Jump Start Your Frugality
We hear from a good number of people that they would like to have more money. Not just have more, but make more. They talk about the need to get a better paying job, how they can barely afford to pay the bills and if only they made more money every month, then all their problems would be solved. However, having more money, can in many situations, make things worse. Its just about a proven fact that a huge majority of lottery winners end up in ruin not because they have too much money, but they use that money to dig themselves a hole of debt. It takes a considerable amount of discipline to manage huge sums of money and the truly wealthy are good at it, simply because they have had the practice. Who is going to be a better golfer: Tiger Woods with the run of the mill clubs, or you, who has the bleeding edge of club technology? There’s an analogy in there somewhere, but I digress…
»What we need are not only a few simple steps to get us on the right track but also the ability to stay on that track. Before you think to yourself, I need more money, think about making the most of what you already have.«
1. Stop the Bleeding – Get a detailed printout of your current monthly purchases and give it a hard look. What are the most common things you buy? For my girlfriend it was Starbucks. Every morning she would order a half-caff, triple latte, super espresso quad-shot coffee that would have given your whole family a permanent orange afro after it peeled the paint off your house. You can imagine how expensive this was, especially on a daily basis. It adds up and now that she brews it herself, we save, literally, about $130 a month. Apply these thoughts to your own image of spending. What are buying constantly that might be considered “extra.” It’s ok to cut out a little at a time; the goal is to not alter your lifestyle, but to reduce the expenditures that come along with it.
2. Budget – Get into the habit of monitoring your finances on a weekly basis. Set aside a solid 20-30 minutes a week to assess your money. Examine what you spent money on and what you saved and keep track of it. Even if you don’t necessarily have a perfect day, the notes and trends you see will help you in the long run. Wealthy people seem to never worry about their money, but they have a very accurate pulse on their financial situation. There are several ways to do this; Quicken, Microsoft Money, Mint, Wesabe, Geezeo and Lazy Man’s personal fave: simple spreadsheet. Here’s ours.
3. Bills – One way to manage bills is to set up automatic payments, once you are caught up of course. 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. You will also be able to judge for your budget how much you have left over and set that money aside preemptively. Then you don’t have to worry about it, its being paid. Important note: Keep very specific notes on all bills you set up for auto bill pay. You are going to consult this whenever it comes time to buy other items, like groceries for example. Keep close track until you are in the habit of recognizing how much you have every month.
4. Saving Methods – We are big advocates of investing, but then again that’s the industry where both Frank and I work. However, there are few drier things then learning about stocks, bonds, interest rates, capital gains, tax exemptions, deductions, liquid returns, and P/E ratios for most of us to entertain for any length of time. Lately, we have been talking about some of the most sure fire ways to save without thinking about it. Both Wachovia and Bank of America have saving programs that set aside small sums frequently over the course of your spending, and employers will set any amount aside for you into any account you choose. ING Direct has some nice rates for long term savings, as well as checking. Keep in mind that rates are not good right now due to the Fed dropping them so low. Watch this, history has shown that when they get very low, it comes time to crank them up and when they do, especially when the economy is in this sort of situation, you can almost bet that it will be fast. But that’s a whole other article. 
5. Maintaining Financial Discipline – After all this is said and done and you feel as though you have reigned in the wild spending of your spouse, or yourself, you are going to need to be diligent about keeping up with it. Educate yourself. Yea, its hard work and is sometimes a little boring. But then again 1) if it were easy, you would already be doing it and would not be reading this 2) eventually, it will be a habit and over time it will really pay off. No pun intended. (Well, maybe a little intended.)
6. Temptations – What about when we get into having a few extra dollars coming our way? These sorts of things happen from time to time and the best policy is to really just grab onto every penny and not let go. 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. Its hard to convey this but you will absolutely be glad you did when the time comes. If you have already done that, then jumpstart your 401(k)/403(b). If you are already maxing that out, then drop it into an index fund. Anything, but park it into your checking account and having access to it through your debit card. The same applies with any windfall or raise. Be disciplined and simply try it. You will be amazed at the results.
These are but a few most basic principles to consider but powerful none the less. Take advantage of what you are already making and be diligent and you might find a few financial surprises right under your nose. $
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Completely agree that taking the time to plan a budget is essential.
Re: saving methods, I like your ideas, but I would also like to see you encouraging your readers to take the time to self-educate themselves regarding investing, so that they can take a more active role in planning their own financial future.