The Basics of Frugal Living

Nobody wants to be frivolous with their money. However, with money management, there’s a fine line between intention and action. Many of us are never able to surpass the intention part. Whether it’s a compulsive hobby, the absence of a budget or a lack of resourcefulness in identifying cost-saving measures, being frugal takes rigid discipline and effort.

If you’re sick of the way you spend your money and want to exercise more control, consider these key tenets of frugal living.

Pay Off Your Credit Card Each Month

Contrary to popular opinion, credit cards are not the devil. They are problematic, though, especially when they’re treated as inexhaustible funds. Would it be wise to spend $1,000 on your credit card when you only have $200 in the bank? No, it wouldn’t. Yet many people make similar financial mistakes.

Herein lies the issue: that same credit card carries an interest rate of, let’s say, 20 percent, and with each payment that doesn’t satisfy the entire balance, the person falls deeper in debt, not to mention damaging their credit. This is an overly simplistic example but it’s a key reason why the average American household carries over $15,000 in credit card debt.

When credit cards are paid off each month, they actually become a financial tool; you build your credit score and, if you choose the right credit card, you earn reward points that can be used for whatever you’re interested in, such as flights, hotels, groceries, gas, or just cash back. If you’re going to spend the money anyway, you may as well get free things in the process.

Build an Emergency Fund

Less than half of Americans (39 percent) have enough savings to cover a $1,000 emergency, according to CNBC. So, what happens when your car’s transmission goes out, or your house’s air conditioning system breaks in the middle of summer, or a medical issue strikes? Without an emergency cushion, the only answer is debt. When large costs have to be put on a credit card in a pinch, well, we’re back to the example above: interest rates will eat you alive.

Building an emergency fund doesn’t need to be painful, either. Contribute whatever you can, whether that’s $20 or $50 a paycheck. You can accelerate your progress by contributing money from your tax refund, funds from selling stuff, or money saved by cancelling unused subscriptions, according to financial thought leader, Andrew Housser.

Instead of putting this money in standard savings accounts with crumby .05–.06 percent APY, put your money in a high-yield savings account. Many online-only banks offer interest rates as high as 1.75–1.85 APY with low minimum deposits.

Be Creative and Resourceful with How You Spend Your Money

We all need day-to-day things to survive, but there’s a big difference between buying things we need without discretion and being resourceful in getting those things at lower costs. From thrifting and learning how to sew your own clothes to becoming acquainted with the resource that is Craigslist and light couponing, opportunities to save money on essential life needs abound. The tricky part about being resourceful in frugality is not spending too much time going out of your way to save money. If you feel like you’re using a lot of your time trying to save money, then you may have crossed the opportunity cost line.

But that also depends on a) how much you enjoy the process and b) what you could be earning in the time you’re using to be resourceful. Either way, being creative and saving money on things we have to buy is usually just plain fun.

There are countless ways to practice frugality but the overall tenets are quite simple: don’t spend more than you make, always be mindful of the value you’re getting out of a purchase and constantly be on the lookout for ways to spend less money while still getting the things you need.

Don’t let anyone ever call you cheap for being mindful about your money. Being cheap has nothing in common with being frugal. Being cheap is to fear spending money across the board while being frugal is about prioritizing your spending so you have money for what’s really important to you. The former is a self-imposed limitation, the latter, empowerment.

photo credit: U.S. Fish and Wildlife Service – Midwest Region Ring-necked Pheasant Nest via photopin (license)

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