can save anywhere from $1000 to $3000 a year.
- Restaurants: Dining out is not cost effective. It may be
enjoyable, but it is not cost effective. Restaurant eating has
become a culture, which costs more than making your own food, and in many ways, it's unhealthy. Cutting down on the
restaurant meals will save money. Dropping one restaurant
visit a week can save a family of four $2000 a year. Imagine
how much you'll save if more is dropped.
Other areas to consider examining are video rentals (libraries
are free), insurance rates (raising deductibles) or less
expensive vacations. Any place money is spent is always a
place to re-examine how that money is spent.
G. Stuff the Stuff
Many Americans simply have too much stuff. The attic, the
cellar, the back of closets and even those ubiquitous self-
storage centers are crammed with stuff not used in years.
Assess what is in storage. Recycle what is not used. Before
shopping for new things, look around. Maybe it is already
there. Put the creative hat on and reuse what is already on
hand.
H. Delay the Gratification
When the urge to buy swells, wait. The moment will subside.
Then determine if the purchase is a smart choice. Before
buying it, talk it out with your spouse. Here's a good rule of
thumb. If you're not willing to talk about it, you probably
don't need it.
Another way of delaying gratification is to keep your car
longer, or buy an appliance only when it is on its last leg
and you've researched a replacement. However it is reached,
stalling the impulse to buy is a solid, frugal decision.
Frugality starts when the realization that our money is ours.
Using it wisely is a tradition that goes further back than Ben
Franklin. As a culture, we have strayed from that principle.
Remember that being frugal is not being cheap. It is about
getting value. It's spending our money where it matters and
never wasting money. This is the basic frugal tenet.
_______________________
About the Author: You'll find Garen Daly at The Frugal Yankee
http://www.frugalyankee.com, where you'll find more on
frugal living, New England style and downloads of the Frugal
Yankee radio broadcasts (look for "latest audio" on the left
menubar). copyright Zeotrope Media, Inc.
