Back to the Basics Part 4: Frugality

We’ve touched on having an emergency fund, keeping cash savings, creating and maintaining a budget, and now a little less fun (or potentially a lot more fun!) topic…FRUGALITY.

What is it? My definition is short and sweet: saving money where you can save it.

There are some out there who say you do not need to be frugal with daily expenses like lattes and fast food. That you only need to watch major expenses like vehicles, houses, furniture, etc. But what if you did both? What if you saved money wherever you could save it–on the big and the small?

Right now, on my income and with my budget, it’s important for me to not buy a latte or a Starbucks drink everyday. It’s important I don’t buy every book I want to read. It’s not that I couldn’t–it’s that I’m choosing to save that money instead.

And in the future when my income is higher, I’m still choosing to take that view on daily frugal living. Why? Because nothing has really changed. My income has gone up and I have the money for it (just like I did before.) But now I get to save even more.

Call me a tightwad.
But I’m not.

Being frugal doesn’t mean you never go out. It doesn’t mean you don’t give your money to charity. It doesn’t mean you hate having fun. In fact, it means you love to have fun so much you’re going to not spend now and save instead so you can have a TON of fun later.

But being frugal does mean you might cut coupons. Or take advantage of Starbucks free pastry day today before 10:30am. Or  take your lunch to work. Or wear clothes more than once. 😉

Or–a  huge one for me–NOT spend your money on the dumb vending machines at work. They SUCK your money. All so you can just get up from your desk to “do” something for a minute. Go ahead, throw your $2.25 on an energy drink! But I’ll keep mine and hope you do yourself a favor one day and add up how much you spent this month on that machine.

There’s no cut and dry, “This is what frugal is. This is what frugal is not.” But regardless, frugality DOES exist and regardless of your rate of income you should be practicing it. Because no one needs to spend $150 when they could spend $140 for the exact same thing just with a little more effort.

Overall, I see frugality as a lifestyle. And as such it is one that you give yourself permission to break out of instead of vice versa (where you live an extravagant lifestyle and ‘make yourself’ live frugally when you have to.)

What is frugality to you? Do you think it’s portrayed in a bad light? How do you practice it?

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Quick Tip Savings Calculator

Ok, this isn’t rocket science or anything, but sometimes we just don’t think about everything we’re spending money on.

Personally, I think I’m finally getting the picture of how far a dollar can really go. It goes further than we think. Especially when we add that dollar to another dollar and then those 2 dollars to other dollars. And then we invest them and it multiplies. 😉 So cool.

I ran across this “Quick Tip Savings Calculator” on GoBankingRates.com and thought I’d share. It’s nothing you couldn’t figure out w/ a pen and paper, but it will make you think.

Check it out here.

I had to say “no” to a few things cause I am already doing them but what I had to say yes to was:

1. Lower your thermostat. (I haven’t actually had to deal with this yet since I don’t pay the electric bill but I will starting next month! But I love being warm. I know I can wear more clothes to save a few dollars every month!)

2. Play the market: wisely use coupons. (I have just started realizing coupons actually save money. I thought the time it took to cut them out wasn’t worth it but if you use coupons on things you already normally buy you’ll save money. Don’t use them for things you wouldn’t buy if you didn’t have the coupon. That is called “spending money to save money,” and it doesn’t work well. =)

3. Go green-Convert to energy-efficient bulbs. (I don’t know much about energy-efficient bulbs but maybe you do? I’m guessing they cost more but maybe last longer? Does anyone know how that works?)

That’s all I could work on, and if I did it could potentially save me $165 a month. Wow. If that’s true then I’m definitely taking the extra time to do them.

What could you do differently and how much would it save you??

Back to the Basics Part 3-Budgets

Either I’m going to go out and spend all my money on food, new clothes, and awesome entertainment, or I’m going to sit inside and sulk that I can’t have any “fun” right now because I’m saving it.

Neither option the way to go, of course! But sometimes that mentality wants to sneak in on me. But I won’t let it. Balance is key!

Regardless of what others may say, the key to financial balance is having and maintaining a budget. Some feel it is too constraining but in reality it is very freeing because you get to control where your money is going instead of letting it control you.

A budget is easy to make and there are hundreds (if not thousands) of different templates you could use. J. Money at Budgets are Sexy has some pretty rockin’ ones you can find here. I’ve decided to create my own that probably only makes sense to me but here is the breakdown…

My Budget

I get a paycheck every 2 weeks so that is [usually] 2 a month. I call one paycheck, “Paycheck 1” and the other, “Paycheck 2.” (Simple, huh?!)
Paycheck 1 I designate out this way:
  • Cash Savings
  • Vacation Savings
  • School Savings
  • Rent
  • Gas
  • Food
  • Anytime Fitness
  • Life
A certain amount of money goes toward each of those categories and when they are all added up it equals the total amount of paycheck 1.
I do the same thing with paycheck 2 except it’s categories are a little different:
  • Cash Savings
  • Vacation Savings
  • School Savings
  • Electricity
  • Water
  • Cable
  • Renter’s Insurance
  • Phone
  • Insurance
  • Gas
  • Food
  • Life
  • Best Buy
And once again, a certain amount is designated to each and there is none left after that. =) I plan ahead of time where my entire paycheck is going so there are no questions.
Once I have built up my “cash savings” I will have some leeway but right now I want to get my emergency fund up.

