I'll post it here for you as well. Let me know what you think.
Saving money, in our current society, has become somewhat of a massive challenge for people. Unless they are super rich, people seem to have just enough money to get by, and maybe, a little left over to put in the old savings account. This little left over, on average in Canada these days, seems to be about 5% of income. Combine this measly savings percentage with an unbelievable dept to disposable income ratio of 163%, and it seems as though no one can get ahead.
I think people have such a hard time saving money, no matter how much they make (unless super rich), because they feel as though they must spend in line with their socioeconomic status. If someone makes $80 000 per year, they feel as though they need to live up to that number, by having a large house, multiple cars, eating out a lot, etc. This seems to stem from social pressures and unconscious habit patterns of consuming. The same is true for someone living on $30 000 per year. Their life is geared in such a way that they are also just getting by. They spend less money on large luxuries, but still spend according to their socioeconomic status and hardly save any money.
So why would we want to save lots of money quickly? Maybe to become financially independent and not have to work at a job that we would rather not do all day every day. Or to save up for a house, pay cash and subsequently not be tied into a 30 year plus mortgage, which has us paying double the value of the house by the end with interest rates. Having free time to engage in life by learning things you are interested in, doing activities you enjoy, spending time with people you love, and having quiet time to yourself for contemplation, without worrying about money, is a major freedom. Most don’t have this freedom and many wish they did.
So how do we go about saving lots of money? Even if it were possible, which it probably isn’t, getting a new job with better pay won’t work, because the mindset of spending in line with socioeconomic status is still there. Even though more money would be made, more money would also be spent.
The first premise being that “financial independence is much more easily obtained by finding ways to reduce monetary expenditure than by finding ways to increase monetary income. For 80% of all people it is much easier to reduce their expenses by a factor 10 compared to increasing their income by a factor 10″. Basically we must reduce the amount of money we spend.
The second premise states that ” one can easily live a happy life on much less than is commonly assumed”. Basically we need to save more of what we earn instead of spending it on “more”, which we think will make us happier.
Combining the two premises of spend less and save more, those of us who are willing and able, can reduce expenses significantly. By doing things differently and considering the short and long term costs of our choices, we can quickly reach the point where investment income covers expenses. This investment income could come from a variety of sources, be it stocks, bonds, or the permaculture farm you set up debt free by following the ERE philosophy.
Let’s have a look at some of the major expenses that need to be reevaluated with the mindset of ERE.
The top three expenses for people, not including taxes, according to Statistics Canada, are shelter, transportation, and food in that order.
This study showed that Canadians spend 43% of their income on housing related costs, which include mortgage/rent, and utilities. That is a huge percentage of hard earned money going towards a place to live. Spending money on a place that is too big or too expensive, is probably the number one reason it is so difficult to save any money. Because of this, a fundamental choice needs to be made between a large expensive place to live or saving extreme amounts of money and reaching financial independence quickly.
Take for example paying $1000 per month on a nice two bedroom, two bathroom apartment, plus utilities making it more like $1200. This apartment is basically a fancy place to eat, sleep, and store stuff. So what if we took that fancy two bed, two bath place and downsized to a bachelor apartment, which still has a bathroom, place to cook, space for essential stuff, and a space to sleep. This bachelor apartment would cost closer to $600 per month with utilities included. That’s a savings of $600 per month, or $7200 a year! In five years that’s $36 000! Amazing. Saving vast sums of money by simply living in a smaller space than our socioeconomic status would indicate we could afford.
The next big one is transportation. The trend is to have a nice new car that is financed and being payed off in monthly installments plus interest. In dual income situations this is typically two cars being payed for. Factor in gas, insurance, and repairs and a car becomes a huge monthly expense.
If you live in the city and are serious about following this path, find a cheap place to live near your place of employment, sell the car and walk/bike to work in the summer and take public transit in winter. Not only would there be a savings of hundreds of dollars per month, but also a large, one time sum from selling the car. If having no car is absolutely not an option, sell the current, nice car and downsize to a car that can be purchased with cash and is more fuel efficient. This will eliminate monthly car payments and reduce insurance and fuel costs. Now only drive that car when absolutely necessary. Take a bike or walk whenever possible. Not only will this save on fuel and repair costs on the car, but you will get in better shape, thus also reducing the possible future cost of medical bills.
Now we come to food. The main big expense here is eating out on a regular basis. Stopping this trend and starting to cook meals at home is the first big step. Say someone eats out five times a week, spending an average of $20 each time. That’s $100 per week spent at restaurants, or about $430 every month, or $5200 a year, or $26 000 in five years! Amazing how quickly that adds up.
