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Introduction

Photo by Mathieu Turle on Unsplash

October 20, 2019

Mention the word frugal and all kinds of negative and frightening mental images come to mind with most people. The purpose of this blog is to offer principles, ideas and experiences that will bring you to the realization that being frugal is not about deprivation.

Living frugally simply means maximizing your hard-earned income and reducing wasteful spending so you can live well … regardless of how small or large your income is. It’s about you living better than you are now. It’s about living a less stressful and chaotic life resulting in a happier, more fulfilled life that is free of debt.

Being frugal will be a life-changing experience. It will require you to take charge over your financial well-being. It requires commitment and responsibility. It also requires honest assessments of your progress towards your goals.

The ideas and principles that I will share are from my own experience. What worked for me may not work for you due to differing financial circumstances, income level, savings and investment opportunities, level of debt and commitment.

That being said, the principles I’ll present are not theory. Rather, they are principles that have been implemented, tested and proven — through my own experience — to produce financial freedom.

The ideas and principles that I share are not meant to be an instruction manual as there are multiple ways to attain financial freedom. Rather, my hope is that the ideas and principles presented will give you ideas and the encouragement you need to develop your own Frugal Plan that will lead you to financial freedom and independence.

There is one principle truth that will be included in any path you ultimately decide to take: you must spend less than earn.

Your comments, questions and experience are important.

W.M. Brown

Frugal Plan’s Promise

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2020 Base Monthly Budget (Retired)

I have seen quite a few monthly budgets posted by college students, singles and families. I have not seen any posted budgets for retired adults whose needs are significantly different than those needs of young or middle-aged adults. Hence, I thought it may be helpful to those older adults in or near retirement if I posted my budget as an older adult. That being said, I need to provide you with some information to help you understand my base monthly budget.

You’ll notice that I use a base monthly budget because there are a few times throughout the year in which a particular month will include an expense that will occur only in that particular month and I will make an adjustment to that specific month’s budget to include that special or infrequent expense.

Notes

  • I am an expat from the United States living in Ecuador, South America. Ecuador is about the size of the state of Colorado in the United States.
  • I own my home and there is not a mortgage. Hence, you will not see any entries for housing. (Mortgage or Rent) I do not carry insurance on my house as the cost for the coverage here in Ecuador is not even close to being reasonable. Furthermore, I am fortunate to have the financial resources to rebuild my house in the event of a total loss.
  • Though I am retired in 2012, I am not receiving Social Security Retirement income from the United States. I am not eligible to receive full retirement benefits until I am 66 years and 4 months old.
  • You will notice that my medical expenses are high. I have a chronic medical condition in which my health insurance will not cover for another 14 months. I must pay all medical care and medications out-of-pocket until I have met the pre-existing waiting period for coverage. Fortunately, health insurance, medical care and hospitalization in Ecuador is about one-third (or less) the cost less as compared to the United States.
  • Groceries and Household expenses far exceed the costs in the United States. While labor is inexpensive in Ecuador, the cost of products are quite high … especially imported goods. This expense includes 2 small dogs and 1 cat.
  • My wife and I do not eat out. My medical condition requires a very limited diet. My diet is restricted to about 20 foods (not categories of food) and requires special preparation and I am limited to only 12 grams of fat daily.
  • For entertainment, we invite friends to our house to play cards, board games, video games or to watch a movie.
  • Even though all of my current income (interest on savings) is generated in Ecuador, I am required to pay federal income tax to the United States. The United States is one of two countries in the world in which all income (wages, interest, etc.) earned in a foreign country is taxable to the home country.

