Frugal Kick

Five Frugal Tips for Surviving a Recession

It's pretty clear we're in a recession that's going to drag on longer than any of us originally expected, as I wrote about here and here. There's no time like the present to assess your current financial situation and prepare for the long, drawn out recession ahead. I don't think it'll get as bad as the Great Depression because of the safety nets put in place after that economic catastrophe, but the fact that our economic woes are spreading to other countries like a flu in winter is a sign that we're a long way from the road to recovery.

1. Cash is king. Strive to be cash-based and avoid using credit cards, taking out loans, or financing anything other than income-generating expenses like a college education or necessary and sound investments like a home that you will live in.
2. If you have no savings, make it a priority to start saving. The general rule of thumb is three months worth of expenses. But, honestly, if you're living paycheck to paycheck (or recently unemployed), winning the lottery seems more likely. So do what you can. Starting a savings plan is like starting an exercise regiment. It's painful at first, but becomes easier and even enjoyable once you develop the habit.
3. Scale back your expenses in meaningful ways. There are lots of frugal tips out there calculating how much you can save in a year by not getting your coffee at Starbucks, going to the library instead of buying books or magazines, and bringing lunch to work once a week. But when you're first getting started on being frugal, a meaningful cutback that results in noticeably more money in your pocket at the end of the month can be more motivating than an extra $100 bucks because you gave up your daily Starbucks. Plus one sizeable cut is less irritating than a small cut every single day.
4. Don't panic. Now is not the time to liquidate your investments or move your 401(k) money to cash and bonds. As long as you're not within a few years of retiring your portfolio should recover eventually (certainly well before you retire). You should also continue contributing to your 401(k) because with stock prices as low as they are right now, each dollar you contribute is going a lot further than it used to. It's always a good idea to evaluate your personal risk tolerance and investment goals and make sure your investments are in sync with your needs.
5. Keep spending modestly on the things you really need. In order for the economy to claw back to normalcy, we must keep the economy going by spending as needed. So while it's admirable and oh so frugal to grow your own vegetables in your yard, sensible spending is what our economy needs and what will enable all of us to survive the recession.

This list is just a start. How are you surviving this recession? Post a comment and I'll include your tip on the next list.

Frugal Report Card - Month 1

It’s been a month since I started on this frugal kick and it’s time for a monthly check-in.

I’ve identified six budget-busting spending categories that I want to reduce over the coming months. Here’s a quick description of what each category includes:

1. Dining - all eating out, except business-related meals that my husband’s company reimburses.
2. Home furnishings - things like furniture, decor, etc. that are usually one-time purchases.
3. Utilities - gas, electricity, phone, cable, internet, trash, water. I’ve included this category, even though these are essential expenses, because our family is wasteful when it comes to turning things off to save electricity, running the air conditioner all day, leaving faucets running, etc.
4. Cash - this is the black hole of our spending. We withdraw cash from the ATM and then have no idea where it is spent.
5. Groceries - food and other household supplies purchased at the supermarket.
6. Household - things like toilet paper, paper towels, toothpaste, cleaning supplies, etc. that need to be replenished every few weeks.

For the month, I spent $800 less in these categories, and it was nearly painless. I’m tracking all of this in Quicken Online, and I analyze it in Excel. Here’s a simple graph that illustrates this month’s spending.

As expected, cutting back on eating out kept a lot of cash in my pocket this month. Instead of eating out for lunch and dinner nearly every day, I packed a lunch most days and cooked dinner four to five times each week. I spent $200 more on groceries, but $500 less on dining out!

I saved another $200 between home furnishings and household expenses by resisting the urge to stock up. Instead, before heading to Target or Sam’s Club, I made a mental list of the things I already had a few weeks supply of (paper towels, toilet paper, soap, soda, etc.) and created a shopping list of the things that would run out within the week. Then, I stuck to the list.

Next month’s goals are to shave $100 off utilities and an additional $100 off groceries by being vigilant about turning off lights, using the air conditioner less, taking advantage of sales at the supermarket, and beginning to use coupons.

Stay tuned!

Frugal Lessons Learned

One of my favorite comedians, Mitch Fatel, tells a joke about his sister having cases of ketchup stockpiled in her basement. Mr. Fatel points out how foolish that is because if times get tough, her money is tied up in ketchup. And that the wiser solution would be to stop eating foods that require ketchup.

So with that in mind, I reflect on some key frugal principles I've learned so far on my journey to frugality, the first of which is a take-off of Mr. Fatel's observation.

• Stash your cash in liquid assets (ketchup doesn't count). Lose the Costco mentality and buy what you need, when you need it. Only buy in bulk for those items that you use a lot of and can go through in two weeks, at most. The cash you're saving should go into a savings account.
• For a larger purchase, buy the best quality you can afford and then take care of what you buy and treat it as if you will never buy another one again.
• Every little bit counts. Don't set yourself up for failure by adopting an all or nothing mentality.
• Organize. The better organized your home is, the easier it is to know what you do or don't have. Plus, you're less likely to lose things that you'd then have to go out and replace. Countless times I have purchased something (everything from a bottle of cinnamon to a sheet set), only to later discover I already had that item stashed in a cupboard or buried in the back of a closet.
• Plan. Planning is a huge money saver because convenience costs. Whether that means purchasing prepared foods as a last minute dinner, or buying a last minute gift or school supplies that you could've purchased on sale or with a coupon with a bit of planning.
• Limit trips to the store or mall or, in this age, online stores. The less time you spend there, the less you're likely to spend.   

Beginning the Journey to Frugal

Over the years as life has gotten more complicated (career, marriage, kid, etc.) I've evolved from the prototypical starving student living on instant noodles and sharing an apartment with five others, to an SUV-driving, HOA-paying, single family homeowner with a gardener, nanny, and a golf-loving husband. Life is pretty simple when you have no money and few choices for what to do with it other than put a roof over your head and a shirt on your back.

This year my company cut my annual bonus. Which hurt. A lot. On top of that, my husband is in sales and with the economy tanking as it is, his income has been hard-earned this year.

Add to that my ongoing quest to work less and spend more time with my daughter Bee and I came to the realization that we need to cut the fat in our spending and get out of this cycle of working and earning more just so we can spend more.