So cooking food at home is the way to go, but how to do that on the super cheap? It starts with switching to a staples based meal plan and buying those staples in bulk (10, 20, or 50 pound bags). Next comes buying local in season food when available. Some local fruits and vegetables can be purchased quite cheaply when they are in abundance. Eliminate preprocessed foods, such as chips, canned items, and microwave dinners. These are all fairly expensive and generally not good. Greatly reducing meat and dairy consumption is also a huge money and health saver. Buy things on sale. There are great deals to be had buying things just passed their expiry date.
Switching to a mostly vegetarian, staples based diet is not that difficult. It doesn’t take long to become accustomed to eating the same(ish) things every day, and with a decent selection of spices, and some creativity, lots of different meals can be prepared using the same few base ingredients. One 10 pound bag of rice, lentils, barley, beans, chickpeas, and oats can go a long way and each meal prepared will only cost a couple dollars. It is also a good idea to make a large amount of a particular meal and have the left overs for the next few days. Vegetarian left overs last a lot longer.
There you have it. By changing our behavior, in a few key financial categories, it is possible to save an incredible amount of money in a relatively short period of time. By doing this we are setting up the conditions necessary for our future selves to be financially independent. With financial independence comes a life of freedom from the need to make more money to cover the bills. A life of happiness, adventure, discovery, and love.
To delve deeper into the world of ERE go check out Jacob’s site over at Early Retirement Extreme.
thank you for this post, simon. it got me thinking about my current living situation. me and my family live in a 3 bedroom house (2 kids) ( rented) . i really feel like my quality of life improved after moving out of that cramped two bedroom apartment and if we could have resigned a lease at the apartment, they were (supposedly) going to charge exactly what we are paying here at this 3 bedroom house. this place has the potential to provide us with a ton of our produce needs as well. i do want to get rid of my cell phone, though and see if i could live without it. my current job, though requires me to have a phone to have the app in order to work. i already take my bike and public transit everywhere and I really like it better than driving, but my wife drives a car. having a gas guzzler around for me, though is something i would like to have for trips that i cant do on my bike and the bus. if i got a fuel efficient car, i know i would jus t g et lazy and start driving it everywhere. we eat out about once or twice a month and i know we could save money by clipping coupons but i dont do the shopping.
Andrew, quite honestly I don't think clipping coupons would do as much good as shifting to whole bulk foods. (I see that you are not the food shopper in your family so this is a purely theoretical discussion, no worries.) In my experience most coupons are for expensive processed foods, stuff that costs several bucks per box or or jar or can or whatever that may only weigh 8 or 12 or 22 ounces. Whole foods bought in bulk (or even at your local discount store in one or five pound packages) are likely to cost less on an ounce-for-ounce or calorie-for-calorie basis than brand name processed foods even *after* the coupon. There are exceptions -- a rare produce coupon, a store that does a doubling promotion, situations of that sort -- but in the main the couponed items aren't the most "extreme frugality" alternative available.
One of the things that saves my family the most money (food related) is shopping our "pantry" at home for a meal plan, and shop the sales at the store to restock the pantry.
Most things we buy go on sale in a 3 or 4 month rotation. When they go on sale, I buy enough to get us to the next sale.
For example, peanut butter can cost up to 10.99 for a 2kg jar (but usually more like 7.99). If I wait for the sale, I get it for 5.99. In three months we will go through about 5 of them so I'll buy 6 to cover any extra time or extra usage.
Cereal, almost anything in a can or box actually, cleaning supplies, toiletries, really almost anything but the fresh stuff like produce, eggs, and dairy will all be on a sale cycle.
It can take a little bit to get started if you don't have extra cash so start small. Pick one thing to stock up on and next time maybe it can be two types of food. Pasta is often a good one because it stretches and it goes on sale for cheap cheap.
Penny, I don't have the storage to shop a lot of the longer-term price cycles but one good example in my area is with dried legumes in one-pound bags. Pinto beans are typically between $1.25 and $2.00 depending on the store, but once or twice a year (usually around now actually) I'll see a sale at $.89 or even two for a dollar. A good time to buy. Likewise I live in the part of the US where black eyed peas are a New Years tradition. I don't even know the regular price (maybe about a buck and a half a pound?) but they are usually discounted at loss-leader prices well under a dollar a pound right after Christmas.
Yes, I know I could beat those prices by buying in 50lb bags, but I don't have space or rodent-proof storage sufficient to buy in genuine bulk.