The Usefulness of a Budget

Having and keeping a budget up will save you tons of stress and worry and will also pay off for you in the long run.

The key is to pay yourself first (in the form of savings) than your bills than day-to-day living.

Once again, it’s basic. But I know some of you aren’t doing it. 😉 You can start today. I’m not an expert on budgets but I play with mine every day and have looked at a lot of other templates. If you have a question about one please feel free to contact me.

Do you keep a budget? Why or why not? How has it helped you achieve some of your goals?

Back to the Basics Part 2: Savings-Cash Savings

Happy St. Patty’s day everyone! Hope you celebrate it by wearing lots of green and pinching some people. 😉

Now for your feature presentation…


Remember what my emergency funds are for?

What do you think the difference between that and cash savings is?

What’s the Diff?

Recap: Emergency funds are for 6-8 months of normal living expenses if you were to lose your source of income and need to support yourself while looking for another.

Cash savings are for everything else that comes up while you still have that source of income!

What Cash Savings Is For

Car breaks down and needs a $1100 to repair it. Then you break your arm and take a little trip to the ER. And on top of all of that you finally see the laptop you’ve been wanting for 4 months on a killer sale?

What to do? Well, it’s NOT time to break into your emergency fund.

When and How Much

Side note: Until you hit your 6-8 months living expenses mark in your EMERGENCY FUND you may have to use your E-Fund for these kind of “emergencies” you‘d normally use your cash savings for (ok, maybe not the laptop!) But when you’re emergency fund is on its way up beginning your cash savings is a very good thing. It serves as cash for this emergency or that rockin’ sale. That way you don’t feel strapped down and unable to take care of yourself and splurge (every now and then. =)

Our cash savings doesn’t necessarily have to have a limit (but maybe it should because at some point you’d want to invest your extra cash not just let it sit there waiting to be used making .01% or whatever your money market account makes…maybe 3.5% like mine. 😉 But really, it’s just a very nice thing to have.

I say it’d be nice to keep at least $2k-$4k in here for random expenses that may come up and perhaps even more depending on your income and lifestyle.

Freedom

I’d consider this funds existence as the point where we are truly not living “paycheck to paycheck.”

This way you don’t have to break your budget, and you don’t have to dive into your emergency fund in order to get your car fixed or buy your mom those spontaneous flowers you know she’ll love.

Why is getting your car repaired or new tires not considered something to dive into your emergency fund for? Because it definitely will happen, and thankfully we can be ready for it!

This “cash savings” really doesn’t exist for me right now, but I can’t wait until it does. I am putting my main focus on my emergency fund and a few “small savings” funds for certain things I’m wanting to purchase.

Breaking It Down

And on that note, cash savings can be broken down to true “cash savings” and to “specific item funds” where you foresee a larger purchase and specifically save just for that. I‘m doing this for a vacation right now. Technically it’s still cash savings, but I don’t keep it in the same place as the other because I know there’s a difference. It is not really “free” money; it’s going to be spent on something in particular.

Depending on our level of discipline your cash savings could be kept in your checking account or in a savings account for use at a specific time.

Thoughts? How important do you think a cash savings is to peace of mind and living an enjoyable life? Do you separate your emergency fund from your cash savings?

Back to the Basics Part 1-Savings: Emergency Fund

Consider this: You walk into work tomorrow and your boss calls you into the office. There has risen a need for layoffs in the organization and unfortunately you are one of them.

Been there before? Or heard of people who have?

It’d suck, wouldn’t  it? Not being able to afford what you need…right NOW?

It doesn’t have to be this way!

As we work to build a solid financial life there are a few items that must come first. And they may seem obvious, but I have to admit I know more than a few people who don’t participate in these.
The first and most important of these is called saving. It’s basic. It’s simple. It’s easy. But it does take some conscientious effort.
And more important than saving for vacation or a new laptop or TV (of course we’ll discuss those later) is saving for emergencies.

This is where the Emergency Fund comes in. Haven’t heard the term before? Maybe you could check out Dave Ramsey or a number of other personal finance bloggers! The Emergency Fund is the first thing you need to build up! Haven’t started? Today’s the day!

Most people take this view of Emergency Funds….
It’s a savings account set aside for, well, emergencies. Such as immediate car repair needs, immediate medical attention, immediate repairs on the house, etc., etc.

I tend to take a different view on them…(sue me. 😉
It’s a savings account set aside for use if I lose my job or end up on extended leave-without-pay and can’t pay the bills and feed myself.
(Maybe my view is a little extreme, but I think emergencies like car repairs, etc. can actually be foreseen to a certain extent. My car is 13 years old now, and I KNOW my car is going to need something done to it. I have a different savings fund for these called my “cash savings.”)