Monthly Budget

Monthly Income
$4,037 (Interest on Savings)

Expenses

Electricity: $60
LP Gas: $25
Water & Sewer: $58
Cell phone and land line: $40
Cable TV: $91
Internet: $27
Lawn & Garden: $116
House maintenance: $50
Maid: $80
Auto Insurance: $83
Gasoline: $60
Auto Repairs & Maintenance: $50
Registration & License: $50
Health Insurance: $453
Doctor / Dentist: $50
Prescription Drugs: $450
Subscriptions: $5
Grocery & Household: $700
Personal: $50
U.S. Federal Income Tax: $352
ATM Fees: $15
Misc: $20

Total Monthly Expenses: $2,885 (71.5% of income)

Transfer to Savings: $1,152 (28.5% of income)

Saving money is as important to me in retirement as it was when I was working. Unexpected emergencies and expenses seem to be more frequent as I age … especially those related to health. In 2019, I paid $14,600 out-of-pocket for health care not covered by insurance. Having money set aside for such expenses provides peace of mind rather than covering the expenses with debt.

Since everyone’s needs and lifestyles are different, it would be unreasonable for me to believe that my budget will meet the needs of anyone else. However, I encourage everyone to have a monthly budget if for no other reason than to track their expenses.

The whole idea of a budget is for you to manage your money instead of your money managing you.

One Less Auto

Photo by NeONBRAND on Unsplash

For the first time in 33 years, my wife and I are down to one vehicle after selling one this past week.

Since we live about eight miles from town, selling one of the cars was a major consideration. Since we both have recently developed medical conditions requiring frequent trips to doctors visits and lab tests, we needed to be sure that having only one auto would work practically for us. We spent the last two and a half months using only one auto to determine the changes we needed to make. The practical changes we made were:

  • Using a calendar, we scheduled the days and times either one of us needed the car.
  • We set aside certain “fixed” days and times for recurring occurrences. Example: I needed the car every Thursday morning to do our weekly grocery and household shopping.
  • When a scheduling conflict occurred, we simply determined which one of us could most easily use public transportation based on the practicality and location of the event.

In practice, only having one car turned out being easier than we thought. So, between the annual registration, car insurance, gasoline and maintenance; we estimate the annual savings will add up to just over $1,800.

To top it off, we sold the car in less than a week and for $1,000 more than we expected. The car we retained is 14 years old and is in excellent mechanical condition and looks like a new car as we had it newly painted earlier this year.

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Frugal Plan’s Promise

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Don't Hire Done What You Can Do Yourself

Homeowners can save a bundle of money by doing basic maintenance and minor home repairs themselves. As a bonus, you know the quality of the work when you do it yourself.

Don’t know how to do it? Then learn how to do it. There are quite a few how-to websites that give you step-by-step instructions. Two that I have used often are YouTube and WikiHow. Many times, you’ll come to realize that the task you need to do isn’t nearly as daunting as you you think. Here are a few tasks that you can easily do yourself:

  • Repair a leaky faucet
  • Replace a faucet
  • Replace an electrical outlet
  • Replace a light switch
  • Cut and lay tile — including ceramic
  • Replace a toilet
  • Repair a leaking roof
  • Repair a section of broken concrete
  • Paint or stain (interior and exterior)
  • Repair a hole in a wall or ceiling
  • Lay laminate flooring
  • Replace a lavatory (pre-fabricated or from scratch)
  • Repair or replace windows (small to medium sized)
  • Install a storm door
  • Replace door and window screens

One of the reasons people hire others (or professionals) is because they do not have the needed tools. There are three easy solutions to remedy this situation: buy the tools you need on a project-by-project basis, borrow from a friend, family or neighbor, or buy used from thrift stores, garage sales or pawn shops

If buying, it is frugally prudent to buy quality hand and power tools based on your projected use over your lifetime. The more you anticipate using the item, the higher quality it needs to be. Example: (I live in Ecuador, South America. Due to a 52-week growing season, and the amount and frequency of rainfall, it is necessary to mow the grass twice weekly. As a result. I purchased a high-quality lawn mower and trimmer.)

If borrowing, be sure you return the item in the same — or better — condition than when you borrowed it. Also make sure you know how to properly use the item borrowed.

Finally, use caution when operating power tools. I cannot stress enough the importance of safety including the use of safety goggles and ear plugs. When doing home maintenance and repair, always have a first aid kit available and easy to get to. For some projects it is advisable to have a working companion to make the task easier and for safety.