This got me to thinkin stuff up again. Spent the cold morning inside putting together this article.
I'll edit it from time to time on my little website, and share what I have here.
Saving Money Is A Decision
I work for an industrial contractor. Hard work, long hours, good pay. Much of the year sees a busy schedule. Towards the end of the year we usually get a break for 2-3 months with short weeks, maybe a week here and there will see us at the house every day. Thank God we're slowing down right now, it's been a long one!
The guys I work with make good money-union scale wages. Those on the lower end of the pay scale can take home $1000 per week and do so for several weeks at a time, for each of several projects over the course of the year. When the slow part of the year arrives, these guys are flat broke and going hungry. I see this every year. The big fat paychecks come and they get rid of it as fast as they can. They catch up on their bills, buy new boots, get drunk, get a new truck, boat, gun, 4-wheeler or whatever else catches their fancy. One guy can't get past a sporting good store without dropping 500 bucks. They have their big boy toys and like to show them off. They live for the day. They work hard and they play hard. This is the life of a roughneck.
They have money in their pocket, they are happy and have a good time. There is no such thing as tomorrow. Tomorrow will take care of itself. There will be plenty of work. Except for those times when the work drops off, tomorrow does not take care of itself, and tomorrow races up to hit them in the face. All of a sudden they do not have money in their pocket, they are not happy and have anything but a good time. How does this happen? Every year it's the same pattern. Everything is good, then it all goes to hell. They spend part of the year getting caught up, part of the year whooping and hollering, part of the year in misery.
Take a sample of a couple dozen of these guys, 2 or 3 have a few bucks saved. Some of the guys can get through the slack period with a little bit saved and a working wife. A third, probably more, are scraping by, living paycheck to paycheck. Name your reason. They don't make enough, everything costs too much, they didn't expect the work to drop off, the daughter needed money to feed the grandkids, the truck broke down, something came up. Perhaps it is intelligence or no formal education. Lack of self control is a major part of their plight. These guys do it to themselves because they don't know any better. The key difference I see between those who get by and those who suffer is savings. This is not the case in all situation. Some of these guys are tight on money, like the guy with 11 kids. Often, the sufferers have not been exposed to the idea of saving and what taking control of one's financial situation can do to improve their lives.
I've been there. Work all week, get that paycheck, go blow off some steam. Spend the money at bars, pay the light bill just in time so it does not get shut off. Gotta pay car insurance this week, I'll pay the rent next week. If I talk to the landlord, he'll give me a couple days to get to the next payday. I can get a cash advance on the credit card for the car payment. The checking account is down to $17 so I'll have to pay the credit card bill next month and hopefully not bounce a check. Late fees be damned. The lights are on, car has enough gas to get to work, and there's some mac n cheese, hot dogs and ramen noodles in the house. Hey, I got 20 bucks in my pocket, I can hang out with a couple of buddies at the bar. If everything goes all right, I'll be just fine.
Then the car breaks down, a tire goes flat, I got a speeding ticket, got sick for a couple days, your buddy borrowed 5 bucks and won't answer the phone, the job was cut short because another contractor is waiting on parts or materials, the hot dogs went bad, the bank hit me with bounced check fees and so did the 3 companies I wrote checks to. All one can do is play catchup for a few months. This is no way to live. It means depravation, going without, eating crap or going hungry. It's a downward spiral ending in eviction, bankruptcy, suffering and homelessness.
Grandma told you to save your pennies and not spend that whole paycheck on some big stereo. All the while she knew you would and there was nothing she could do about it. Some people have to learn the hard way and life is going to keep offering hard lessons until you learn or get kicked to the side of the road. Some will never learn. I try to explain to the guys at work. "Save your pennies" or "Save 3 months of bills" I say. But when they have a few bucks built up and they see a motorcycle they've always wanted, they are back to broke.
In order to save it helps to have 2 things:
Without an income, there's not much you can do. All I can do is offer some ideas for developing an income. There are ideas all over this website for developing income. Without a plan, you're limited by whim and chance. Any problem that comes along becomes an obstacle. With a plan, you can handle ever larger problems without suffering or sacrificing your lifestyle. You can move ahead even if its just a little bit at a time.
Let's look at the outcome first so there is an objective, a goal, a purpose to all this saving. With a rational, achievable goal in mind, putting together a plan becomes a step by step process. Check things off the list one at a time and you'll reach whatever goal is set.
