Friday, January 8, 2010

Steps to Living a Frugal Life

In harmony with my dare this week I thought it would be appropriate to share with everyone some steps to take in order to start living a frugal life.

If in the new year you have decided to begin living a frugal lifestyle it can be hard to find a place to start. It is so easy to procrastinate and "purchase just one more thing" but following these 5 steps will make things a lot easier.

1. Create a budget.

Sit down with all of your bills, pay slips and receipts. Write down your monthly "fixed" expenses. These are the bills that need to be paid no matter what (ie: mortgage, car payment, loans, etc). Then write down your "variable expenses". These are the things you can adjust (Food, entertainment, etc) Do not forget your debt repayment. This number is considered a variable expense because you can adjust it according to your budget but try to pay back as much as you can so that interest payments are reduced. Calculate the total. If you run out of money before expenses you will either have to find more income or decrease your expenses. Live within your means and only on the money you bring in each month.

2. Only use cash or debit cards.

There is constant urge to use credit cards for all of your purchases. They are so convenient; buy now, pay later. When paying with credit there is the thought, I will find the money later but that can be too great of a risk. If you pay with cash or debit your purchases are "real". You own them. If they are on credit they don't belong to you until that purchase on the card is paid off. Now, I know there are some places that only allow you to pay with credit card. If you do need to use credit, make sure the money to pay off the purchase is already sitting in your bank account. Make the purchase "real" by paying it off right away.

3. Find some wiggle room.

Find some extravagances in your budget. At first glance you might not think that there is any room for wiggle room but with a closer inspection you could be wrong. Save money from your budget for; movies, dinners out, cloths, concerts and anything else you enjoy. Some things may require months of saving but if you don't enjoy life a bit you won't be happy.

4. Get Creative.

After your budget is finished sit down with your family. A fresh pair of eyes might be able to look at it and find some more flexibility (something they can live without). Together come up with fun activities that you can do as a family that costs you little to no money like skating, walking or making a fancy dinner together. Brainstorm ways to make a little bit of extra money on the side for the things you want. Some ideas are; looking after a child on the weekend, cutting grass, shovelling snow, picking up groceries for a senior or selling something you don't need anymore. Whatever you come up with getting together as a family to make sure everyone is on board is very important.

5. Plan for the future.

Keeping a focus on where you want to be in years to come is important. Do you want to retire early? Own a house? Have college money for your child? All of these things are very important. Remember to save for your future as well as your families. Here is an example of how great RRSP savings are.

Say you are 25 years old and you want to retire at the age of 65. If you contribute $150.00 a month you will retire with $523,651.00. Wouldn't that be nice? :-)

All of these steps are crucial to living a frugal life. However, remember always do what is best for you and your family because making sure you and your family is happy is worth all the money in the world.