Start Living Frugally

People always say that they would like to have more money. The simplest way to do that is not necessarily to make more, it’s to use what you have more wisely. People with any level of income can benefit from learning to live frugally--not just within your means but below your means for the sake of prudent saving, investing, and debt management. Figure out how you can scrimp and save by getting your finances under wraps, finding the best deals, and altering your lifestyle.

Steps

Managing Your Personal Finances

1. Analyze your current monthly purchases. Print out all your bank and credit card account statements, and give them a hard look. Record how much you earn and how much you spend. Use different colors of highlighters to mark essential, recurring, and non-essential expenses to help you identify where you spend your money.
   • Essential expenses include things like housing and food. Recurring expenses include things like insurance and service charges. Non-essential expenses include luxuries and entertainment.
   • Once you’ve characterized each expense, you can see where you’re spending your money and where you could potentially create the most savings.
   • Non-essentials are the most obvious category in which to make cuts. However, if you’re spending half of your monthly earnings on rent, it might be time to think about how you could cut down your housing costs by moving or taking on a roommate. Make marks next the expenses you think you can lessen or eliminate.
2. Create a personal budget. The best way to manage your money is to plan ahead by predetermining your overall personal expenditure for each month and trying to stick to it. Use your analysis of your monthly financial statements to create a list of all your projected costs by category. Identify your financial obligations and set limits on unfixed expenses.
   • For instance, your budget categories may include housing, utilities, transportation, supplies, pets, food, clothing, and entertainment.
   • Be sure to set reasonable but finite limits on categories where costs aren’t predetermined, like food or entertainment. Setting a budget will make you aware of how much you’re spending on a given thing.
   • Monitor your spending throughout the month to ensure you stay on budget. You could do this tracking your purchases on a spreadsheet that you update each week or by using a financial app or software.
   • Banking companies often offer customers budgeting apps to help you monitor your expenses. There are also unaffiliated apps like PocketGuard and Spendee that can help you track finances.
3. Spend less than your earn. Living frugally generally means living below your means so that you can save and plan ahead for large expenses or emergencies. When you budget, be sure to set aside some money for savings.
   • The more you can set aside, the better. However, you can start small, with as little as $50-100 per month. Once you can comfortably save that much, try increasing the amount over time.
4. Invest money for savings and emergencies. One of the main points of frugality is to help secure your financial future. And, even the best-laid budgets sometimes fall through. It’s important to incorporate the future and potential crises into your financial planning.
   • Populate an emergency fund in a high interest money market or at least in a savings account with your current bank. Then forget about it.
   • If you have already done that, then jumpstart your 401(k)/403(b) for retirement. If you are already maxing that out, then drop it into an index fund (that is, a low-overhead, lower risk investment in all the securities associated with a particular stock index, such as the S&P 500). Anything is fine, except parking it in your checking account and having access to it through your debit card.
   • If you get a windfall or raise, consider saving or investing it instead of immediately spending it.
5. Set up automatic payments. Setting up automatic payments can help you track recurring expenses and avoid late fees. They’re especially useful for rents, utilities, and monthly service charges. It might be frightening to have so much money taken out of your account immediately each month, but it is far better to scrape by until you adjust than to miss a payment here and/or there and have your credit report take a hit from late or non-payment.
   • Automatic payments will also help you immediately judge how much you have left over for variable expenses in your monthly your budget.
   • Most companies have automatic payment options that you can enroll in online or over the phone. Your bank should also allow you to set up automatic payments through their online banking app.
6. Avoid impulse buys. Purchasing things on a whim, like a fancy dinner or state-of-the-art juicing machine, can suck up a lot of income. Practice patience with your spending; exercising will power in the short term can help build long-term financial solvency and gain. Wait to buy things until they fit in your budget.
   • Often times you’ll find if you sit on a non-essential purchase, you’re not as keen on it as you were at first anyway. Wait to see if something is really worth purchasing.
7. Keep your interest rates down. Accrued interest on your debts can seriously add up. If at all possible, pay off loans as quickly as possible to avoid paying exorbitant interest charges over time.
   • Avoid using credit cards with high, variable interest rates. If your credit card has more than 15% APR, shop around for a better deal.
   • Avoid putting purchases on credit cards if you know that you will not be able to pay them off within your monthly payment period.
   • If you need to spend more than you can pay, consider transferring the balance to a new credit card with an introductory rate of 0%APR for 12-18 months and free balance transfers for 6 or more months. Then, pay off the balance as soon as you can before the interest kicks in.
   • If you have a mortgage or other sizable loan, try to overpay a bit each month. Even a monthly overpayment of $100 can save you tens of thousands of dollars in the long run.