Imagine if you will living your life hassle free. You've got everything you need, the bills are paid, there is food in the house, the lights are on, there is heat, you're not wearing rags, the car is in good shape, you've got plenty of gas to get to work, a roof over your head that will is paid for, and there are no worries, at least for a while. A flat tire, busted furnace, or parking ticket won't get you down because you've got the money to handle it. If you lose your job you've got money in the bank to cover the bills long enough to either find another job or start your own business. You can do those things you've dreamt of, get that fancy car, afford that land in the country with the chickens and ducks. You can take the kids to Disneyworld, give them an awesome Christmas, send them to college. You can go on that honeymoon you've always promised. You can live a life of comfort with those you hold dear.
As an analogy, consider you need to go somewhere. You need to get from where you are to where you want to be. You need a vehicle, and a map. Your current income is the vehiucle you start with. You can change vehicles at any time, fix your vehicle, even get out and walk if you have to. You're at Point A. Point B is whatever you decide it is. It's your goal. Now look at the map and decide which direction you want to go. Left, right, straight, backwards. Straight is great, wrong turns can be undone, and you may have to go backwards before you can go forwards. Regardless of where you, where you want to go, or the direction you want to take, you won't go anywhere unless you make a decision to go somewhere.
The decision is the critical first step. Unless you decide to change your ways it's not going to get any better. In fact it will probably get worse. In addition, the decision needs to be a major one. If all you do is piddle, it won't be enough to make much of a difference for such a long time that you may lose faith, giving in and accepting your misery. Take it seriously. Do what it takes. Don't give up. If you are not willing to try and keep on trying, you are wasting your time. Borrow some money, buy a big TV, accept your misery and stop complaining because I don't want hear it and neither does anyone else. If you are willing, there's nothing holding you back.
Make the decision and take the leap. Do so with reason and intent. You want to save money. You want some cash at the ready to take care of things as they come up rather than after the fact. You want a better lifestyle. You want a more dependable standard of living. You want less hassle. You want to flush the job. You want to retire. You want to give your kids a head start and a brighter future. You want a decent retirement. You want to be free of the hardships and worries about how you will make ends meet. We each have our own motivation for doing what we do. By making it personal it becomes a crusade.
A crusade has an objective. An early objective must be obtainable in a reasonable period, say, $500 in 3 months. Looking at the statistics, something like half the people in Chicago don't have $500 in savings. This is living paycheck to paycheck. Hit that first milestone and you are already in a better situation than half the people out there. If you are not saving anything, this is a pretty good chunk of change. There are people that make far more than you do who don't have this much savings. If you are already at or past this level, congratulations are in order, but dont stop there. Take it to the next level: a month of bills.
Before you can save money you have to know where it is going. The bills are easy enough to track. Out of pocket spending may require record keeping. If you spend any amount, write it down on a notepad. Lunch, soda, gas, a pack of smokes, milk and bread on the way home. Most of us have pretty similar bills and spending habits. My core expenses look like this:
Property Insurance 0
Cell Phone 48
Property Tax 50
Car Insurance 50
Garbage Collection 0
Cable TV 0
Credit Cards 0
Vehicle Registration 10
Everything Else 200
These are my bills. Yours will be different. Some of these are controllable, some fixed, some are paid once a year, some paid outside of a fixed schedule. In addition to this list I pay for health insurance through payroll deduction at work. It's about $30/week.
Gotta be paid. Due on the first of the month. If not paid on time incurs a late fee of $50. Will eventually be paid off. I once paid rent. Rent paid late usually has a late fee. Rent never goes down. When you move out, you don't get to sell the apartment. Rent is money down the drain.
Rent does not usually require property insurance. It's usually a requirement for a mortgage to protect the creditor's interests. I have an antiquated mobile home. The insurance premium was $70/month and offered $11000 in coverage. I determined that was insufficient value and stopped paying the premium. While I am in breach of contract, the creditor (this place was owner financed) does not have the savvy to keep track of my insurance, whereas a bank most surely would. My mortgage holder would be right to demand I maintain insurance or pay off the balance of the note. I'm prepared and able to do just that.
To some degree, this is a controllable expense. Everything in the house is powered by electricity: HVAC, lights, fridge, well, appliances. The $100 figure is an average. In the summer, the bill is higher because I run the air conditioner (I live in Florida). In the winter I run the heat. If I leave the porch light on, the bill goes up. I can turn down the heat and put on a sweater. I can run a window fan instead of the AC. I can turn off the lights. I can use a clothesline instead of the dryer. If I eliminate the electric bill, there will be no water, no fridge, no alarm clock to get me up to go to work to make money to pay the bills. Some electricity is essential to maintaining my lifestyle. If I had the money I could install solar panels. This would drop the bill to zero. It's just about worth the investment of $8000 to save $100/month. Paying off the mortgage is a higher priority.