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Frugal Plan’s Promise

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  • No product or service endorsements
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Choosing To Be Content

Photo by Eli DeFaria on Unsplash

There is one characteristic that those of us who have chosen frugality, a simplified life and minimalism have in common: we have chosen to be content. It’s just that simple.

We are satisfied with what we have. We do not want more or anything else. We are not caught up believing that we must always be replacing our possessions with new possessions that serve the same purpose. We realize that our society built upon the foundation of consumerism does nothing but destroy Earth, ourselves and our ability to become financially independent.

We realize that never-ending consumerism leads to a life of unattainable happiness and fulfillment because this type of happiness is fleeting and is always changing. The core of our happiness is built around the values that cannot be met with money or possessions. Nature, experiences and our relationship with others are what motivate us to be good and do good for ourselves, our communities and our planet.

In reality, the only things we want more of is knowledge, wisdom, love, relationships, good health, and shared experiences with friends and family that compile a portfolio of priceless memories.

I don’t need or want a newer and bigger house. I don’t want need or want a new vehicle. I don’t need or want a new wardrobe. I don’t need or want exotic or foreign vacations.

I am content with what I have. I do not seek the approval of others as I am responsible for my own happiness. And my happiness comes from being content.

Time and Money – The Miracle of Compound Interest and Rate of Return

Once you have decided to start saving and investing for your future, understanding the concept and value of compound interest or rate of return will be helpful in your planning. For the sake of simplicity, I’ll use interest and rate of return as follows:

Interest

Interest means the amount of money earned on a savings account, savings Certificate of Deposit or other similar financial savings account. These are typically offered by banks and credit unions.

Rate of Return

Rate of Return means the money earned from mutual funds, stocks and bonds. This includes dividends and the increase or decrease of the value of the stocks, bonds or the share price of a mutual fund.

People at Work vs Money at Work

Relating to saving and investing, “People at Work” is an act of you setting aside money to save or invest for a future need. The money you set aside to save or invest originates from your earned income from work. Example: You decide to put $100 in a savings account and $300 into a mutual fund every month.

“Money at Work” is the money generated from the money you have already saved or invested. Example: The value of the mutual fund you own, excluding the continued deposits you made, increased $2,000 in value from dividends and the increase in the mutual fund’s share price.

Purposes for Savings Accounts and Investments

Everyone needs an emergency fund (rainy day fund) for unexpected events like a car repair, home repair, medical expense, or job loss. Most financial experts recommend a reserve fund equivalent to three months of your bring-home income. This can be in a savings account or simply kept in cash at home where it is readily available when when an emergency arises. If utilizing a savings account, it needs to be a separate account from any other savings accounts.

There may be a need to save money for a specific purpose like a vacation, wedding, big ticket purchase or whatever. A regular (passbook) savings account is ideal for such things. Passbook-like savings accounts fulfill the need to “save up” for a short period of time — usually under two years.

There are long-term reasons the accumulate money like retirement for yourself, higher education for your children and extended elderly healthcare (in-home or nursing home) for yourself and spouse. These events require large sums of money and cannot usually be met using savings accounts because they do not generate enough income from your accumulated money. Because if this, you need to invest (vs save) in mutual funds, stocks or bonds — or all three for diversity.

I recommend mutual funds because you don’t need to be a financial guru or an expert to benefit from the “market”. Specifically, I recommend a mutual fund indexed to the S&P 500.

While there is always some risk of loosing money in a certain years, the historical rates of annual return of return for the S&P 500 should ease your fears for current and future investment dollars. There are years that the rate of return will be lower than the average and there will be years when the rate of return will be higher than the average. The rate of return from one year to the next will vary … sometimes wildly.