Getting the Best Deals

1. Buy in Bulk and Save Money. As a general rule, the more you buy, the better the deal. If it makes sense to go for the larger quantity of a product, it will save you money in the long run.
   • Today, there are many bargain retailers like Sam’s Club and Costco that carry nothing but bulk products.
   • Remember to only buy in bulk when you’ll actually use all of whatever you’re buying over time. For instance, bulk food can be wasteful if you let it pass its expiration date without eating it.
   • Good things to buy in bulk include foods with a long shelf life (like baking supplies, canned goods, or frozen foods), hygiene products (like shampoo, toilet paper, or toothpaste), and household cleaners and goods (like light bulbs, detergent, or trash bags).
2. Compare Prices Online. Before you purchase anything, make sure that you’re getting it at the lowest possible price. For big purchases, do an internet search by the product’s name to see if you can find the best deal.
   • Price comparison websites, such as GoCompare, SuperMoneyMarket, and Price Runner, can be good resources for tracking down the best deals for products and services.
   • When you shop for groceries, keep track of which store offers a given product most cheaply.
3. Go for the best value. Buying cheap products doesn’t necessarily save you money. If you go through half a dozen pairs of cheap shoes in the same time it would take you to wear out one pair at a higher price point, that’s not a good value. Look for products that will give you the most bang for your buck, not the ones that are the least expensive.
   • Besides first-hand experience, the easy way to gauge the relative value of products is to read consumer reviews associated with each of your options to assess their comparative quality and customer satisfaction.
4. Negotiate. While not all price tags are negotiable, you’d be surprised at how many costs and payments are. Used goods, service agreements, insurances, rents, fees, benefits, salaries, and wages are all generally subject to negotiation. Approach the proceedings with confidences, firmness, and fairness, and you’ll often come out ahead.
   • Service agreements, such as communications services, credit card contracts, and even medical bills, are often negotiable. For instance, you could call a credit card company and say: “Hi, I recently received an offer for a card from another company with a low, fixed APR. Since I’ve been a longtime customer with you, I was wondering if you could match that rate. If not, I’ll have to go with the new company.”
   • If you’re worried about attempting negotiations, try practicing in low-stakes venues where haggling is normal, like flea markets or estate sales. Ask the vendors questions like: “Are you flexible on that price?” or “Would you accept $60 cash for that chair?”
   • Informed negotiators generally fare better. Do a little research into the market so that you have a better sense of what a good deal or fair cost would be. If you can say something like, “the Crain Dealership is offering this same car in the same condition but with fewer miles for $1000 less,” it makes your case more compelling.
   • Be ready to walk away. To be a successful negotiator, you have to be ready to leave behind a bad deal. For example, if your credit card provider is not willing to reduce your APR to match that of a competitor, just say: “Alright, then can you please terminate my account?”
5. Shop at the right time. Avoid buying things at full price. If you’d really like a particular item, wait to buy it until it’s on sale or a coupon item or offered as part of a special deal.
   • Sometimes this means buying things out of season, so plan ahead. For instance, you can get your Christmas presents or winter gear for the next year during post-holiday January sales.
   • Similarly, you might wait to buy clothing until it’s on clearance at the end of the season instead of paying full price when a style is first released.
   • When you grocery shop, let coupons help determine your purchases. If there are items on sale that you regularly use, stock up while they’re on discount.
   • If you’re making travel purchases, research when the best time to buy a plane ticket is or wait until a particular airline is offering a deal. You can also sign up for fare alerts from travel sites like Travelocity or Kayak, which track the rates for each flight and offer predictions about whether they’re likely to go up or down.

