The ABCs of FRUGALITY

Ok, let's be honest. The economy is not going to get better anytime soon. The pressure on our budgets is being wracked by rising costs and lowered incomes. The traditional virtue of New England thrift is essential. All of us, will be required to design a financial regimen. One that protects our families and our homes. This isn't new. It has been done in the not too distant past. We can and will do it.

Of course, the Frugal Yankee has a few pointers to help you. It is the ABCs of Frugality. The first step is relatively easy, but in its simplicity lies the core of smart planning. Here then, are 8 simple rules to spending less and enjoying life.

A. GET THE DATA

Make a list of monthly expenses.  It's pretty easy to know your mortgage payment, utility bills, or auto insurance premiums.  Yet most people don't pencil to groceries, gas, dry cleaning, etc. Grab a small note book and start tracking everything. Know where your money goes.  If you know where it goes, it is easier to stop unnecessary outflow. It'll be easier to keep necessary expenditures reined in.

Here's what you do.  Write down every penny you spend including credit card.  Then add it up. Once it is down in black and white,  understanding is self-evident. Many times the big surprise is the cost of restaurants.

B. NOW ANNUALIZE EVERYTHING

Knowing what you spend on a monthly or even a weekly basis, is just the start. Multiply that number into a yearly cost. If you spend $4 a day on two cups of coffee, that's $1400 a year.  A couple who eats dinner out twice a week could spend $5,000 a year.  There's nothing wrong with that if it's important to you. Too many of us have gotten into habits and we don't realize the cost. The question to ask,  is it worth it? Is it worth, say, the$5000? Or could that money be used differently?

C. SMART CREDIT CARD USE

The most abused area of personal finance is the credit card. Spending is obscured by time delays and indecipherable bills. Studies have more than suggested people will spend less money when cash is used and credit cards aren't over. Remember that when using your card and ask yourself, is this really a good deal?

Being honest with ourselves is the first awareness. We do use credit cards.  They're very convenient.  But carrying a balance, is throwing away money.  Therefore the first financial priority is pay off the cards.  Cut all spending to the bone.  Although it may seem daunting, start by paying off the lowest balance first. It'll give give positive feedback. Then pay the balance each month, before the due date.  Credit card companies are constantly looking for new and exciting ways to get more money out of your pocket. They add all fees. They shorten grace periods. They raise interest rates if the wind decides to change direction.

Some folks recommend dropping all your cards except one or two.  Other suggest keep the cards, but don't use them The unused balance will augment your credit rating. Everyone's situation is slightly different. Use the one that enhances your financial picture.

If you have significant balances and your interest rate is unattractive, action is required. Start by paying more than the minimum on time. After a period, call the company and negotiate the fees and the interest. If there is a negative response, start making plans to change companies.

When you begin your search fro new credit cards, Look for companies with no annual fee.  Rewards programs sound great, but if there is no payoff to the tune of $50,  no fee is better. That $50 stays in your pocket. Rewards plus an annual fee serves the credit card company, not you. One last note on rewards programs. Be sure the reward is cash or something you'll use.

D. SEE OF DEBT

Our culture has fostered debt. It was the engine driving the eocnomy. Remember when a certain politician invoked mall spending with patriotism?  It makes sense for the national economy, but not individually. Not drowning in a sea of red ink is a healthy way to live, but it requires savviness to keep afloat.

For example, check interest rates on mortgages, auto loans, school loans, or any other debt.  Develop a plan for extra payments on those loans with the highest rates.  As debts are whittled down, monthly living expenses will drop.

Use debit cards with care. Items bought with them may not be protected. Loss of a card and used by someone nefarious may not be protected. And several studies have shown people spend more with a card, any card, than if they used cash. That is something to keep in the fore front of your mind.

There is a great quote for the father of our country George Washington. "To contract new debts is not the way to pay old ones".

Knowing debt will drag you down is a major step towards frugality.

E. ALIGN YOUR VALUES

Have you ever defined the family's financial goals? Is a college fund part of it? Or perhaps a new house for an expanding family is needed.
Whatever it is, stepping back with clear goals makes it easier to match philosophy to actions. Actions like moving to a smaller, less expensive to run house may make sense. Upgrades on housing services like heat may make sense. That second car may be impractical.  The course of action becomes evident when the numbers are presented and the goals defined. Be courageous in your examination and don't rationalize.

F. WASTE NOT

Knowing where money is going is a start. Understanding areas to spend less is the another step. Some typical issues:

Cable: The average TV watcher focuses in on around 12 channels, many even less. Do you really need the 150 other channels? Consider dropping all but the stations you want. Estimated savings: $1000 a year.

Communication:  Landlines, cell phones, internet phones,and even email, we have so many ways to communicate with each others. They've been built up over time. Take a step back and analyze your needs. If you have a cell pone, do you need a land line's long distance service?  If you have a cell phone, are you on a contract with lots of roll over minutes? Is you cell contract on a family plan? If any of these exist in your home you probably can save anywhere from $1000 to $3000 a year.

Restaurants: Dining out is not cost effective. Enjoyable maybe, cost effective no.Restaurant eating has become a culture which costs more than making your own food and in many ways more unhealthy.  Cutting down on the restaurant meals will save money. Dropping one restaurant visit a week can save a family of four $2000 a year. Imagine how much you'll save if more is dropped.  

Other ares to consider examining are video rentals (libraries are free), insurance rates (raising deductibles) or less expensive vacations. Any place money is spent, is always a place to re-examine HOW that money is spent.

G. STUFF THE STUFF

Part of the consumer culture fostered for decades by massive amounts of advertising results is acquisitive. Many Americans simply have too much stuff.  The attic, the cellar, the back of closets and even those ubiquitous self-storage centers, are crammed with stuff not used in years. 

Assess what is in storage. Recycle what is not used. Consider this, before shopping for new things,  look around, maybe it is already there. Heck, there are several cable TV  shows. Many of these look around the house and find unused things for new uses. Put the creative hat on and reuse what is already on hand.

H. DELAY THE GRATIFICATION

When the urge to buy swells, wait.  The moment will subside. Then determine if the purchase is a smart choice.  Or, before buying it, talk it out with your spouse.  Here's a good rule of thumb, if you're not willing to talk about it, you probably don't need it.

Another way of delaying gratification is to keep your car longer, or buy an appliance only when it is on its last legs and you've researched a replacement.

However, it is reached, stalling the impulse to buy is a solid, frugal decision.

Frugality starts when the realization that our money is ours. Using it wisely is a tradition that goes further back than Ben Franklin. As a culture we have strayed from that principle. Remember, being frugal is not being cheap.  It is about getting value. It's spending our money where it matters and never wasting money. This is the basic frugal tenet.

From traditional tips to savvy perspectives, the Frugal Yankee knows how to enjoy life and spend less. Find out more by going to FrugalYankee.com. Be sure to check out Hollywood Breakdown in Gather's Movie Essential for some smart takes on the film business.

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