Young and Frugal » Budget

The 7 Effective Habits of Highly Frugal People

Daniel — Mon, 16 Feb 2009 19:52:41 +0000

As I’ve said before, being frugal is about controlling your money and making choices so that you can allow yourself to splurge, because if you aren’t controlling your money, your money will control you. That sounds easy enough but in reality living frugally is not easy at all. It’s something that I struggle with daily, so in honor of Mr. Stephen Covey, I sat down and analyzed what I feel are the 7 Effective Habits of Highly Frugal People.

Maintenance. In a world where quality has declined, and new products are cheap, frugal people go out of their way to take care of every purchase as if it’s an investment. And they know that spending money on maintenance is less expensive than spending money on repairs.

They maintain their bodies. Did you know that fit people get sick less than non-fit people? Which means by taking care of your body you can save a great deal of money in doctors bills! They also find frugal ways to work out: Run, Walk, Stadium Steps, the list goes on.
They follow a maintenance schedule for their car and house.
They check to see if something can be fixed before they buy new. You’ll be surprised to realize that more often than not things can be fixed. The soles in my nice dress shoes were completely worn out, but I took them to a local cobbler, and for $15 they are as good as new!

Make instead of buy. Frugal people understand markup and know that they can easily make many things instead of buying them to save a great deal of money.

Mary and I make most of our meals instead of eating out. Just by taking our lunches to work we figure that we save at least $250/month.
Instead of spending $80 on a particular medicine ball for our workouts, I made one using an old basketball, sand, and a tire patch, now I have the same thing for about $70 less. It’s not as pretty, but it’s just as functional.
Here’s a list of 100 Things You Can Make Yourself, some of them are very random, but it’s interesting to learn what you can make with household products.

Set a budget. Frugal people track their money and set priorities, because being Frugal isn’t about not spending money (that’s called being cheap), it’s about prioritizing where you spend it and where you save it to have balance between to two. They think long term and know why they are prioritizing and saving. They will occasionally splurge with their discretionary spending, but it’s something that they plan on doing. They also tend to budget on meaningful things like a nice family vacation, instead of spending money on stuff. By setting a budget frugal people are always aware of their financial standing.

Check out 13 Tools for Building a Better Budget to get a good grasp for budgeting.
Also, check out Mint.com, it’s an online budgeting tool aimed at Gen-Y that will send you text messages or e-mails when you go over budget on something, when your bills are due, or when you get charged a bank fee! We’ve been using it for about a year, it’s a great tool.

Research. Frugal people know that they can’t avoid spending money, so when they do buy something, they research it first. Frugal people spend money on quality that will last, they don’t go right for the cheapest thing. So spend time researching, and looking for the best deal. As a general rule of thumb my Finance Professor taught me, spend an hour of research for every thousand dollars that you spend. I think this advice is pretty fitting, essentially, the more you spend, the more you should research (but remember to value your time!). Here are some great research aids for you:

Fatwallet, the forums on this site are a great resource for finding deals. It may take you some time to learn the lingo (PM= Price Match, YMMV= Your Mileage May Very, B&M= Brick and Mortar store, FS= Free Shipping…), but you’ll be sure to find great deals in their Hot Deals section. Also check out the Finance Section for great financial tips, and the Deal Discussion section for great tips on buying cars and houses.
Edmunds is a key resource for all your car buying needs.
Bankrate is a site dedicated to finding the best rates on Mortgages, Auto Loans, Home Equity Loans, Savings Accounts…

Coupons. Frugal people know that 35 cents here and 50 cents there really starts to add up. They also know how to combine coupons with credit card rewards and/or haggling to save even more!

Buy the Entertainment Book, spending about $30 on this book (if it’s available in your area) can save you hundreds throughout the year. It has coupons for everything from groceries, to movie tickets, to dinner. In fact, when we go out, we check to see if we have a coupon from the Entertainment Book first!
Subscribe to the Sunday paper, it’s full of great coupons! We pay $7.50 per month to get the Sunday paper, and easily save at least $5.00 per week in coupons!
Learn how to combine coupons with rewards programs, like learning how to make CVS work for you!

On the Ball. Frugal people are on the ball by being organized and informed. They don’t just use the paper for coupons, they actually read it too! How does staying informed help you be frugal? It makes you aware of where rates are at so that you might be able to get a higher return on your money, or a lower rate on a loan. It allows you to follow legislation that might have a direct effect on you. Staying organized is also a key aspect, if you aren’t organized, you aren’t ready to act to make sure you lock in that low rate on your mortgage refininance, or you can’t find the coupon you need to make use of the CVS cash back. Only informed people can make informed decisions, and only organized people can act quickly enough to make the move.

