Chances are, you’ve read frugal living blogs and seen how people save buckets of money.
You’re a little skeptical, like many others. You know better than to trust everything you read online.
But here are the questions:
Should you start frugal living ? could you realistically expect to save any money living on one income?
And those are tough questions to answer.
If you google frugal living, you’ll find lots of shallow lists on how to do it, but nothing about a comprehensive guide for beginners.
In fact, I felt fooled a way back when I was curious about the same thing. I’ll bet we are not the only ones. So, I’m going to clear it all up.
It’s not that a frugal lifestyle doesn’t work. It’s these shallow frugal living tips that somehow pop up online as an effective method of saving money short term and long term.
Instead of throwing in the towel on Frugal living completely, throw in the towel on these outdated tips and start upping your game with what works today.
Let’s start at the beginning.
Frugal living is about smarter money management. It’s taking charge of your money, putting a budget in place, and cutting all unnecessary spending so that you can save money.
Alternatively, better defined, Frugal living is a personal financial journey that’s dictated by where you are financially and adopting financial habits so that you can achieve your financial goals.
Frugality is a lifesaver for anyone under an avalanche of debt who feels there’s no way of getting out, anyone wanting to build their kids’ college fund, retire early, or grow a savings account so that you take your dream vacation.
According to Sharon Epperson, fifty-eight percent of Americans live paycheck to paycheck and have less than $1,000 in savings.
Frugality helps you spend less than you earn, which gives you more money to invest.
If you’ve read this far, you’re probably thinking…
Most people know what a budget is, but the fear of knowing how much they earn and how much they spend hold them back from moving forward. Those people’s finances are like a black box. They get paid, put the money in the bank and spend it until it’s gone without tracking what they earn and spend.
Unfortunately, others don’t even have a bank because they spend their money before they get paid.
But it doesn’t matter where you are financially. What matters is that you’re willing to take charge of your money.
Here’s how to create a budget:
Track your expenditure for the last two months by checking your bank statement and all the receipts that you have. Moving forward, keep receipts for each purchase you make.
Create a budget framework. A budget framework is a plan that you allocate your personal income towards expenses, such as the mortgage, rent, car payment, food and so on. It gives you a clear picture of how much you make, how much you spend, and how much is left over.
Here’s what your frugal living budget should look like:
60% Basic living expenses, insurance, taxes, regular bills, taxes, charity contributions (tithe)
10% Irregular spending such as new appliances, vacations
10% Long-term savings, debt repayment, downpayment for major purchase
10% Indulgence money, going out to eat
Here are common mistakes to avoid when creating your budget:
Mistake #1: Complicating your frugal budget
Mistake #2: Creating a frugal budget that doesn’t reflect your spending plan
Mistake #3: Having unrealistic expectations on your income and expenditure
Mistake #4: Treating your frugal budget like a chore
To make things easier for you, grab this free frugal budgeting tablet and modify it to fit your spending plan.
If the frugal budgeting tablet doesn’t work for you, create a budget the old way, using paper and pen.
There’s hidden money everywhere. For example, you might be able to get a better deal from a different cable provider compared to the one you have now.
However, your cable provider may have an early cancellation fee. It’s a hard pill to swallow having to pay it before cancellation, but it’s worth paying it. Within three months you’ll recoup the costs.
To discover hidden money, here are the unnecessary expenses you should focus on trimming down:
a. Pay lower interest rates
Do you look at your credit card and start wondering, “How do I pay off this debt without cutting back and living cheap as I can possibly do?”
One way to do that is by paying a lower interest rate because saving a few percentages on your credit card bills at this point is worth it.
A lower percentage over time can be worth huge savings over time.
How do you do this? List out all your credit card debt on paper and the creditors. Call them and ask for a better deal on your debts. You’ll not only be able to pay off your debt faster but you also won’t be losing nearly as much money to interest.
Here are seven other ways to lower your credit card interest rate.
b. Reduce expenses on TV Cable
Most cable providers give you a deal and get you in at a discounted rate, but they’ll let you know that your prices will go up sometime down the road, maybe in six months or a year. The problem is this: You might not remember when the time rolls by and you’ll be hit with high charges.
