Cutting back on spending is not new or glamorous, but it is a definite start for curing money woes
by Michael Smith (Veshengro)
The new rules of finance are: 'Thrift is the new black'
After a few brutal years of recession bordering on depression, promises of easy wealth ring more than hollow. While that won't stop some people from trying to guarantee you and the rest of the world an easy path to riches, the truth is a different one.
"Slow and steady wins the race" has never been truer than it is today.
First slash and/or eliminate all debt.
While that may be difficult to say when you happen to have a mortgage I would like to say that that should then, basically, be the only debt that you have.
Don't use a credit card or loans of any kind. Instead save for something that you want and/or need. Much better also than instant gratification on the “never, never” and much less stress.
It may not sound new or glamorous, and slashing debt and saving money sounds familiar, a huge number of people have aggressively ignored this wisdom. Much financial ruin over the past 20 years stems from people borrowing heavily against their future, rather than saving for it.
Many people now have rediscovered or are just about to rediscover the power of thrift. Some people eat out less and have actually learned to cook delicious food from scratch, while others put off buying new clothes and many are focused on rebuilding their savings. To sum it up in one sentence, thrift is the new black.
Here are five things you can do to establish your own thrifty approach to all things:
1. Get on a Budget
I know that everyone talks and hears about budgeting, but very few people actually do it.
The key here is to start simple and keep it simple. Don't let the small and over-exact data deter you from getting the budget down in rough terms. Don't confuse yourself and don't let anyone confuse you.
You have your income (salary or other income, after taxes), and you have your expenses (housing, food, transportation, etc.). It's not rocket science.
Now, ideally, the difference between those two should be a positive. That is to say your outgoings should be less than your incomings. If that is not the case, then you know that you are losing money on basic expenses, and we have not even gotten to fun things like movies, trips or new clothes!
A number of websites, such as Quicken.com, provide budgeting help. SmartMoney.com (part of The Wall Street Journal family) also has a number of budget-related worksheets that can help get you started on the numbers-crunching game. But, as I said, it is not rocket science and all that you need is a financial balance sheet – I am sure there are some printable templates about on the Net that you could download – and then fill in the figures as required and create a balance.
2. Eliminate Credit-Card Debt
Once you get on a budget, the first thing you should do is eliminate your credit-card debt. Why? Because it's almost certainly the most costly debt that you have. The interest on credit cards is much higher than that of any other type of loan, unless you happen to borrow money from a loan shark. Credit card companies don't run far behind the sharks though and it loan sharking is illegal one can but wonder how come that credit card companies can charge such exorbitant interest rates.
Before you can ever start thinking about saving money in a savings account or even under that mattress, you have to get rid of expensive debt.
And while this advice may sound like common sense, a surprising number of people try to build up savings while maintaining relatively high balances on their credit cards.
Only after you have gotten rid off that credit card debt – and I know of many people who do not just have debt on one credit card - they run more than one – can you ever make any headways as to savings.
3. Reduce the Cost of a Common Thing
Once you have got a budget written up, look for a common thing (meaning something you do often) that could be done more cheaply, or be eliminated even if it is not really anything beneficial.
Instead of driving to work or using public transportation ride your bike. Walk to the local shops instead of using the car. These small actions can save money on fares for trains and buses or gas and parking costs.
The key is to find something already built into your lifestyle and do it in a cheaper way, creating a recurring savings.
Energy costs are another way to build in savings. For instance, energy costs can fluctuate. Up north, winter is usually costlier. In the south, the summer, especially if you have air conditioning, can be more expensive.
Take the peak months and maintain a budget that handles those peak months. As the costs come down in non-peak months, move that extra money into savings instead of blowing it on something frivolous.
Turning down the thermostat for the heating by a few degrees can give savings and you (1) will get used too it soon enough and (2) if it is a little chilly then put on a jumper and even a cap.
4. Delay Gratification
It is good to treat yourself to a nice meal or a trip somewhere. But you cannot do this every day. The old adage of: "First we work, then we eat" is something that we should take to heart. My grandfather used to say that if I wanted something I would have to work for it and save up. I still do that today.
By delaying gratification, we build discipline, we establish control of our financial lives.
Instant gratification has been what people have gotten used to in the time of plenty, though it was but a time of plenty for some and other gave themselves the impression that they could do it too. Then boom, and they ended up in deep trouble and found themselves up a creek without the proverbial paddle.
They wanted something and instantly they would be on the way to the stores and would buy in on their Visa or American Express card and would pay for it later, much later, with hight interest.
The clever person does not do that but instead waits for a month when he knows that he will be getting a big bonus (fat chance) which will make it possible for him or her to buy that item without leaving a dent in the budget.
The real thrifty person, on the other hand, saves up a little money here and there until he has the necessary funds to buy the item outright with no loan required. In fact, he may even be able to negotiate a discount with the store as he is paying outright, maybe even in cash.
5. Buy Secondhand
Yes, I am serious. Many items can be bought at thrift stores or, as most of them are called in th UK, Charity Shops, for a pittance in comparison to buying new and often the goods have not been used even, such as some shirts I have recently bought that for a few Pounds Sterling each that would have cost me ten times that much at least.
Buying secondhand was common to many people in the lower income brackets and those trying to save money in years past and for a time secondhand clothing was the height of fashion. Stores such as the American based “Flip”and others served a ready and steady market in the UK and elsewhere, and not directly at the lowest of prices and the same was true for military surplus clothes.
6. DIY and make do
Doing it yourself is often the answer to saving money but only if you know what you are ding when it comes to repairs around the house, to appliances, the car, the bicycle, etc.
Other stuff is a different story as to doing it yourself, such as knocking up a table or a seat or a bookcase or -shelf from pallet wood and such. You can;t cause any serious damage there if you make a mistake. With appliances and such a mistake could be fatal.
Acquiring a lot of those DIY skills, on the other hand, would be more than beneficial to you and you finance and, to some extent, as well the Planet as repairing means not needing to buy new.
The more that you can do yourself – without needing to call on repairmen before or afterwards – the better for your finances and the more you can save and put aside for the “rainy day”.
DIY also and especially applies to food. Instead of going out to the Italian, Chinese, Indian or Greek, or whichever ethnic restaurant, make you ethnic cuisine meals at home. Recipes can be found all over the Internet.
The list that I have given you here is by no means exhaustive and there are lost of other things where you can save.
Think as to whether you really need that expensive cable TV subscription or all those magazine subscriptions. Consider carefully what are needs and what are wants and what, really, are extravagances. How many TV channels can you and do you really watch? How much do you really read from those magazines? I have been there and done it with subscriptions and came to the conclusion that most, if not indeed all, of what I can read in those I can find on the Internet for – basically – free.
© 2011