I gotta get to work and its too far to walk. There is no public transportation. A taxi this far from town would be outrageous. I have to drive, I have to burn gas. Some of the gas bill is controllable. It's a 25 mile trip to pick up a paycheck and go to the bank. It's a 25 mile trip to go to the supermarket. I make all my errands in one trip. I've got some savings, I don't have to pick up that paycheck and go to the bank every Friday. I've got food and supplies in the house in good quanity so I don't have to run to the supermarket every week. I go to the bank and supermarket perhaps once a month. 3 trips are eliminated. 75 miles of fuel does not need to be consumed. Over the course of a year, that adds up to 900 miles of travel I don't have to pay for. At 23 MPG in my little truck, I don't have to pay for 40 gallons of gas. At $3.50/gallon, it adds up to $140/year, enough to pay for the cell phone for 3 months. 5 years ago I moved closer to where I work, cutting the travel in half, knocking 30 miles per day off my commute. 250 days/year for 5 years has saved me $5700 in fuel costs. Thats a hundred bucks a month.
The phone is money. When it rings it means I'm going to be heading to work shortly. Wifi offers news, information, entertainment, weather reports, lets me pay bills online, keeps me in touch with family and friends. I can use the internet to make money. Out here in the woods I don't get a signal on the cell phone. A landline is necessary. This is a controllable expense in that I could choose to not pay it. The benefits are worth it to me so I pay the bill.
I have the cheapest phone they sell and the lowest plan. I don't text, I don't have apps to pay for, I don't have a service contract. The only reason I have this is so my boss can reach me to let me know when to go to work. If I miss a call, it's a days pay lost which is more than enough to pay the bill. If I did not have a job, this would allow prospective employers to contact me. I could eliminate this bill, but there is much advantage to having the cell phone.
This one gets paid. It is paid annually. Late payments bring interest. Eben though it is paid once each year, I've got to account for it and have the money set aside for when it is due.
Gotta pay it or the gubmint will come. I carry liability only. That old truck has been real good to me over the years and has plenty of life left. It has been paid off for several years. If it gets wrecked I can get another vehicle. Comprehensive damage insurance does not offer a value.
Water, Sewer, Garbage Collection
When I lived in town I had to pay for public utilities. This covered water, sewer and trash. The bill was around $120/month. This place has a well and septic system-no bill. Garbage collection is handled with the property tax bill.
I last had TV 12 years ago. People pay to watch TV. Along with the money they spend time watching TV. Time and money shot to hell. Looks like the average cable TV bill is around $65/month. Entertainment, news, and a whole lot of fluff. I can get all the entertainment I need from the internet for a whole lot less. This is a controllable expense. Call the cable company, shut it off. If you want to save money, this is a bill that does not offer a return on the investment. Cut it out. When you are in a better situation and can afford the luxury, you can always have them turn it back on.
Credit Cards Way back in the day I had a gas card, VISA, Discover, and a couple of department store cards. I could go out and buy anything I wanted without laying out the cash. All I had to do way pay more later. At one point I added it up: $175/month in interest. This did not include paying off the debt, it was just the interest. The gas card was sneaky. I bought gas, put it on the card. As the balance grew, the monthly payment grew. After a while the monthly payment was equal to the monthly purchase. I was paying the same amount every month, much of it interest, plus paying an annual fee, plus late fees now and then. This is not a bargain. This is my hard work gone to waste. The only things that should be bought on credit are real estate and perhaps a good truck. This is a controllable expense and an unecessary one. Lose the credit cards. Pay them off in the order highest interest rate.
Gotta pay it every year. In Florida it is done on the month of your birthday. It's the gubmints way of saying Happy Birthday. Thanks. I've got 2 trucks and a trailer. The total is about $120/year. Not so much it will break me, but it needs to be included in the bills if I am to have an accurate accounting of where it all goes.
This is the food and supplies that make your home work. It is your discretion and personal choices that determine the amount spent. I live alone, I have no kids. I'm pretty handy in a kitchen. I eat real good. I can eat for a whole lot less than $50/week but I choose fare that is better than ramen noodles. If need be, I can cut this bill to bery low levels. Nothing wrong with pancakes now and then. All sorts of ways to stretch the grocery dollar.