Understand Needs vs. Wants. Frugal people understand what is a need and what is a want, and they ask themselves if something is a need or a want before making a purchase. Do you want something really badly? Prioritize and save for it, you might be surprised to see that the desire to purchase will pass.

I am writing this from a 6.5 year old Powerbook. Do I want a new mac? Absolutely, but I maintain my computer and it still functions perfectly for what I need it for.
I drive a 10 year old Acura with 150,000 miles, and yes, I want a new car, but I absolutely cannot rationalize it. It’s paid for, it runs great, I can work on it myself (unlike many new cars with which the manufacturers have made it nearly impossible to work on yourself).
I want to finish outfitting our garage as a gym, no we don’t need it, but Mary and I see an ROI in our health (body maintenance) so we are slowly gathering things from Craigslist, and finding good deals at specialty shops. We understand that this is a want, but it is a priority for us, so we are pursuing it.

I hope that you will be able to form some of these habits and become more successfully frugal!

Why You Need To Know Math

Daniel — Sat, 21 Jun 2008 04:42:42 +0000

This week I overheard a conversation that made me ashamed of my generation. I felt like I aged 20 years and was looking at two young people (roughly my age) in disbelief.

I was in a retail store with my wife, and I had a cashier call other stores to check stock on an item. As I was waiting for my answer, a woman (around 25) walked up to the register with an item. It rang up as $8.50.

She turned to the cashier, “This was marked as 50% off.”

“Oh,” replied the cashier who was in his early 20s, “ok, I’ll just make an adjustment,” He the proceeded to ring up the item again.

“That’s not right” said the woman. ”50% of $8.50…$4.50.”

At this point I would have been alright, people make mistakes, but I was still biting my tongue.

The cashier thinks about it, and then REACHES FOR A CALCULATOR! At this point I couldn’t take it any more, and proceeded to make an ass out of myself.

“Uhhh…$4.25,” I interjected.

Both parties, thought about it for what seemed like at least a minute, and I got a combined “Oh yeah.”

I should have stopped at that, but for some reason, unknown to me, I had to continue with the smartass comment of “yep, gotta love that elementary math!”

I immediately felt like a huge ass, I apologized, and left the store.

Now, I know I was an asshole and I probably should have kept my mouth shut, but really? Needing a calculator for something like that? Are we really a generation that can’t do remedial math in their heads? Are we that reliant on technology that we can’t think for ourselves?

How can you expect to budget while you shop if you can’t do things like that? I love sale racks (who doesn’t?) but I always have an understanding of what I will be charged before I pay. That way I know if the cashier makes a mistake in ringing me up, it’s a basic way to save money, and a skill that everyone should have, if you don’t watch out for your own wallet no one will! Yes, this issue was over a quarter, but imagine if it was a higher ticket item?

The Art of What Not to Post

Falling Off The Wagon

Daniel — Mon, 16 Jun 2008 01:51:42 +0000

Hi, my name is Daniel, and I… lost track of my finances.

I write (what is for the most part) a personal finance blog, so you’d think that I would track every penney, but I don’t. We budget to pay ourselves first (savings/retirement), pay all of our bills, and then everything else is give and take. One month we might go over on eating out, but we won’t touch our clothing budget, so we call it even; but over the last month as we have moved I have learned a very valuable lesson.

Once you start spending, it’s hard to stop. It’s like the floodgates of your bank account open, and the next thing you know, you’re asking how your credit card bill got that high!?

We realized this week that we have run our credit card bills up much more than we realized. It’s not like we have purchased large items, it’s a great number of little things that we did not appropriately budget for. For instance, the last two weekends we have been out of town, and we did not adequately budget for food for either weekend. Plus being gone on the weekend messed up our schedule, so we didn’t go to the grocery store to stock up for the week as we usually do, so we ended up eating out. Then we moved, there was no point in us buying tons of food when we would have to move it, so we ate out more.

Our move was a beast by itself. Thank goodness I have friends and family who were willing to come help when I offered free beer (which no one ended up drinking!). I rented the largest Budget truck available, for 24 hours, found a coupon code online to nock off 10%, and then surprised myself when I was able to negotiate another 15% off at the truck rental place.

Somehow a great number of little things added up. The only major things I can remember buying are drapes and blinds for the house (which we came in way under our budget for!…to bad we went over everything else!)