Something to be careful about is bundle pricing. With taxes, fees, and surcharges, average monthly bill rounds out to $110 on most cable companies. Bargain this down with just a phone call and you’ll save $1,320 a year.
If you’re struggling to pay rent, the cable should be the first thing you should consider letting go, at least for now.
Once you cut the cable, here’s a free alternative for you if you still want to binge on your fantasy football games or if you want to keep up with the Kardashians.
c. Negotiate a better deal on your car insurance
When buying their car insurance, most people don’t know which coverage options to choose from, so the insurance company picks the policy for them.
You need to check if you have the right amount for your coverage.
Find out how much you’re paying. If you don’t have your current policy with you, you can call your insurance company or check their website.
Call customer service and sweet-talk them into telling you about other deals that your policy doesn’t have on their website, but your competitor insurance company offers.
Call your competitor’s insurance company and negotiate a better deal than your carrier offers.
Negotiating your car insurance rates is about letting your money work for you. It’s about making sure you’re taking advantage of your benefits. Make sure you do this at least once a year.
And here are the phone numbers of the major insurers:
d. Go for affordable cell phone providers
Look at the current plans that you use to pay for your cell phone costs. Then find comparable plans by other cell phone companies.
For example, if you’re with AT&T, you’ll investigate Verizon, Sprint, and T.Mobile by going to their websites. Write down how much they cost, how many minutes you get and any other benefits.
Call them and ask the customer rep what better plans they have to offer you.
They may try to tell you that you are on a fixed phone plan and moving to a new carrier would have you paying a termination fee.
And because you’ve done your research on other companies, you can tell them that even with paying the termination fees you’d still save to get a better deal. (Pull out your research here-tell them what other companies will offer you.)
You can even threaten to cancel the service, and they’ll most likely retain you with less payment and an even better deal.
For example: If At&T is offering something for $20 less, tell them that. That’s $240 savings a year right there.
Ask them to give you a cheaper plan. Explain how times are tough, and that you need a better deal to stick with them. And because they want to retain you as a customer, you’ll get the deal.
As a frugalista, a clean and trim space helps you know what you have and stop spending money on things that you already have or you don’t need.
Now it’s time to dispose of unwanted possessions and get quick cash. This money can help you fund your vacations, pay a bill that’s overdue…
Here are five ways to help you make quick cash with the items you don’t need.
Yard sales or garage sales are the best when it comes to selling household items, shoes, clothes, cooking utensils, kids’ clothes, toys, and much more.
In addition to plastering your town with signs, don’t forget to advertise your garage sale in the local newspaper. Advertising will help you sell more stuff.
b. Book Shops:
Selling your used books won’t make you lots of money, but selling them will help you clear lots of space in your house, which is a win for you.
You can sell your used books in local bookstores (that accept used books at half price) or sell on Amazon.
Selling on eBay is easy. You as a seller will have an option to sell through the auction, where you can run the auction for a set number of days, or you can set a “buy it now” option.
Craigslist is a perfect place because It doesn’t matter where you live. You can sell almost anything on Craigslist: Cars, furniture, tickets, collectibles, household items.
e. Facebook Marketplace:
If you have a Facebook account, you can sell the things you don’t need on Facebook Marketplace.
However, you’ll find many trolls on Facebook. They’ll call you names for selling your stuff, and call you a thief for refusing to sell cheap.
If you ignore the trolls, you’ll land on right buyers who appreciate what you’re selling.
As a frugalista, it’s best to cut the bad, but common, habit of spending way too much on eating out daily. Spending $12 on each meal might leave you without enough rent.
Or buying food with the intention of cooking, but you end up throwing it out is a waste in itself.
If you do your meal planning right, it can be a game-changer when it comes to saving money.
How to do this is planning your meals before the week starts. Maybe Saturday or Sunday, or even a Thursday. What’s important is that you find a time that works for you.
The goal is to have zero food wastage and to save money.
Let’s take on batch cooking planning.
Decide what you’ll eat next week.
Consult your monthly budget- figure out how much you’ll spend.
Take a look in your fridge or freezer and pantry.
Take a list of the things you have.