This is the one expense where you have the greatest contol. This is the total of where everything goes that is not a bill. This includes my walking around money. It can be a pretty big amount if not controlled. My $200 figure includes what I typically spend on everything from lunch to smokes, maybe a 6 pack now and then, an emergency pen, bread and milk on the way home. All the other bills are fixed, regular or can eliminated. This is what's left. Here is where you can make changes, pinch pennies, find spending to eliminate and find money to set aside.
Looking at the figures above, cutting expenses by 10% would meet that $500 goal in 4 months. This may sound like a fine plan, but when arithematic meets reality, things get tricky. Cutting the property tax by 10% is not going to happen. 15 minutes could save 15% on my car insurance, but I've already got about the cheapest rates I can find. The areas over which I have the most control: energy, grocery, and the Everything Else. These add up to $575/month. About 20 bucks a day.
I'm fortunate to hold gainful employment. My income is considerably higher than the bills presented here. This was not always the case. A decade ago I made half what I do now and my bills were higher. I was getting by ok, waiting tables offers cash every day. The bills were getting paid on time for the most part. I spent a lot on beer back then. As long as I had 20 bucks at the end of the week I could get a case of beer to get me through the weekend. Not much of a lifestyle. I had no car. I had about the minimum clothing to work in. There was no air conditioning in the old house; Summers were brutal. The heat was a pair of small gas furnaces attached to the wall, but with no insulation it got pretty cold. I had started a bathroom renovation which was incomplete. The fixtures were in place but the walls and floor covering were not. The washing machine was starting to make a clankety sound. I wasn't going down, but I wasn't getting ahead either. I was 35 years old. My life savings was less than $10/year. I wanted more.
There is more out there. There's a better life without inconvenience, without hassle, without deprivation. I'm not talking about fancy sports cars, million dollar mansions or lifestyles of the rich and famous. I'm talking about getting the bills under control, having the money to eat decent food, a warm place to live, a dependable vehicle, and enough left over to enjoy life a little rather than work all the time and have nothing to show for it. I don't want to just scrape by. I want dignity.
As it turns out, dignity is not too much to ask. In the long run it's cheaper. No late fees, there's food in the house, I don't have to run to the store for every little thing, it's on the shelf. I'm not paying interest for stuff I didn't need in the first place. I'm not wasting my time and fuel running errands. I don't have to suffer the disgrace of asking a buddy to spot me 20 bucks until payday. If I want to go out for chinese food, it's not a problem. If the lawn mower explodes, I can get another one. If the truck ever breaks down, I've got a backup. When I'm out and about, I've got a few bucks in my pocket in case I run across something I can't live without.
I've been on the bottom. It's a cold, dark pit from which there is no escape. There have been times when the only thing to eat in the house was popcorn and the mice have chewed the bag. No hot water, walking a couple miles through snow to get to work, no idea where the money is going to come from to get the power turned back on. When the power does come back on the next utility shuts off the gas. Desperation, aggravation, frustration, despair. Bankruptcy. That's where I was 20 years ago.
Make the decision to save money, things will start to fall into place. It may not be fast. It may not be easy. Start with the small goal of setting aside $500. For most folks It's enough to get the bills paid on time. Enough to have Hope. From there, move up to a month of bills. You won't be living paycheck to paycheck. You'll start to see a bigger future, one with opportunity.
The next milestone is 3 months of bills. This is a major milestone because it starts to be a sum capable of buying a car. You are maintaining freedom and guranteeing your lifestyle. It's ok to enhance your lifestyle a little as your savings grows. With 3 months of bills in place, you can reward yourself with something awesome, say, a drill press or sewing machine. Something that will enhance your abilities or offer comfort. What's interesting at this level is the realistic ability to dream about changing your life. 3 months of bills can be enough to make a downpayment on a house. I once bought a house with $1600 down. The home I have now required a $5000 downpayment.
Each milestone is about 3 times the previous level and represents a higher level of independence. Upon reaching one, it's fine to hold at that point, using additional savings to pay down debt, replace that smelly old mattress, and get one's ducks in a linear formation. Things will come up that call for using some of that money. The amount of savings can fluctuate. I've dug into mine for all sorts of things. A couple years ago I helped my sister with a downpayment on a house of her own. I was nearly broke, but she got the house. I'm in a position to be able to rebuild my savings. Without my help, she'd probably still be renting. Being able to make a difference has far more value than money.