This will serve to be a very interesting month. We will soon make our first mortgage payment (yikes!), and we’ll get to see how close we were in our estimates for our new utility bills! Plus, we’ll map out a plan to pay off our credit card bills. Which right now I’m thinking will involve pulling some funds out of savings and tightening the budget to replace the money over the next few months (and hoping for a decent raise soon!)

Also, allow me to apologize for this seeming rant. As you know it’s been over two weeks since I’ve really posted anything of substance, so A. I’m a little rusty, and B. it helps to just start writing to get the wheels moving sometimes!

Live On Last Years Salary

Daniel — Wed, 07 May 2008 03:10:01 +0000

My wife and I have essentially been living as if we were making mortgage payments on our new house for the last 6 months, but instead of paying a mortgage (and taxes and insurance and Homeowners Association) it’s all been going into savings for our down payment.

We admit that we are stretching ourselves to buy our first house (I think that’s something that most people do), but as we are re-evaluating our budget (less than a month until we move in!) we have found ourselves looking forward to our raises in the fall (even if it just equates to a cost of living raise) because let’s face it…as much as budgeting is important, no one likes sticking to a strict budget, so we look towards the future at what we will be making and what we can spend (or save) at that point in time

I think our problem is that we are always looking to acquire more. We want more and don’t want to make sacrifices to get more.

As Mary and I caught ourselves looking forward at what we will be earning and what will increase in our budget I thought to myself, why not look backwards?

Why not live on last years salary? Say your salary was X last year and it increased to Y this year. If you live on last years salary and budget you inadvertently save Y-X all year. Then when your salary increases to Z you can live on Y and save Z-Y.

This concept allows you to save more and forces you to permanently (ideally) live below your means. It’s simple, but a great and easy way to save!

Fun And Frugal

My Mandatory Class Proposal

Daniel — Wed, 12 Mar 2008 03:09:19 +0000

In college I thought I had learned everything. I learned finance in and out, I learned economics, marketing, advertising, managing, forecasting, social drinking, networking, and every other aspect of business that I could think of. I was a badass.

Nope. As soon as I started work, I ate my piece of humble pie.

Why is it that I spent four years in college, graduating with honors and a dual degree, to enter the workforce and immediately be slammed by something that I had never been taught?

Literally, the first thing I encountered when starting my new job was benefits, and I have never been taught benefits. What kind of medical coverage do I need? Should I get the basic plan, or the premium plan? HMO? PPO? Extra life insurance? Flexible Spending Account? Use it or lose it? How much will all this cost me? It was a very overwhelming experience.

Who do you turn to in a situation like this? It seemed like the benefits lady who talked to me on my first day was in the same boat I was in. She had no idea what she was doing! Other people asked questions and she stated the coverage that she elected. Great. How is a 40 year old, single mother’s elected coverage supposed to relate to a guy directly out of college? Thank God I had a week to submit my elected coverage, because that gave me time to research and talk to my Dad. Now am I confident in my selections?…Absolutely not.

Having had this experience, I propose a mandatory class for all college seniors, regardless of their major. This class would be taught jointly between a few different departments and would touch on topics that everyone will face after college:

Résumés and cover letters: writing and critiquing
Interviews: How to sound like a better you
Benefits: The pros and cons of certain coverage
Insurance: Life, Car, Home
Personal Finance: How to Budget, and Don’t let your ego use your wallet
Retirement Planning: Yes, you’re 21, but you won’t be forever

I propose that this class be mandatory for all college seniors because regardless of major, everyone will face these issues after college, and not everyone will have someone close to them bail them out (Thanks Dad!).

I realize that all of these topics vary by person, but having someone lay out some basic guidelines that you will be tested on is something that I think everyone can agree on. For instance: If you start out saving/investing 10% in a 401k/IRA/Roth IRA when you are in your early 20′s, you will be set for 80% income replacement when you retire (USAA Magazine), and your housing expense should be a maximum of 30% of your take home pay (many financial professionals). Basic guidelines like these can educate people and make them more aware of their situations.

I had great professors in college, but unfortunately only two of them did any sort of rundown on personal finance, and both of them were hurried on the last day of class. In a few of my classes we worked on our résumés, but everyone thinks their way is the best, and I ended up with a few different versions to appease a few different people. Interview sessions were offered by Career Development Services. The key word “offered.” Few people took them up on it. And I know quite a few people who graduated college with a great deal of debt. Why? Because they could pay off all their cards when they got jobs.

I think a mandatory class along these lines would have a great impact on the future leaders of our country. And maybe, just maybe, it may help make frugality a virtue again.

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