Frugal Living

My definition of frugal living is “A simple lifestyle of living comfortably within our means”. Here are some examples:

1. Right-size everything tangible. e.g. living in a rental 2 bedroom apartment instead of 3 or 4 bedroom single family house. Most people look at houses as an asset or an investment but in reality they are a liability. They need constant maintenance, property taxes, insurance, mortgage, higher energy bills etc and they can take a long time to sell restricting you to a limited work area. Now some will argue that their house price has doubled in the last 10 years but how much did you spend on the house and how much would you really make after real estate commissions, sales taxes, closing costs and income tax (if you made a gain). Others argue that they never plan on moving but statistics shows that on average people stay in their houses for only 6 years.

2. Buying only the essential items rather than everything we want. An example is buying a smaller TV and using broadcast channels instead of a large flat-panel with home theater system and cable/dish service. Add to that a DVD player, buying/renting DVDs, PPV, extended warranty, repair costs, requires more space (maybe even a dedicated media room), electricity and most of all the time wasted in front of the TV instead of spending it on more important things. I do not say that you should not buy anything but always plan ahead on the actual costs instead of buying on impulse. A simple strategy is to create a budget e.g. buy a small TV for $300 in one year and you plan to save $25 each month. You might end up finding a better TV and you might even decide to skip buying that TV all together.

3. Saving at least 25% to 50% of the net income (ie. after uncle Sam has taken his cut) each month. If you can save $750 (25% of your $3000 monthly income) each month then in 2 years you would have saved $18,000. Now if your monthly expenses are $2,000 then even if you lose a job you can afford to live the same lifestyle for 9 months. Of course, you can add in unemployment insurance, cutting back expenses, having a less paying job etc. You can see how it can help you make better career decisions and not have to worry about getting laid off from work.

4. Eliminate your debt. This is not as hard as it seems as most lenders are willing to negotiate a loan (especially a non-secured loan like a credit card). You can also consolidate multiple loans into one or two low interest loans. Sometimes family members can help by cosigning, getting an advance at work or even file for bankruptcy. One thing to be careful here is that you do not convert a non-secured loan into a secured loan (e.g. refinancing the house to pay the credit cards) unless that is your only option. Bottom-line is it is good to have a credit line but use it wisely and keep it reserved for the rainy day.

5. De-clutter your life. Identify all the items that you have in your possession and ask if you really need any of them. One simple rule is to get rid (sell, donate or trash) of anything you haven’t used in a year, or is broken, no longer interested in etc. Then look at items that have gotchas attached to them e.g. having a dog means walking, feeding, bathing, taking to vet, licensing, medicating, insurance, cutting nails, possibly dealing with aggression/biting, making arrangements when traveling or away from home for longer than 8 hours etc. Multiply that by the 10 to 15 years the dog will live. I am not condoning getting rid of your pet but think twice before getting one and if it is really the right choice for your lifestyle.

6. Share/borrow instead of buying. Buy used instead of new. This will not only save you money, it will reduce amount of space needed, be less taxing on the environment and you will get to form tighter bonds with your family and friends. After all necessity/dependency is one of the key factors in keeping relationships going.

The lesson is “The more you simplify your life, the less worries you will have and the more peaceful and content your life will be”.