Changing Your Lifestyle

1. Limit spending to needs, not wants. Living frugally means living more simply. Take time to pare down your expenses to the bare essentials in each category. While it may sound like deprivation to limit yourself to needs, it can also be freeing, especially when it helps to get you out of debt and live more sustainably.
   • For instance, you need food. However, you do not need to eat expensive cuts of meat every day or go out restaurants. On the other hand, you might feel that things that may seem like wants, such as organic milk and vegetables, are necessary for your personal health and/or ethics. Assess which expenses are necessities and which are luxuries.
2. Downsize your household. If your housing is a major expense, consider moving or taking on a renter to cover some of the costs. This could mean selling your house for a cheaper or smaller one with less maintenance costs. If you rent, it could mean finding a cheaper arrangement.
   • The general rule is that you should be spending no more than 30% of your net income after taxes on rent or mortgage payments each month.
   • If you are considering moving, be sure to factor moving costs like transportation, movers, closing costs, and deposits into your calculations. If the expenses of moving are too high, it might not offer you much of a savings. However, a short-term investment in changing your housing arrangement could save you considerable money in the long run.
3. Opt out of car ownership. Personal vehicles come with a lot of associated expenses. Besides paying for the vehicle itself, you also have to fork over dough for maintenance, insurance, and gas--all for an investment that will almost inevitably lose its value very quickly. If possible, opt for non-motorized or public transportation instead.
   • Walking, biking, carpooling, or taking buses and trains are all good, cost-effective, and environmentally friendly alternatives to car ownership.
4. Buy used, not new. Second-hand goods can save you a lot of money, and reusing things is environmentally friendly. Used items general cost half as much (or less) than they would brand new. Go for durable and quality products that can be used for a long time, such as tools, furniture, housewares, clothing, and vehicles.
   • Electronics and technology, which often become obsolete very quickly, may not provide much of a savings when purchased used.
5. Drink unbottled water. Beverages like soft drinks, caffeinated beverages, and alcohol can get very expensive very quickly. In a single day, you may find yourself shelling out money for juice, lattes, bottled water, and glasses of wine. What’s more, these beverages have very little nutritional value; you’re better off sticking to water.
   • Instead of splurging on beverages when you go out, carry a water bottle with you that can be refilled whenever you get thirsty.
   • If you’re headed to a bar, limit yourself to one drink or opt for less expensive beverages, like soda water.
   • This might be a tall task for some, so it’s something to implement slowly, cutting out one extraneous beverage at a time.
6. Cook at home. Dining in is usually much more cost-effective than going out. Besides the food being more expensive, you also pay for sales taxes and service charges. If you frequent restaurants, start making meals at home instead.
   • Plan a weekly menu in advance, so that you can buy only the food that you need and won’t be tempted to go out when there’s nothing in the fridge.
   • If you go to work, be sure to pack a breakfast and/or lunch instead of hitting the local restaurant or food cart. It’s a move that’s likely to make you healthier, too.
7. Embrace the DIY spirit. Labor costs can really add up when it comes to home repairs and improvements. Taking time to learn how to deal with simple plumbing, carpentry, gardening, and remodeling tasks around your house can save you a lot of money each year.
   • Thankfully, there are now a wide variety of online tutorials available to help hone your do-it-yourself skills. Do an online or YouTube search to find information on the task you need, like unclogging a drain or fixing the fan element in your oven.

Tips

• Don’t try to implement all these changes at once. Start with knowing where your money is going, and then plan accordingly to slowly introduce ways of cutting back on your spending.
• Be realistic with yourself. It will be more difficult to stay on track if you set yourself unreachable goals. It’s important to exert your will power over your personal finances, but it’s also important not to feel miserable or like a failure.

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Sources and Citations

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