S&P 500 Historical Annual Average Rate of Return With Dividends Reinvested

40-Year Average Annual Rate of Return: 9.395%
30-Year Average Annual Rate of Return: 9.435%
20-Year Average Annual Rate of Return: 9.261%
10-Year Average Annual Rate of Return: 9.203%

Source: DQYDJ

Potential Investment Results

Assumptions
Purpose of investment: Retirement (Roth IRA)
Money to open investment account: $100
Money to invest monthly: $300
Rate of Return: 9.2% (S&P 500 indexed mutual fund)
Dividends: Reinvested
Income Tax: None. No taxes are due during accumulation or withdrawal at retirement.
Inflation: 2% annually

10-Year Account Balance: $53,586.60
10-Year value after inflation: $48,547 (Future purchasing power in today’s dollars.)

20-Year Account Balance: $207,734
20-Year value after inflation: $138,685 (Future purchasing power in today’s dollars.)

30-Year Account Balance: $578,604
30-Year value after inflation: $315,620 (Future purchasing power in today’s dollars.)

40-Year Account Balance: $1,505,966
40-Year value after inflation: $671,210 (Future purchasing power in today’s dollars.)

As shown, inflation dramatically reduces the value (purchasing power) of your investment. What $100 will purchase today will purchase much less in the future. Any future planning that does not include the affects of inflation is a serious mistake.

As you can readily see from the data above, waiting 10 years to start will deprive you of $927,362! This clearly illustrates the time value of money. Compounding over time is a miracle. The more time you have to accumulate money — the better. So the moral of the story is to start investing while you are young. Each year you delay costs you dearly at the end.

If nothing else, start saving some money to make sure you have an emergency fund for unexpected events. Without an emergency fund, you will most likely need to finance (via a credit card or from a personal finance company) the amount of money needed for the unexpected event. This is never advantageous to you because of the their high interest rates. People who have saved and invested over the years understand this about interest: Interest is to be earned … not paid.

I’m Encouraged

I am an expat from the United States living in Ecuador. I’ve lived here for the last seven years. If you think it’s tough living an eco-friendly life in a Western first-world country, try living in a developing country. Oil is one of the top three industries in Ecuador, a very small country in South America. This results in a marketplace absolutely inundated with plastic. While it is still possible to buy some grocery products in glass jars or bottles, they cost more than double those packaged in plastic.

More eco-friendly practices can be seen in the major cities with Cuenca, the third largest city, leading the transformation among the general population. Public transportation has been readily available and heavily used for decades. Buses powered by electricity are being introduced into the fleet of over 400 buses on a budgeted basis.

Additionally, Cuenca, the city I live in, has a magnificent public park system that are built around the four major rivers running through the city. These public parks feature a huge variety of plants, flowers and trees that are native to Ecuador.

On an individual basis, change is slow. However, personal eco-friendly practices and products are becoming more evident. When I moved to Cuenca just over seven years ago, I didn’t see anyone else using reusable shopping bags. Now, the large grocers are selling reusable bags. Though they are made from plastic used to make 50-kilo livestock feed bags and large quantities of grain for consumers (rice, beans, oatmeal, nuts, etc.), they will last for years as they are stitched with industrial strength thread and the material of the bags is nearly indestructible and they are huge. Just one of these bags easily replaces six of the typical single-use bags used by the grocers. To top it off, they only cost $.59!

Handmade reusable bags using cotton canvas or other natural fibers, are readily available to be purchased or custom-made at nearly all of the huge vegetable and fruit mercados (markets) scattered throughout the city. Being on the equator, we have a 12-month growing season. Local and fresh fruits and vegetables are readily and cheaply available year round. Did I hear someone ask for fresh, just-picked strawberries every month of the year?

Though Cuenca, with the highest per capita income and the largest American and European expat community in the country, may not be indicative of the whole country; I am seeing more and more people using all types of reusable bags at the grocery stores. I find this so encouraging because many men in the U.S. shy away from using reusable bags because they see it as being less than masculine. Yesterday, I saw six other people carrying/using reusable bags at the grocery store. Five of the six people were men and four of the six were Ecuadorean — not expats from the U.S. or Europe.