So how much should be in the Emergency (AKA: I-Don’t-Have-A-Source-Of-Income-But-Am-Looking-For-One) Fund?
Most professionals suggest 6-8 months of living expenses.

Sounds like a lot, huh? It is. But it’s better than not having any and being put out on the streets or having to move back in with your parents. 😉 Plus, you’ll just start “feeling” wealthier with that sitting in an account somewhere (making dividends of course) with your name on it. Hopefully you’ll never have to use it!

Right now, I am definitely still working towards this. In the meantime it also serves as my “cash savings” (for repairs and other emergencies that don‘t include me losing my job =) but once I get it built up to 6-8 months living expenses I will start another fund that would cover any minor emergencies.

So how do we even start building up an emergency fund?
I suggest “paying yourself” first (this takes a budget.) When you get your paycheck or see the direct deposit in your account, the day you receive it, put a certain amount (or percentage) into your Emergency Fund. How much is up to you. Maybe it’s 10% (shoot at a minimum for this) or 25% or maybe you can put even more back if your bills will allow. But put SOMETHING back.

I have been putting back around 20% of my paychecks into my emergency fund, and it’s refreshing to know I have something to fall back on if something were to happen.

Of course there will be other things we want to save up for before we hit the 6-8 month living expense mark in our E-Fund, so I think it’s safe to say once you have $1,000 in your E-Fund you can start to split up your savings to other things as well. Just don’t forget about your little E-Fund. He wants to grow and the long-term goal is to get it up to that point it will cover 8 months of your living expenses if needed. =)

What do you guys think? Agree or disagree? Do you have an emergency fund or are you building one? What keeps you motivated and do you have any cool tools you use to save?

March Spending

So here it is short and sweet. I like to budget but a budget is just a plan of what you’re going to do with your money. An important part of keeping track of your finances is to review at the end of the budget period (for me it’s a month) and see where all your money went.

When you create a budget, break it down into a few major categories. If you’d like to have sub-categories that is fine but the categories should be very general. Mine are:

1. Savings (this includes emergency fund savings, vacation savings, school savings, etc.)
2. Debts (this includes what I put on my Visa card that month and paid off in full, student loans, etc.)
3. Transportation (includes gas, oil, auto insurance, auto repairs, etc.)
4. Housing (includes things I buy for my house, rent, all utilities renter’s insurance, etc.)
5. Life (includes everything else: food, entertainment, phone bill, cable bill, etc.)

So this month (my ‘budget months’ run from the middle of a month to the middle of the next) I tracked my spending through my online banking website and broke it down into categories. Here is the breakdown (as seen on the graph) of how I spent my money:

Savings 21.47%
Debts 9.07%
Transportation 16.96%
Housing 15.06%
Life 37.44%
There are definitely a few items when I went and looked back I should not have spent my money on. Most of it was some unneeded eating out that I am going to purposefully cut back on this next month.
Ultimately, at the rate of income I’m currently at, I’d like this to be the breakdown…
Savings %27
Debts 0%
Transportation 15%
Housing 25%
Life 33%
Since I’m moving soon my expenses are a little strange so this next month more will be under Housing than Life so I can get settled well.

Do you or have you ever tracked your spending? Do you find yourself consistently meeting your goals? How do you stay on track?

Does It Have to Come Naturally?

So yesterday I tweeted this. And I realized that the reason I do this is because investments don’t come naturally to me. The how, what, when, where and why are all questions that haunt me when it comes to “investing.”  So I got to thinking about how I apply the same logic to much of life.

I love life a lot.

But it scares me to think I may just love it cause it’s so easy right now. Everything is coming so naturally.

Just like I love reading personal finance blogs when they are easy for me to understand. Talk about budgets and frugality and saving and spending and insurance and all of those kinds of things is relatively easy for me to understand in comparison to investing. I’ve only heard the terms mutual funds and EFTs.

[Though I invested in my first penny stock last December. Nothing serious.]

So what comes naturally is obviously easier than what comes with a little bit of effort. But think of all the things we could be missing out on! All of the things that if we just took the time to learn we could enjoy just as much as we are enjoying all of the things that come naturally to us.

Maybe it’s an art like playing the piano or painting or writing poetry or fiction or starting to blog.
Maybe it’s teaching others.
Maybe it’s going out of our way to serve or give our time, money or ears.
Maybe it’s becoming a personal trainer, counselor or preacher.
Maybe it is finally starting a budget or starting to eat healthy.

For some, these things come naturally. And for others, it doesn’t. But why let what doesn’t come naturally to you stop you from enjoying it? Go ahead and take the time to learn it and reap the fruits of  your labor.

I’m going to do that with investments but there are a lot more important things I’m going to do that with too.

What kinds of things do you know you would enjoy if you weren’t so uncomfortable with it at first? What will it take to learn about it enough to start enjoying it?