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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

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.

Source: wikiHow under a Creative Commons license

Budget: Tip for Beginners

Photo by Sara Kurfeß on Unsplash

For those who want to begin budgeting to gain control of their finances, now is a perfect time to start the process.

There are numerous apps available for budgeting. Ease-of-use ranges from simple to complex depending the amount of detail you want and features. I will be using the iSaveMoney budgeting and expense tracking app. This app is available in Google Play. There is a free app and an option to purchase the Pro version for a one-time, lifetime fee of under $5. It took less than an hour to gather my income, expenses from account registers (bank, credit card, etc.) and to set up the application.

Whatever app you decide to use, start with December 1, 2019. This offers two advantages:

  • Use the month of December 2019 as a practice month to learn the app so you are comfortable and ready to start 2020 in earnest.
  • It will help you stay on budget for the holidays … a period when many people are unable to limit their spending.

Lastly, discipline yourself to not finance the 2019 holidays with credit card debt. Pay cash for your purchases. It has been proven that you will spend less when using cash instead of a credit or debit card.

I know that you cannot pay for your purchases for Internet transactions with cash. That’s why I encourage you buy locally from a local owner. This keeps the money in your community and supports independent businesses and their employees. Additionally, it is Eco-friendly because your purchases don’t have to be shipped to you via an airplane or semi truck of which both produce a massive carbon footprint.

Budget: Auto Financing

Photo by Jairph on Unsplash

Once you have decided that you need to buy a car, the first step is to determine how much car you can afford based on a monthly loan payment.

How Much Car Can You Buy?

Most people first decide on what car they want to buy and then find a way to finance it based on the monthly loan payment. Since the average price of a used car is now over $20,000 and the average price of a new car is now over $35,000; the only way many buyers can afford to buy a car is by financing it with a 60-month, 72-month or 96-month (8 years!) loan. These long-term loans will leave you owing more on the car than its value over most of the length of your loan.

This process of buying a car a ass-backwards.

The first step in buying a car should be determining an affordable monthly loan payment. Then go about finding a car to buy that fits your budget. Remember, you are not making an investment. You are buying a car and it will rapidly depreciate in value.

Methods of Determining Affordable Car Payments

Experts have different ideas of how to best determine your car-buying budget. Let’s take a look at a few popular methods for determining how much you should spend:

Method 1

No more than 15% of your monthly take-home pay

This option are for those individuals whose only other debt is a mortgage. That means you don’t have any credit card debt, a student loan, or a loan for anything else.

$3,000 x 15% = $450 Maximum monthly car payment allowed

However, this option has an additional guideline. Your total auto expense should not exceed 22% of your take-home pay. Total auto expense includes:

  • Car loan payment
  • Insurance
  • Fuel
  • Maintenance

$3,000 x 22% = $660 Maximum total auto expense (Monthly)

Method 2

Total debt payments should not exceed 36% of your total monthly gross income

This method considers all of monthly debt payments. Take a look at this example:

$ 4,000 Monthly gross income
$ 1,440 Allowable monthly debt payments (36% of monthly gross income)
$ 800 Less for monthly mortgage payment (or Rent)
$ 250 Less for monthly credit card debt
$ 200 Less for student loan debt
$ 140 Monthly amount left over for a car payment

This method quickly shows you if you can afford to buy a car right now.

Photo by Brad R on Unsplash

Method 3

Half your annual gross income

Let’s assume that your annual salary is $60,000. That means you are supposed to be able to afford a $30,000 car. Now it comes down to whether or not you can afford the monthly payment for a $30,000 car. Let’s look at the numbers:

$ 33,000 Sales price of the auto
$ 3,000 Less down payment (cash or trade-in)
$ 30,000 Amount to be financed (60-month loan at 4.50% interest)
$ 559 Monthly car payment
$ 6,708 Total payments for 1 year
11.2% Of your annual gross income

Now let’s add the additional monthly costs of insurance, fuel and maintenance

$ 559 Car payment
$ 400 Insurance, fuel and maintenance
$ 959 Total monthly auto expense
$ 11,508 Total annual auto expense
19.2% Of your annual gross income

Based on the example above, it appears that your monthly car payment and total auto expense are affordable. However, the interest rate will be higher if you don’t have an excellent credit rating and insurance will be higher if you have any violations or accidents on your driving record for the last 3 – 5 years.

Method 4

The 10 / 20 Rule (My Recommendation)

This is the most conservative method. It’s purpose is to not allow you to get in over your head. This method, above all others, has your financial well-being in mind if you need to finance you car. This method equates to:

  • No more than 10% of your take-home pay should be allocated for a car payment.
  • No more than 20% of your take-home pay should go to the total of the car payment, insurance, fuel and maintenance.

