Many people think it is stressful to keep an eye on spending, but being frugal reduces the stress in our house. Unexpected financial setbacks, which rarely occur, can be remedied without major lifestyle changes. Our family members have learned to work together toward common goals. Our favorite strategies...
Plan and save in advance for all expenses. We divide our checking account into 20 subaccounts on paper -- though it could be done using a computer -- to save for all regularly occurring household expenses, such as mortgage and auto insurance payments, as well as such categories as recreation, gifts, home repair, savings and even pets.
Every other week, we spend two hours recording our expenses and dividing our total paycheck into the subaccounts. For instance, we anticipate the cost for gas and maintenance on two cars is about $2,700 a year, so we set aside $103 per paycheck for those needs. Money in a subaccount that is not completely spent accumulates with each paycheck. This way, it's never a financial strain when the car needs new brakes -- we have the money saved to cover it.
This system takes discipline, but it gives us peace of mind. We know exactly how much money we have to spend in each category. No more robbing Peter to pay Paul.
Plan how to spend large sums. People often squander large payouts, such as work bonuses and tax refunds. Instead, determine the most effective use for the money before it comes in. For instance, when we were paying off our first house (within nine years), we decided that extra money would be divided as follows -- 30% to extra payments of our mortgage principal, 30% to retirement and other savings accounts, 20% for house projects, 10% for charitable giving and 10% for recreation. We always allow some money for fun while working toward a goal. It makes it easier to stick with the plan.
Budget and pay bills together as a couple. Many financial experts suggest that spouses keep their money separate. We don't. Working together has built incredible unity in our marriage, as we have worked toward and accomplished our financial goals. We both know exactly where we stand financially. There are fewer arguments and more determination to persevere.
Avoid the ATM. This cash usually evaporates as quickly as ice on a hot griddle. Instead, to take control of the most common areas of overspending -- food, recreation and clothing -- we withdraw predetermined amounts in cash from each paycheck. Putting a set amount of cash into three separate envelopes minimizes overspending. When the cash is gone, the spending stops. It is amazing to see how easy it is to get control of your money this way.
Plan dinner menus for the coming week. This habit will encourage you to eat dinner at home more often, rather than at restaurants. With practice, a weekly menu can be created in as little as 15 minutes. You will make fewer trips to the grocery store and will save time and money. We have a list of more than 90 different dinner meals that we rotate from month to month. A favorite resource is The Good Housekeeping Illustrated Cookbook, which includes pictures of many of the dishes.
Give up your "sacred cows" for a month to reach your goals. Sacred cows are the little extravagances that you refuse to forgo even when you're under financial pressure. If you're comfortable enough without your sacred cows for 30 days, consider giving them up for good. For many people, these include premium cable channels, bottled water and Sunday brunches at restaurants.
We had a friend in financial trouble who insisted on continuing his newspaper subscription for $30 a month. He couldn't imagine living without it. We challenged him to give it up for 30 days, just to see what happened. When you let go of something, you often find a creative way to meet that need. In this case, our friend discovered that someone at his office brought in the paper each day and left it in the break room.
Make a game of being thrifty. Find a creative solution that costs less than the obvious one.
Example: We saved $400 for a dishwasher. After consulting Consumer Reports, we called several appliance stores in our area looking for a particular brand and model. We discovered that most large distributors have "scratch and dent" and discontinued units, so we called more stores looking for these deals. We struck pay dirt at Maytag and walked out of its downtown warehouse with a brand-new, $800 stainless steel dishwasher (in an open box) for $400. We stayed within our budget and got a much better quality dishwasher than we expected.
Keep your eyes open -- deals are everywhere. Most Sam's Club warehouses have discount/closeout areas in the back of the store. We always check there for deals. One day, we found a twin pack of Xerox Toner cartridges for our copier. They retail for $130 each. We have bought them on eBay for as little as $60, but Sam's Club had discontinued this particular item and marked it down to $10. Of course, we scooped them up. The deal got even sweeter when we remembered that inside each box was a certificate for a $5 rebate when we mailed in our empty toner cartridge (postage paid).
Decide on your "time versus money" threshold. If one phone call will resolve a small error on our bank statement, we go for it, but we're always careful to balance our drive to save money with our time for family and friends.
Our rule: If the resolution of an issue can't yield us at least $10 to $15 per hour of our time, then it probably isn't worth pursuing.