For the first time yesterday I saw a glass bottle that is eco-friendly ready for the consumer. Glass has always been problematic for recycling because the class container must be clean and label-free. This bottle of soy sauce has a zip-off label. All the consumer needs to do to remove the label is to pull down on a thin thread. One quick pull down of the string and the label falls off. I bought this bottle and took it home to check out this system and it worked exactly is intended. That sure beats having to soak the bottle for hours to make it possible to remove the entire label.

Find Your Motivation

Becoming the master of our finances is a pipe dream if we aren’t motivated and committed to making changes to our spending and savings habits. Hence, we must find what will keep us motivated and committed. Since we are all motivated by different things, the task of finding that motivation is up to each one of us — individually.

I didn’t find that motivation until I was was forty years old when I finally realized that financial security didn’t just happen — it took a commitment to developing an action plan and then following that plan.

Since I arrived at this realization rather late in life, I had to make some major changes to my spending and savings habits because I was running out of time accumulate the kind of money I needed to meet my financial goal so I could financially afford to retire at age 55.

There was one question I had heard years earlier that I never forgot:

  • If your spending and savings habits for the next 5 years match those of the last 5 years, will you be any further ahead in 5 years than you are right now?

It became clear that if I didn’t make some drastic changes, the next 5 years would be a total waste of living. That is what my motivation was and continues to this day. You see, I have always had the fear of not having enough money to sustain me late in life when I could no longer earn an income by working. That absolutely terrifies me.

As a result, I developed a brutal budget (plan) to get me where I wanted to be. I made substantial cuts to my spending and started saving and investing 38% of my bring-home income.

I was so motivated that the saving part of the plan was easier than I thought it would be. Fear can be a great motivator. The spending part took some work … not because I couldn’t find the “fat” in my spending but because I had spending habits that were sabotaging my plan (budget). Hence, I started using using a mental calculation tool to determine if I really wanted to make a purchase. This mental calculation tool was so basic that it’s almost embarrassing. I asked myself these question based on my bring-home income:

  • How many hours (or weeks or months) do I have to work to buy this?

This mental process greatly helped me break some wasteful spending habits and stopped me from making some financially bad decisions.

I share my story just to provide an example of what a driving motivation can do for anyone. I urge you to find what will motivate you … today and for years to come.

You have within your hands the means to fashion your own destiny!

How to Live Within Your Means – Part 3 of 3

Eat at home whenever you can

Eating at home doesn’t have to be less exciting than going out to eat. Eating at home will make you be a better cook, be more conscious about what goes into your food, and it can even create an intimate atmosphere for a date night or a social gathering. And, of course, it saves money too. If one of your biggest expenditures comes from going out to eat, try to cut down how many meals you eat out by two a week, and then reduce that number further until you see that you’re happy if you only go out to eat once every week or two.

  • Of course, sometimes you have to go out to eat — for a coworker’s goodbye party, or a friend’s birthday, for example. When you do eat out, though, you can be conscious of what you spend. Don’t show up starving or you’ll be likely to order too much food and spend too much money.

Wait for sales

You should never have to buy something at full retail price. Wait for the items to go on sale, get coupons if you can, and just have the patience to know that anything you really want will eventually cost less money. You don’t have to get the newest version of an iPod or a video game the second it comes out; wait a few months for the price to go down and you could be saving hundreds of dollars.

  • There’s nothing wrong with buying second hand, either. You can find great clothes for great prices at a thrift store.

Entertain at home instead of going out

Throw a party instead of going out to the bars with your friends. Invite people over for a movie night instead of spending $15 a ticket to go see a movie on the day it comes out. Having fun in your own home can be even more enjoyable than going out because you don’t have to deal with strangers and can control what you eat and drink. So, the next time you want to have a social event, invite a few friends over instead of hitting up the pricey and noisy bars.

Cancel the subscriptions you don’t need

You could be spending over $100 a month on subscriptions that you don’t really need. Cut down on your spending by eliminating some of these subscriptions from your monthly bills:

  • Gym membership. If you only hit up the gym once or twice a month, cancel that membership and go running instead.
  • Netflix membership. Save money by only paying to stream from Netflix instead of paying an extra fee for ordering DVDs when you never use this feature.
  • Magazine subscription. If you only read one or two articles in the magazine that comes each month, then you’re better off saving your money and catching the news online.