Check your calendar and make a note on the family schedule.
Buy the groceries that you need.
Choose a day to cook and freeze the food in portions.
This batch cooking will help you save greatly. You can get recipes for under $20 a week here. That’s not bad, right?
Do you know there is a credit card epidemic in the USA that’s affecting the poor and the rich?
You’ve seen the rise of TV programs about getting people out of debt. You’ve seen articles on how to pay off debt and you’ve probably read a few of those articles on how to get out of debt.
Millions of people have gotten out of debt, and so can you if you stick with frugal living.
There are different ways to pay the debt, some promote the smallest debt first, and others support the higher interest first.
Researchers at the Kellogg School of Management studied debt collection records and without an unbiased conclusion found that those who start paying the lowest debt first are likelier to eliminate debt.
When it comes to paying off the lowest debt, there’s momentum and pride that builds your stamina to continue paying the next debt and finally being debt-free.
Let’s start knocking the debt off in three simple steps
a. List your debts from the smallest to the largest on a spreadsheet.
b. Start making minimum payments on all debts except the smallest. Any extra money you have, use it to pay that smallest debt.
Once you’ve paid the smallest debt, use that extra towards your next smallest debt and continue paying the minimum amount to the rest of your debts.
Many people have cleared debt using this method, and so can you.
c. Pay as much as you can towards your smallest bill. Rinse and repeat the process until your debt is cleared.
Now that you’ve paid off your debt, it’s time to set aside money for short-term or even long-term emergencies.
Long term success with managing money comes down to your behavior around saving, spending, and investing.
Most people cannot rescue themselves when faced with an emergency. Imagine getting fired unexpectedly, getting sick, a car repair or even getting an aneurysm and being off work for an extended period.
Having emergency savings will prevent you from getting off track with your budget when the unexpected happens. Set aside a set amount per month in a separate savings account. Consider it like giving yourself a monthly stipend.
What’s the best savings account?
Open an online account with Capital One 360.
Why Capital One 360?
Capital One 360 has the best Annual Percentage Yield (APY) compared to many banks out there. Read this post that’s sponsored by Capital One and you might decide to take their free classes on savings.
Most banks are pathetic. They have an APY of 0.01%. A savings account assures you that money is ready when you need it.
Now that you have money saved for a rainy day, what’s next?
Opening A Long Term Frugal Living Saving account.
Here we’re going to open two savings accounts: A taxable account and a non-taxable account.
With the first account, you pay before you taxes and with the second, you pay after you have paid taxes from your paycheck.
With a retirement account, you get a significant tax benefit. While 10% or 15% may not seem like much in a year, when you compound that over 25 years, it becomes good money.
Honestly, if you start a retirement account this week, you will be more financially prepared and financially independent when you retire.
What are the benefits of starting investing early?
If you’re 25 to 35 years and you start putting away $25 a week for the next few decades, you’ll have $50K, if the rate of return is 8%.
While if you choose to wait until you’re 35 or older to start investing, you’ll have less than if you started now.
With long term savings, we are going to look at 401(k) and Roth IRA accounts. Both of these two accounts allows your money to grow without much effort from you.
Now let’s get into the details;
It’s a retirement account offered by many employers to their employees. It’s named after a section of the U.S. Internal revenue code.
The US federal government created a 401k account as an incentive to encourage people to save for retirement.
Typically you pay a percentage of your pre-tax money to Uncle Sam. For example, for every $100 you make, 15% goes to Uncle Sam (depending on your tax rate).
A 401k account allows you to invest before they take the 15% in taxes. The more you put in towards your 401(k), the less you get taxed. And to make it sweeter, your employer will match what you put in your 401(k) (it might be 2–6% of your contribution or more.)
Here is an example of an average 401(k) account.
So what happens when you contribute money to your 401(k)?
Your employer usually hires a professional administrator like Fidelity to manage your account. They keep you updated on how your account is performing through emails. You can also watch over your account if you enroll online by creating an online user account on your administrator website.
Once confident, you can start choosing your investment combo. It’s like Tacos for investors: You can do it.
What’s the advantage of 401(k)?
You get the money you haven’t paid taxes on, so there’s more of it to save and grow.