$ 3,000 x 10% = $ 300 maximum monthly car payment
$ 3,000 X 20% = $ 600 maximum for the total monthly car expenses

Photo by Artem Beliaikin on Unsplash

The ultimate goal is to be in such a financial position that you can pay cash for a car and won’t need to borrow money for it. I’ve paid cash for the cars I’ve bought for the last 24 years. It just doesn’t make sense to me to finance and pay interest on a car that will rapidly depreciate in value and be worth almost nothing by the time the car is paid off.

I realize that it takes time to attain this financial position in life. So … if you must finance your next car, do it smartly and don’t let yourself get buried with additional debt that is truly beyond your means repay.

A Digital Declutter Day

Photo by Rami Al-zayat on Unsplash

I started off my day by unsubscribing from 6 out of 8 daily emails and 5 out of 6 apps that have a monthly or annual fee. This is just a continuation of actions I’ve taken recently to get my mental state to a better place.

A month ago I stopped watching, listening to and reading national and global news. Polarization has country after country mired in hate. Tribalism has become the norm.

A few days ago I deleted 4 of 5 websites I was maintaining.

With all that is going on around the world politically, economically and environmentally; I was going out of my mind, not sleeping and becoming a recluse in order to stay away from people and all the turmoil.

Quite simply, I need a mental cleansing and performing a digital declutter was an important step in working towards a more balanced state of mind.

Further Simplification

Photo by Glenn Carstens-Peters on Unsplash

Anyone who maintains an active, current and relevant website or blog understands the amount of work and creativity it requires. To have a continuously relevant website or blog requires constant research for quality content that will keep viewers regularly coming back.

Now take all this work and multiply it by five. The level of work and commitment is beyond reason.

I have been maintaining four websites and this blog. Something had to give as it was requiring far too much time and energy to maintain. In order to simplify my life and gain some sanity, I cancelled the four websites because these were taking the most time and effort to research content. Cancelling the four websites was a difficult decision because they dealt with subjects important to me.

This blog, Frugal Plan, is the only website I will maintain.

This action has simplified my life by reducing the mental anguish, time and effort necessary to maintain five websites. I will also be able to save hundreds of dollars a year on hosting, design and domain fees.

Budget: Maximum Mortgage Payment

Photo by David Veksler on Unsplash

You are in the market to buy a house. You have found a house that you really like. The price of the house is within your range. Now it comes down to determining if you can afford the monthly mortgage payment that includes principle, interest, real estate tax and insurance (homeowners insurance and private mortgage insurance, if applicable). These are called PITI. Let’s take a look at the….

15 / 20 / 25 Mortgage Plan

15-Year Mortgage

The interest you will pay over the 15 years is substantially lower than the interest you will pay for a 25-year or 30-year mortgage. Additionally, you will accumulate equity much faster with a 15-year mortgage since most of your early monthly mortgage payments are applied to interest … not principle.

20% Down Payment

You will start off having equity in your house if have at least a 20% down payment. You won’t be required to purchase private mortgage insurance (PMI). This will save you hundreds of dollars a year until the PMI is no longer required.

25% of Net Income to Mortgage Payment

There is one thing everyone needs to understand: mortgage lenders will allow you to bury yourself with mortgage debt.

As a rule of thumb, mortgage lenders will grant you a loan if the monthly PITI mortgage payment does not exceed 28% of your gross income.

I, and many other financial gurus including Dave Ramsey, believe that your PITI mortgage payment should not exceed 25% of your net after-tax income. If it does, you will not have the money necessary to maintain your house as needed. You will also have to think twice about going out for a special dinner with your spouse or friends, taking a nice vacation or buying a newer car.

Photo by Helloquence on Unsplash

Real Life Example

To start by making some assumptions to see if the potential buyer qualifies for a mortgage or can afford it within the 15 / 20 / 25 Mortgage Plan guidelines.

  • $150,000 Purchase price of house
  • $ 30,000 Down payment (20%)
  • $ 80,000 Annual household gross (before taxes) income
  • $ 64,000 Annual household net (after taxes) income or $5,333 monthly
  • $ 3,000 Annual property tax
  • $ 1,200 Annual cost of homeowners insurance
  • 3.30% Mortgage interest rate on a 15-year mortgage
  • 720+ Credit score

The first thing the assumptions illustrate is that the potential buyer is able to meet the 20% down payment objective.

