- Meal Planning
- Take Your Lunch to Work
- Start A Garden
- Consolidate Loans
- Balance Transfer
- Eating Out drains the wallet
- Cancel Gym Memberships
- Eliminate Your Cable Bill
- Cancel Subscriptions
- Reduce Cell Phone Bill
- Cut Back on Clothing
- Reduce Consumable Habits (Smoking, Drinking, etc)
- Move To A New Location
A helpful strategy if you're wanting to get really frugal: When creating a budget, calculate the number of hours of work it will take to earn certain items.
Example for Salary Pay
Let's say Jack makes $50,000 a year before taxes, which translates to $1575 every paycheck, after taxes. He wants to know how many hours of work it takes to pay for his family cell phone bill, which is $160/month.
If Jack works 40 hours/week, he can figure out how long it will take to earn the money to pay for the cell phone bill by using the method below:
By dividing the total paycheck by the hours it took to earn that paycheck, we can convert the salary into an hourly rate. (Note: This is the hourly rate AFTER TAXES, not the rate of the full salary.) From there, we can divide the cell phone bill by the hourly rate, which gives us 8.13, meaning it will take slightly more than 1 day of work to pay for the cell bill.
Jack is not likely to completely remove cell phones from his budget, but he will likely be more inclined to find cheaper phones and plans for his family.
Example for Hourly Pay
Let's say Jake makes $15 an hour before taxes, which translates to $1,020 every paycheck, after taxes. He wants to know how many hours of work it takes to pay for his weekly bar tab when he goes out with friends. Jake usually gets 2 beers and some appetizers, which averages around $45 per outing.
If Jake work 40 hours/week, he can figure out how long it will take him to earn the money for the bar tab using the method below:
By dividing the total paycheck by the hours it took to earn that paycheck, we can find the true hourly rate. (Note:this is the hourly rate AFTER TAXES, not the full rate.) From there, we divide the bar tab by the hourly rate, which gives us 3.53. Since this is a reoccurring event, we can find the monthly rate by multiplying the answer by 4.
Jake is certainly not going to stop hanging out with friends, but he will likely be more inclined to reduce his average consumption.
Pay yourself first! This is the #1 rule with financial planning professionals. We all make sure that we are able to pay our various bills and costs of living. Whether that be housing, groceries, internet, car, or any of the many other expenses we incur day to day; these expenses get paid.
It seems the last person that most of us think about is ourselves. Admittedly, it may be due to the feeling that putting yourself first is a selfish thought. This is an important hurdle to overcome.
Your goals are important and should be treated as such!
Rainy Day Funds
Most financial advisors will recommend 3-6 months worth of savings. Having this savings means your family could survive for 3-6 months without 1 or both incomes. This is especially important today when fewer people are working full careers with a single company.
With less job security comes more worry over finances. Giving your family a 3-6 month buffer on living expenses will take a lot of worry off your shoulders.
Funds vs Individual Securities
Most financial advisors would recommend selecting a fund (index, mutual fund, ETF) when investing, as opposed to selecting individual stocks/securities. Considering many "experts" can't pick a winning stock portfolio, it is best to spread your risk over the entire market.
As this article from Investopedia points out, diversifying your investments is the best safety net against an erratic market. While this can be accomplished by picking individual securities yourself, funds and indexes are the easiest way to get started.