I get a lot of questions about frugal lifestyles. Some are positive, some are very very negative. There are people who simply do not understand how anyone could voluntarily choose frugality. If you have money, you should spend it. Sure you should save some of it, but they feel they need the house, the cars, the big screen, the clothes, and can’t understand why others wouldn’t choose the same. I started to write about it, and realized I have way too much to say on the topic! So I decided to create a series about it. Hopefully this series will shine some light on this new age of frugality and why it really isn’t such a crazy choice!
So we’ve talked about the meaning of frugality, the new frugality and how to make frugality a habit. How can we use frugal living to get ahead though? That is the goal, right? We aren’t living on less to punish ourselves! It has to mean something, we have to have goals! So where do you start?
Using Frugality to Get Ahead
The great thing about frugal living is that nothing is ever really off limits to us. Delayed gratification doesn’t mean deprivation. So sit down with your spouse/family/cup of coffee and start thinking about your goals. What do you really want in life? Big things, little things, silly things, important things. What are your goals?
The best thing to do is to divide them into categories:
- Short term: I want this really soon. It’s reasonable to expect I can get this soon if I save up.
- Long term: I want this in the next few years. It’s reasonable to expect that in the next few years I can save up for this.
- Very long term: This would include things like retirement, vacation home in Barbados…just the loftier goals you have for way out in the future.
Crunch the numbers
Now you need to sit down and crunch the numbers.
- Start with your very longterm goals first (preferably the more realistic and essential ones), and decide what you need to do now to get there. Work these numbers into your budget. You might find that on your current income…you can’t put as much aside for this as you would like. Remember, your income will likely go up as you age. Put as much towards these goals as you can without making yourself really uncomfortable now . Remember we aren’t guaranteed tomorrow. Don’t make yourself miserable today for some goal you have 30 years from now. Think of a graduated savings plan where you contribute a bit more to these goals every year until you are at your desired contribution (for instance, we increase our 401k contributions 1% every year).
- Next work on your long term goals. This might be a house, a bigger house, a car, vacation, etc. These goals your want to reach within the next few years (I’d say 5-10 max). How much do you need to set aside every month to make this dream a reality? You might find a bigger, more expensive house isn’t actually a reality within your budget constraints. You might find when you crunch the numbers that you can actually do some of these things sooner then expected! Portion off a part of your savings budget to reach your long term goals and increase the amount as your income grows. You might meet these goals sooner than you think!
- Short term goals. I’m going to admit that these are my favorite. They are generally a bit more fun and flexible. They are within our reach, we just have to plan for them for a bit. This could be a vacation, a cool new gadget, even a fancy night out on the town! Make sure your long term and very long term goals have savings portioned off and the rest goes towards your short term goals (this is in a zero based budget, where every dollar has a name. This includes your savings!). One short term goal which is essential is to have a certain amount of living expenses set aside and untouchable. Most recommend 6 months of living expenses. This protects you in case of job loss, illness, or death in the family. Having a good reserve of living expenses set aside is pretty essential in today’s shaky economy. This should be priority #1 in your short term savings (although this one could potentially take you a long time, the more you live within your means though, the faster you will get this accomplished). I am not including debts into your short term savings, because those should be worked into your budget before you even consider your savings.
Stick to Your Plan, You Will Get Ahead
If you crunch the numbers and work out a plan to give every savings dollar a name…you will (barring job loss, illness, death in the family) reach your financial goals and get ahead. Frugal living isn’t about living poor, it’s about living wealthy within your income. Will you always be perfect? No, of course not. Set expectations for your finances and you’ll be much more likely to spend and save with purpose! The rich don’t get rich because they spend with wild abandon, they get rich because they spend with purpose.
This isn’t a set it and forget it plan however. You will consistently need to sit down and re-evaluate your goals. Inflation, life changes (new babies, new jobs, etc) can throw a real wrench in the best laid plans. Set a date each month (or every few months, whatever works best for you) to have a financial planning meeting to make sure things are progressing along the correct path!
I am not a financial advisor. I know what works for me and what works for my family, but I certainly don’t claim to have all the answers! Here are a few helpful resources to help you out on your journey to living a life of frugality:
Budget Savvy Diva
Do you have advice? Share it in the comments! I’ve really enjoyed writing this series and I hope you’ve enjoyed reading it!
Making Frugality a Habit