Most companies offer a ridiculous 401(k) match, and you must take advantage of that match.
If you have a job and you don’t have a 401k, talk to your human resources department and ask them how to open an account. It’s easy to set up.
Since you invest before paying taxes, Uncle Sam gets his share when you withdraw your money at retirement. Getting taxed when you start withdrawing your money after retirement isn’t bad considering it’s been growing for the last 15–30 years or so.
You’re limited to how much you contribute to your account (in 2019) limited to putting $18,000/year in your 401(k).
And if you withdraw before you’re 59.5 years old, you pay the penalty. 401(k) is meant to be retirement money and not your Friday night out cash.
Bottom line: If your employer offers a 401(k)plan, and will match a percentage of your contributions, you should take advantage of it — this is free money given to you on a platter.
What if your employer doesn’t offer a 401(k) account or you don’t have a job?
You can open a Roth IRA account.
What’s Roth IRA?
A Roth IRA is a retirement or savings account that lets you invest after you’ve paid Uncle Sam.
The Roth IRA account grows tax-free, and when reaching retirement age at 59 ½ you don’t pay taxes on it. (You can withdraw after five years without a penalty). A Roth IRA is an opportunity to save for retirement and long-term tax advantage.
Roth IRA Restrictions
Again, this is your retirement account or long-term savings account. So, you get penalized if you withdraw your money before you are 59.5 years old. (You can withdraw the principal or the amount you invested from your pocket, at any time, penalty-free.)
There are a few occasions when you’re allowed to withdraw penalty-free. These include funding you/kids/partner/grandkids education, and some emergency reasons.
Currently, the amount you’re allowed to invest in your Roth IRA is $6,000.
Bottom line: Starting a Roth IRA account is essential, every dollar you save now is worth much, much more later on.
Look at this account from budgets are sexy on investment at Vanguard.
How do you open a frugal living Roth IRA account?
What’s the difference between 401(k) and Roth IRA?
What should you open first?
Go through an independent service like Vanguard and set up your account.
Plan automatic deposits to your Roth IRA, and try to deposit as much as you can afford.
Later, when you feel confident, decide how you want your money to grow. Either low-cost diversified index funds, which are the best option, or target-date funds.
If you don’t have the required minimum to open a Roth IRA account, you can use Betterment account, and you only need $1 to start.
Here’s how to go about it:
Max out your 401(k) match what your company provides.
Max out your Roth IRA, $6,000.
Max out the rest of your 401(k), up to $16,000.
Why max out your Roth IRA before your 401(k)?
Well, there’s a lot of divisive debate in the personal finance world, but the main reasons are tax policies. For example if your career goes well, you get promotions and your taxes will increase, meaning you will pay Uncle Sam higher taxes when you retire.
Remember: Your 401(k) money is taxed at the end, while Roth IRA money is taxed right away and then grows tax-free.
What’s a credit score?
Why does a perfect credit score matter when I am living a frugal life?
It’s important because it can save you thousands and even hundreds of thousands of dollars.
A good credit score will get you the best interest rates on loans, such as a mortgage and credit cards. If you have a low credit score, you’ll pay higher fees and interest.
Read more here on how your credit score is calculated.
How do you live frugally on one income and improve your credit score?
Get a no-fee credit card. I recommend Chase Freedom or Chase Freedom Unlimited.
Keep the card open indefinitely because it will increase the average age of your credit account.
Pay off your credit card payments in full each month, and it will lower your credit usage, which is 30% of your credit score.
Will you take the leap and give frugal living a try?
If you’re struggling financially, all you want now is to be debt-free.
This is for you.
You owe it to yourself to live a debt-free life and have cushy savings.
And if you’re the breadwinner, you owe it to those depending on you for vacations, better housing, and worry-free retirement.
A frugal lifestyle helps you, helps your loved ones, and keeps the family at peace, knowing all needs are met.
Frugal living can make you rich. And it’s your turn if you take the leap.
Because you deserve it…
Are you ready?
Then let’s do Frugal living.
You want to get in touch and discuss your content Goals?
Frugal Living: The Ultimate Guide for Beginners in 2020 first appeared here