I would prefer not to fall below $5000. If I do, I pull out all the stops and give up any superfluous spending until I'm back to that level. Beans, rice, pasta, cream of wheat, eggs, hot dogs. Survival skills come into play and I'll reduce my living standards for a while to get my savings back up. After helping my sister I ate a lot of oatmeal and grilled cheese sandwiches.
At the $10,000 milestone, my outlook changed. I'm not so concerned about little things. If I have a tire that is not holding air, I'll get it looked at. If a plug repair is not doing the job, I'll replace the tire before I'm on the side of the road calling for a ride. I can head off troubles preemptively. Being able to pay the bills for the best part of a year let's me look around and think about what else is possible. Do I really need this job or can I flush it and just grow vegetables? What if I brought in someone to help out around here? What if I renovated the garage so I can teach canning and cooking classes? What if I saved just a little more and paid off the rest of the mortgage? What if I saved a little more and bought a second farm? I could use one place to teach people to run a farm, the other to employ the best students and give them the chance to gain the experience to get their own farm using the Farmland Fund. That's the next milestone.
It's been a long road, some of it rough, a few dead ends, plenty of sharp turns. I've been able to save my pennies, help my family, and put myself in a good position for the future. There's still much to do and a long way to go. I've posted some guidelines for being frugal. It's a start, but needs to be developed. I need to get into the nuts and bolts of how to cut costs, lower bills, and get spending under control.
Lots more writing to do...
Seed the Mind, Harvest Ideas.
Pay Yourself First! That's how you save cash (vs saving on cost of living) ...10% of every penny. If you're making $200 a week, cash that check and put $20 away. Seems that regardless of how tight $$ is, most people completely blow $20 a week. Barter is alive and well - ask, offer and arrange. We have 2 families that come help out on the farm 6 hours per week (that 6 hours per adult) and it's usually done a couple hours here and there each week. In exchange, they get a BIG box of fresh fruit and veggies and some downtime outside in the dirt. I've traded weekly fresh veggie boxes for partial payment of backhoe work, traded veggies for fresh meats, traded knowledge for canned goods, traded over abundance of cucumbers for pickles etc. It's amazing how often people are more than happy to trade and barter. Other than milk, we have plenty of food for the whole winter and probably through spring, including a loaf of fresh baked bread every week (another trade) , a freezer full of meat and a basement full of canned good. Get creative - most people around here that raise sheep, cattle, turkey and meat chickens do not raise much of a garden - it's a beautiful thing~
Agreed - Pay yourself first. What I do is pay using my bills ($10, $50, $100) and then take the coins and store them away when I get home. After 6 months I had $682 saved up in coins which has now served as my rainy day fund. You'd be surprised at how fast you save just by simply collecting the coins and not using them.
Excellent thread, can't stress enough how important it is to save!
We are currently saving to pay the mortgage off, we hope to have it paid off in around 5years time, this would be 15 years early, and will save a fortune in interest payments. Basically our strategy is to save as much as possible, my husbands wage covers all the bills, mine go into savings minus child care expenses. We try and pay 10% every year, this is the amount we can pay without being charged. Once the fixed rate term ends every 2 or 3 years, if we have a little bit extra we pay extra off the remaining amount before renewing the mortgage. It goes without saying that we shop around for the best deal. The extra benefit is that as we pay extra, this reduces the monthly fee, this means as the cost of living increases our bills are staying around the same, rather than going up. I realise we are fortunate to be in the position to save a decent amount every month, but as the previous post say, it's a decision to make. We could very easily buy a second car, have a couple of expensive holidays every year, and a house full of crap that you don't need - next thing you know we have no savings and a mortgage that won't be paid off for another 15 years.
My top tip for saving: meal plans, shopping lists and setting a food budget. We are two adults and a 4 yr old and our food budget is £300 a month, we regularly only spend £200-250 of this, the remainder goes into the savings. Before we planned our meals for the week, we spent way over the £300 budget.
We have both brought home the loaf at times and sometimes at the same time. We hit Upper Class. We had less than when I was waitressing and both of us in college (and I still managed to save some money, when I quit that job we lived off that for a few months).
What I learned:
Mortgage-Don't have one. This is the biggest soul sucker ever. Seriously. You pay at least 3x for that 30 years. The first ten years you are a slave, as you build almost nothing against the principal.
Renting-go as cheap as absolutely possible. You are paying someone else to exist.
You don't need the brand new car, get something that is reliable and has some life and use left. Learn your own basic mechanicing-this will also save you if you take something in and they try to rip you over (especially if you're a woman)
INSURANCE YOU NEED IT! Starve and get it.
