- Figure out how frugal you are currently
For those who can do so, track your expenses for a few months, and a year is even better.
I’ve been able to cut expenses dramatically by having just a few categories of expenses. Yours will depend on what your major expenses are, but I suggest the following:
Auto (or Transit for those in metro areas)
Charity (if applicable)
Child Care (if applicable)
Clothing
Debt (if applicable)
Education (SHOULD be applicable - put aside at least some money for self-improvement!)
Entertainment (including Alcohol and… other things)
Food (some people break out Eating Out to see how much they’re spending here)
Health Care
Housing (includes Utlities, Furnishings, Household Supplies, etc.)
Savings
Miscellaneous
You’ll probably be amazed at just how much you spend in some categories. For me, Food, Health Care and Housing are 75% of all my spending. That’s helpful when you want to cut expenses - it’s a lot harder to cut back on a 2% category than a 25% one.
Once you’ve done this, you should create a budget for a full year. No, you don’t have to make it something onerous and tough to keep up, but what gets measured gets done. If you want to lose weight, you normally keep track of your weight and/or calorie count.
- Price everything in terms of your after-tax hourly rate
This will help with reducing spending.
Would you pay $10 for a drink if you make $12/hour after taxes and therefore that one drink’s true cost is 50 minutes of work? Maybe, maybe not. But it makes it much more clear.
Large numbers are difficult to comprehend for many people. Spending $25,000 on a car, if you make $20/hour after-tax (a great rate of pay!) means that your $25K car really cost you 1,250 work hours, or more than 6 months of full-time work. In fact, it’s much worse than that, because if your discretionary cash (i.e. after you pay for rent, utilities, etc.) is 20% of what you make, you’re then spending as much as 3 years of discretionary income for that vehicle!
Conversely, some things that seem expensive may make more sense. A $200 pair of shoes that lasts for several years may cost you a full day’s work (at $25/hr) or even two days’ work (at $12.50), but if your feet don’t hurt because of the quality of the shoes, then that may actually make a lot more sense than dropping $50 or $100 on a dinner vs. going to Chipotle or cooking at home.
Try this with everything for a month and see if it changes how you approach life. You’ll start to see thrift stores, garage sales, clearances, etc. in a whole new light: As giving you back hours of your life.
- Cultivate spontaneity and a taste for flexibility
If you can be spotaneous and flexible, you will be able to take advantage of a lot of sales/promotions that will open you to new experiences.
Just out of my first job, Southwest Airlines offered a $30 round trip flight to St. Louis on Labor Day. I had never been to St. Louis, so I researched online and found out that there was a lot to do. So I flew in very early on Labor Day, took the subway-like system they had into downtown, and used local buses to visit: St. Louis’s two cathedrals, the site of the Dred Scott decision, the famous Gateway Arch, the St. Louis Zoo and a museum. And on the way back to the airport, I stumbled across an outdoor jazz festival, so I spent an hour hanging out and listening to great music for free. Total cost of this trip: less than $100, which included my food, transportation (air and ground), parking at the airport and a ticket in the Arch.
Likewise, your smartphone is your best friend. So many places offer deals and specials on the Smartphone - fast food restaurants certainly (McDonald’s free fries on Friday, free drink with any purchase, etc.) - but also using Groupon when wandering around can open up new avenues you might not otherwise consider. A new play, a contemporary museum, opera, classical music festival, whatever.
- Decide what you like and ignore what others think you should like
Pretty basic for FWF refugees, but uncommon in larger society. I own a 10 year old Toyota, an upgrade from my 20 year old Toyota I owned until last year. I’m an executive and I get ribbed from time to time, but I also pay less in total expenses for my car in a year than some of my colleagues pay in a month. I wear thrift shop clothing in many cases, including buying ties and even sport jackets there. Instead of expensive nights out in pricey bars, I play board games with like-minded friends.
If you like pricey things, go to step 2 above and ask yourself: Why? Is it worth it? Can I get equal pleasure from something that costs a whole lot less? Can I become an adventurous individual who tries new, cheap (or free) things that expand my capacity to enjoy life without heavy spending? Money is fungible - if watching a movie in the theater is a true thrill, then enjoy it. But if you have almost as much fun for 1/20 the cost, then keep the theater experience for dates or special occasions and pocket the difference, either to save or to spend on something important to you or to give to those less fortunate.