Borrow whenever you can

Go to the library to borrow a book instead of paying for one at the store. Borrow a DVD from a friend instead of paying to rent it. Borrow a dress that you’ll only need to wear once from a stylish friend instead of spending a lot of money on something you’ll never wear again. Share your stuff with your friends and they will do the same with you. Borrowing is a great — and fun — way to save money.

Have a garden

Gardening is not only a fun and relaxing hobby — and one that has been shown to increase your lifespan — but it’s a definite money saver. Instead of spending money on vegetables and herbs every week, make a one-time investment in a garden and see how much money you save every week.

Don’t ever shop without a list

Whether you’re going to the grocery store or the mall, you are much more likely to spend impulsively and recklessly if you just roam around buying whatever you think you need. Instead, be prepared with a thorough list every time you shop, and do not stray from it unless you see something that you really need but forgot to write down.

  • Even if you’re going to the mall and only buying three items, writing them down on a list will make you more aware of buying something you didn’t intend to take home.

Wait 48 hours before making a big purchase

If you see a brand-new jacket or a nice pair of shoes at the mall or while you’re shopping online, don’t buy the item the second you decide you can’t live without it. Instead, give yourself 48 hours to really think it through. Maybe you’ll find that you really don’t need the item after all, or that you’re able to find a less expensive substitute. If you have thought it through and decide that you really do need it, then you will feel better about your decision.

Source: wikiHow under a Creative Commons license

How to Live Within Your Means – Part 2 of 3

Distinguish between what you want and what you need

Sure, you may think that you really “need” a huge HD TV, but would you really suffer if you got a TV of a smaller size, or stuck with your old for a while, instead? Do you really need designer shoes or sunglasses, or would you be just as happy with a cheaper pair? Do you need to spend $90 every time you go out to dinner with your beau, or can you go somewhere a little bit cheaper, or have a romantic night cooking at home instead? Realizing that you don’t really need all those things you think you need will definitely help you live within your means.

  • It’s okay to splurge on something you don’t really need once in a while, but you shouldn’t make a habit of it. And when you do splurge, you should be conscious that your life would be just as good without that thing.

Don’t even bother trying to keep up with the Joneses

So maybe your neighbors just got a swimming pool or built an addition onto their home; but they may make twice as much money as you do. If you get caught up in trying to keep up with everyone around you, then not only will you never be happy, but you will also never be able to live within your means because you’ll be too busy trying to maintain an image that you can never fully live up to.

  • Sure, your best friend’s new designer jeans look amazing on her. Be happy for her cute new look instead of being jealous and wishing you can afford the same. Jealousy is guaranteed to make you an unhappy person — and to never be satisfied with what you have.

Change your definition of what it means to be “rich

Being rich doesn’t have to mean driving a BMW and vacationing in Capri every fall; it can mean having enough money to keep your family and children happy, and to have some spending set aside for fun with your significant other and some light travel, too. Once you see that this can be your own definition of “rich,” you will be able to relax and stop worrying so much about how other people perceive your wealth.

Know that spending less money will not decrease your quality of life

So you invite some friends over for some nice wine instead of spending money at a crowded bar. You and your significant other take a road trip to Portland instead of flying there. Does this really decrease your quality of life? Absolutely not. You’ll still be doing the things you love — you’ll just be doing them a bit differently. Don’t think that you’ll be making your life worse if you spend less money.

  • In fact, spending less money can increase your quality of life, because doing so will make you less stressed out about wasting money, and you’ll feel more at peace with your decisions.

Be grateful for what you do have

Instead of focusing on what you wish you had — a new car, a fancy suit, a larger house — focus on all of the things you are lucky enough to have. You may hate your TV, but you love your computer. You may wish you had a new coat, but you have so many great sweaters. Make a list of all of the things you do have, and don’t just limit the list to the material things — you may be grateful for an amazing significant other, wonderful children, or the amazing place where you live.

