When most people hear the word ‘budgeting’, they immediately cringe and think of living like a miser, scrimping and saving every penny. The truth is frugality is not about missing any of the fun things you enjoy.
Budgeting is all about knowing how much you have to spend and how much you’re expected to pay out and matching the two together. Frugality is simply about learning to spend the money you have on wise purchases and informed choices that won’t get you into financial trouble later. There’s nothing more sinister involved than that.
Here are some tips on budgeting and frugality that can make your financial life a lot easier.
Create a Clear Budget Snapshot
Before you can begin budgeting properly, you’ll need to spend a bit of time creating a clear snapshot of your financial situation as it stands today. This means writing down exactly how much income is coming into the household each month and how much you spend on bills, repayments, expenses and other living costs each month.
Be honest about what you’re spending now on your current expenses. This is an important step, as you can’t begin to improve your situation until you understand fully where you are right now.
Reduce Spending Costs
Take a close look of your current list of expenses and see if you can pinpoint any places where you might cut back your spending or reduce your costs. The majority of people automatically look to trying to cut back on grocery spending or on utility bills.
If you look closely at your budgeting snapshot, you might identify other areas of your spending that could be cut back. You might decide to try taking a packed lunch to work two days a week instead of buying every day. It’s only two days, but it can really reduce the amount you spend.
This can be a good start, but there are other ways to reduce your costs. Look at how much interest you’re being charged on consumer debts like credit cards, store cards or unsecured personal loans. By shopping around and finding lenders or banks willing to offer you lower interest rates than you’re currently paying, you could easily reduce the amount of money you pay in interest costs.
You could also reduce your monthly repayment amounts, freeing up cash flow from your budget for other things.
No More Credit
If you’re already in the habit of paying for all your purchases using your credit card, then this step in frugality can take a little patience to get used to. You should try to use cash whenever you can to pay for the things you need.
The key to this step is to add up the amount of money you need to pay for bills, expenses and other daily spending items, like lunches, entertainment or fuel. Then withdraw that amount of money when you get paid.
Your budget should show you how much you need to make it through each week, so don’t take more than you need. This way, when you go shopping, you won’t be as tempted to buy expensive items you see because you’ll know the money you have available has to last you the rest of the week.
Frugality is about considering your purchases carefully. You worked hard for the money you have, so it makes sense to try not to waste it on things you might regret later.
Reduce Debt Levels
If you’ve managed to cut back on your expenses and reduce your monthly payments and you’ve stopped adding more debt to your credit cards, you’re in a strong position to begin working on a debt reduction plan.
You should try to put some of your interest savings towards repaying your credit card balances and reducing other debts whenever possible. Try to increase the amount you pay on your payments so they’re higher than the minimum amounts due.
As your balances begin to fall, you should notice that your monthly repayments can begin to fall too. Don’t be tempted to reduce the amount you pay, though. Keep up the higher payments until the debt is gone.
Add a Savings Amount to Your Budget
As your budgeting expertise begins to grow and you become more comfortable spending only the cash you can afford to spend, you should notice it’s much easier to keep a few dollars left over at the end of each pay period.
Allocate these funds to a savings plan each week. If you don’t believe you’ll be disciplined enough to put the money away on your own without spending it, ask your bank to set up a direct debit payment from your account over to an interest-paying savings account.
Shop around for different types of savings accounts and ask your bank about what interest rates they’ll pay on savings. Even if it only adds up to a few extra dollars in interest, it’s still money you wouldn’t have had otherwise.
Set Realistic Goals
Sometimes it can be difficult to stick to a savings plan if you don’t have a clear idea of what you’re saving for. You might want to save for a new TV or an expensive outfit or even save for a down payment on a home.
Whatever it is, create a financial goal to give you something to stay motivated for and you’ll find it easier to stick to your budgeting resolution. You’ll also find that frugality doesn’t have to mean going without the things you want.