The potential buyer has a history of being able to manage their money. This is documented by having enough money to make a 20% down payment and by having an excellent credit score. This indicates the potential buyer has the ability to pay for a 15-year mortgage that requires a higher monthly mortgage payment over a 30-year mortgage.

A mortgage loan in the amount of $64,000 at a 15-year fixed rate of 3.30% results in a total monthly mortgage payment of $1,196.12 or 22.4% of household monthly net income. The potential buyer qualifies for a mortgage. The 25% maximum monthly mortgage payment to monthly net income objective is met.

The potential buyer is nervously excited because he/she is close to being the new owner of the home they want and have been saving for.

Note on Calculating Net Income

There are special items that need to be deducted from gross income in calculating net income to arrive at an accurate and credible number.

  • Self-employment tax for self-employed individuals
  • Health insurance if individually purchased
  • Any court-ordered alimony and/or child support obligations

Renters

The same 25% monthly payment-to-net income applies to renters as well.

Living Frugally and Simply

For most people, living frugally and simply is an optional life choice. For a few us, due to a variety of reasons, living frugally and simply is a necessity.

Over the last two years I have developed three life-changing, life-threatening health issues that requires living a more frugal and simple life. While I have been successful in being frugal with money, I have come to realize that frugality applies to more than just finances and that simplicity is a way of thinking and living. Let’s take a look at some simple definitions of frugality and simplicity according to Dictionary.com:

frugality: the quality of being frugal, or prudent in saving; the lack of wastefulness

simplicity: freedom from complexity, intricacy, or division into parts: simplicity

Due to my reduced abilities, I am learning that frugality not only applies to my money, but extends to:

  • Time,
  • Energy (physical and mental)
  • Activities (work, personal and social)

In all reality, I only have four to five “productive” hours a day. This means I must “budget” my time, energy and activities so what needs to get done, actually gets done within this allotted time. Since the demands of my time, energy and required activities could care less about my reduced abilities, I have been required to better prioritize and organize what is important and what isn’t. I am utilizing two working tools I used in business for 32 years:

  • Daily and Weekly Calendars
  • To-Do List
Photo by Glenn Carstens-Peters on Unsplash

While I have tried using smartphone calendar and to-do-list apps, I prefer paper calendars and to-do-lists for their ease of-use and flexibility. That is probably because of my past work experience and age (63).

When it comes to finances, I utilize automatic (electronic funds transfer) payments as much as possible. I always pay myself first by making contributions to my savings accounts when income is received via online transfers. I pay bills the same day they are received. Both of these practices prevent a bill “falling through the cracks”.

As an interesting note, I live in a developing country with very limited and unreliable mail service. Hence, all bills for utilities, insurance, etc. are delivered via email with a PDF attachment of the actual bill.

I cherish routine in schedules and activities. Not having to take the time to organize events and activities that occur daily or frequently saves time and energy.

There is another practice that my parents drilled into me as a youngster that has served me well … especially now with limited physical and mental abilities”

Everything has its place,
Everything in its place!

All of the things presented above have added frugality and simplicity to my life at a time in my life when it is needed most.

Spending Less and Accumulate the Savings

What does it mean to save money? According to WordWeb, it has two meanings relating to money:

  1. Spend less; buy at a reduced price
  2. Accumulate money for future use

Note the subtle difference. While one definition is about spending, the other definition is about accumulating money. I ask this question:

Can you spend a dollar and save that same dollar at the same time?

Obviously, you cannot.

But … you can do the next best thing: stash the amount of money you saved away and save it for a rainy day fund or a special need down the road. Example:

You see an item you’ve had your eyes on but wouldn’t pay regular price of $500. It is on sale now at 25% off. Hence, it only costs $375 now and you buy it. You spent $125 less for the item by waiting until it was on sale.

What you do with the $125 you saved determines how frugal you really are. If the $125 you saved on the purchase remains available to be spent along with your other expenses, that is fine. You successfully delays buying the items until it was on sale. Congratulations!

However, you are only going to experience the benefit of spending less. (definition #1)

If you decide to put away your $125 savings for future use, you will be able to experience the benefit of accumulating cash for future use instead of relying on credit or doing without. (definition #2)

I use a glass jar for this purpose. The photo shown at the top is my “Savings Jar”. If I save $5.50 at the grocery due to discounts, I put that $5.50 into my savings jar. When the money amounts to more than $1,000 in my savings jar, I deposit $1,000 into my co-op savings account.

This is the only way I know to spend less and accumulate savings from purchases over the year.

I would like to hear how you find little additional ways to add to your accumulated savings. When it comes to saving and accumulating money; a little bit often adds up to a lot!