  • Being aware of all of the things that you do have will make you less likely to spend impulsively to make up for anything that you feel is lacking in your life.

Source: wikiHow under a Creative Commons license

How to Live Within Your Means – Part 1 of 3

Living within your means means more than just balancing your budget. It means being aware of the difference between what you need and what you want. As Mark Twain once said, “Comparison is the death of joy,” and if anything, you need to learn to find a way of spending that works for you — not for your neighbors or best friends. Living within your means requires you to be mindful of how you spend your money, but if you do it correctly, you won’t actually be depriving yourself of the things you really need to be happy.

Create a list of essentials

This includes things such as groceries, utilities, and clothing. Essentials are things you absolutely cannot do without. You cannot survive without groceries, for example, while you can survive without spending $1000 on clothing each month (even if you don’t feel that way!).

Estimate your income

This will probably work best if you use a monthly income. If you are on salary, this is usually pretty easy. However, if you are part-time, unemployed, or a dependent, this may be a bit more difficult. Most likely, your best route is to take your monthly income or budget for the last three months and take an average. While this may not be spot on, it will likely be close enough for you to rely on to make ends meet.

  • When you have to estimate your income, remember to remove the amount that you would reserve for taxes. Depending on how much you make, it may look like you have a bit more money than you actually do before you pay your dues to Uncle Sam.

Record all of your expenditures

To do this, record what you bought, how much you spent, and where you bought your goods/services from. This does not have to be extremely detailed. “$100 on groceries at Walmart” will suffice. Once again, this will probably be best from a monthly standpoint. See how much you’ve spent on all of your essential items and non-essential items as well.

  • If this is hard to track because you pay for a lot of things in cash (and good for you if you do!) or just can’t keep your bills straight, then you can start tracking your expenditures for the current or next month instead.

Compare your income to your expenditures

See how you fare. If you are significantly in the green, then you’re doing fine! However, if your income and expenditures are equal, then you’re not saving any money, and if your expenditures are much higher than your income, then you have a problem. Of course, if you’re a student and currently don’t have an income, then this will naturally happen, but you can still think about how you can spend less money in the future.

Evaluate your expenditures

See where your money is going! Start by categorizing your purchases. Make “Essentials” one category. The rest of the categories will be unique to your preferences. For example, one category might be “Eating Out”. Once you have done this, add up all the purchases in that category and create a category total.

Cut the fat

More than likely, you’ll notice at least one category other than “Essentials” that seems to be eating a large portion of your income. Take a look at that category. See what you can cut out. For example, if you are seeing nine or ten trips to Starbucks under “Eating Out”, try cutting this down to three or four. That could be a quick $25 right there. Continue to cut at the non-necessities until your income is higher than your expenditures.

Boost your income if it’s necessary

You may see that your spending has so far outrun your earnings that you’ll have to do far more than just cut your expenses if you want to make ends meet. You may need to take on extra hours at work, ask for a raise, or look for a higher paying or part-time job to raise your income. If there are other members in your household, see if another income earner can do the same, or if you have teenager or older children, see if they can take on a part-time job.

Set saving goals

Create attainable goals within a reasonable time frame. Maybe your goal is to spend $200 a month. Maybe your goal is to save $120 a month for a trip to Paris at the end of the next year. The more specific and attainable your goal is, the more likely you will be to reach it. If your general goal is just to “spend less money,” that is too vague for you to really take initiative or to know if you’re getting close to reaching it.

Save for an emergency

If you really want to live within your means, then you can’t let one unexpected event, like a car accident or job loss, completely ruin your finances. You need to save some away for a rainy day, even if you’re only saving $100 a month. This money will add up, and you’ll feel much more safe and confident than if you’re spending your money down to the wire every month without having a penny to spare.

  • Even throwing your change in a “emergency jar” at the end of every day will help you mentally prepare to set some of your money aside for the unforeseeable.

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