The Frugal Connection

I received just last week an email from a friend who now stays in Japan for good. He got married there and excitedly broke the news on his first born. Unwittingly, I replied by telling him that he’s got to have another one soon for he’s growing older, now at 43. He got back at me with all the pick holes on how hard life is, financial woes, high cost of living, difficulties in raising children, etc. Then I remember how tightfisted he was with us. Being single for 40 years, I could not remember any generous initiative he’s made in terms of spending. Maybe we were wrong or maybe he had a different view of life – stoic like the Japanese. But other people find him miserable and stingy, and worse, selfish. He said to me once that he’s just being frugal – a defensive mechanism huh! So I thought of discussing frugality for a while. I’ll hold tight my chance to understand him next time…

Frugal living doesn’t mean being miserable, or giving up what you want. It doesn’t call penny-pinching attitude that holds down your sharing capability. It doesn’t say ignore others and suppress your needs. Frugality is basically the system of finding less expensive alternatives. Being frugal simply means to spend wisely. Don’t waste money on things that you don’t need but don’t be cheap and skimp on the things that you do need. Being frugal means that when you do have to go out and buy things, you don’t really need the best of the best most expensive things. Buy things for less, and what do you get? More money left over to buy more of what you want! Frugality doesn't have to mean living without comfort.

On the other hand, maybe you don't buy the idea of clipping discount coupons and buying clothes at rummage sales. That's okay because that never was and never will be the important part of truly frugal living. For it to be the most advantageous, frugality has to launch with the big things, and if it never gets down to the small items, you'll still be further ahead financially than most people. Here are some suggestions for you to consider.

Ways to Cut Spending

1. Consider dropping your home telephone line. Your cell phone is probably all you really need, and most likely it has free long distance. You could save $30 or more per month by dropping your "land line".
2. Cut back on trips to Starbucks or other premium coffee shops. Often called the "latte factor", spending several dollars per day on luxuries like premium coffee can really add up. For example, if you spend $4 for a cappuccino five times a week for 50 weeks out of the year (you're on vacation the other two weeks), you would spend $1,000 in a year. Try treating your trip to Starbucks as a treat instead of a habit. You'll save money and probably lose weight too!
3. Pay your mortgage payment bi-weekly instead of monthly. You'll pay less interest and pay off your mortgage faster.
4. Carry cash instead of credit cards. Psychologically it's harder to spend cash than it is to use the credit card. You'll spend less and save on interest charges.
5. Use the "envelope system" for groceries, dining out, entertainment, and other discretionary spending categories. This will help you track how much you spend in these categories as well as prioritizing your spending.
6. Raise the deductible on your homeowners and auto insurance policies. It's not wise to file claims for small losses anyway (insurance companies love to raise rates after you file a claim), so a higher deductible will save you money now and in the future.
7. Buy regular gas instead of premium. Most cars don't need premium gasoline. Also, take public transportation if it's available in your area. Take advantage of "park and ride" and carpooling options.
8. Plan your purchases to avoid impulse buying. Take a list with you to the grocery store and stick with it. Studies show that impulse buying can add $10-50 to your grocery bill ouch!
9. Go to the library instead of the bookstore. If you're an avid reader, give yourself a book budget for books that you will want to keep, and go to the library for everything else.
10. Take a vacation at home. Check out all the local sites and happenings. You'll rediscover your hometown and save on travel and hotel costs.

These are just a handful of ways you can cut spending and stretch your dollars, but if you follow these tips you'll discover you have more money at the end of each month to apply to other financial goals, such as saving for college, retirement or just for a rainy day.

Frugal Living Examples

1. Search the Sunday paper for coupons and clip them out. Make a list of things on sale that you can stock up on in order to get your average cost down. Plan and run a route of four stores in order to get everything where it is the cheapest. Total extra time spent: three hours.
2. Sit with a pen and paper and determine what you really need in your new house to be happy. List the cheapest homes that meet your criteria. Make several extra phone calls and check out several bank websites to get the interest rate down to 6.25% from the 6.75% you were expecting to pay. Total extra time spent: three hours.
3. Let's assume you save $30 on your groceries for your effort. Your frugality made you about $10 per hour. In the second example, suppose you found a suitable home for $20,000 less. Let's say you only have to borrow $120,000 at 6.25% instead of $140,000 at 6.75%. Your payment would be $169 less per month, for a total savings of $60,900 over the thirty years of the mortgage. In this case, your frugality made you about $20,000 per hour.
4. I think you can see that it is the big stuff that makes a difference in frugal living. On the other hand, sometimes the small stuff is the big stuff, especially when it is repeated over and over. This is why it makes sense to save money on groceries. They are something you buy every week. How you do it makes a difference though.
5. Suppose you don't want to clip coupons or spend time looking at sales flyers. Let's face it; if it only saves you $10 per hour of effort, you might be better off staying a few hours extra at work and skip the hassle. On the other hand, why not invest just an hour or two to figure out which store is cheapest for the things you buy? Then shop only there, and buy more of the things you use and like when they are on sale. You might still save $20 per week, with no additional investment of time. That's a $1,000 per year!
6. Have you read newsletters and magazines about saving money? They often have tips on things like how to re-use plastic wrap or aluminum foil. Is it worth the time to wash out and dry your ziplock bags? Maybe, if you like that sort of thing and you are making minimum wage. For most of us, it is better to spend the time analyzing the big and the recurring expenditures. That is the key to frugal living.