Brand name is expensive. Coupons usually are for brand name and you're still paying more. Extreme couponing is an art and not many places let you get away with it anymore. Embrace store brands, some are quite good.
Buy at least one freezer if not two and an extra fridge. This allows you to stock up, and rotate what you have! (I filled a freezer after easter one year, the economy went bust and I bought WHOLE Cook's hams for 19 or 29c a pound. We ate ham for almost 2 years).
Save some bucks to be able to absorb a sale when you find it (mostly food). Seasonal Seasonal Seasonal. Sometimes an after holiday sale (see the hams) will be a windfall.
Always take more money with you grocery shopping than is budgeted. Hit all the scratchNdent and at date. Just know when it comes home you will be cooking/processing it within the next 24 hours.
Invest in quality everything. A good tool is worth the money whether it is automotive, woodworking, kitchen, etc. If it will last invest in it. I have a lot of stainless kitchen stuff, some is a good 20 years old and going strong.
Learn to sew. Get a few decent sewing machines, not just one. If one packs it in you have one until you can get the other fixed. Also sometimes it's really nice to set them up for different things to make more use of your time.
Learn basic leatherworking. This is massively useful. Not so much stamping and decorative work as being able to sew and/or repair.
Of course, learn to cook. Basics again. Cook meat properly, make a loaf of bread (this is an art as well as a science) and how to not poison yourself accidentally. I had food service certification, I know basic food safety.
I batch cook, this is called 2-3 days a month where I cook all day, wash dishes at least 8 times and portion/freeze or sometimes can or dry/dehydrate foods for the rest of the month. Makes it worth cooking. To that end I have a dozen large glass cake pans, steel mixing bowls that hold 4 commercial sized cans (the big ones), etc. I have tweaked recipes so they taste good on the thaw/reheat. Sometimes I just portion out the partly prepared ingredients so I can take the components later and make the meal that way. Rather than paying for commercially made high-salt high-preservative and chemical stuff. This is separate from a windfall of seasonal food stuffs processing.
Learn to walk. Here most places you have to be are within 20 minutes one way. I can carry about 30# home from a mile and a quarter (the one semi-department discount store nearly at the overpass) with my custom sewn reuseable bags. If I use a backpack, about 50#.
Carpool (I do this for out of town shopping a lot) and pay some gas and buy the driver lunch. This allows me to shop out of town at times. 1) the Driver is never lost. You keep track of them, and when they're ready to go you better be. 2) discuss the stops first so everyone is on the same page. People I do this with have pickups and we can haul a lot of 'freight' and usually want to go to the same places. 3) have all your cold and tote bags in order and labeled. One friend goes monthly and fills 50 totes plus 10 or so cold bags. I get what's left for my stuff in the back end and double cab.
If a vehicle goes out, I make sure I have that trip organized on minimal stops and the shortest distance.
Rummage sales, thrift stores, and dumpster diving, are time honored. I have been doing all for over 40 years. Your trash may be my treasure. If you are in a big enough area, Freecycle, Craigslist, etc.
Allow yourself a few luxuries. You need a few things to indulge in but watch the line. We have a rule that if it's over $50 it has to be discussed, unless it's agreed upon parts, tools, or anything food.
Of course I have savings. Sometimes it's not a lot, sometimes I get a small windfall and it gets put away. My goal is three months of us at what we consider a 'normal' income. Retirement is not an option, spouse went disabled before we had a chance to lay in anything to speak of, so. We are technically IN retirement. Still.
Barter. The art is alive and well. A neighbor used to take me shopping with her out of town, and I would bring her fancy restaurant quality home cooking, enough to feed her and spouse in return. (I make a few things at chef level and can buy lots of favors with that)
Learn to grow things, do gardening. Even if you can't provide what you need for a year, you can still eat better and help out your budget. Plus you know what was done to it.
Learn you can say no.
Volunteer at your local food pantry. Usually they will give you a share whether or not you otherwise qualify. Plus you are helping with a worthwhile effort. Give back to your community.
Pay attention to your health. A lot of things you can head off before it gets nasty, ugly, or expensive. And there are a number of things you can deal with yourself. DO go in when you need it. Proper care at the proper time will save a LOT in health, wellbeing, and expense down the road. Do NOT ignore your dental, get it done when it needs to be. That can go so bad so fast.
There are many ways to entertain yourself without spending a lot. A cruise? Not likely. Going a few states over to visit friends, do a workshop, etc; yes. Reciprocate when they come your way. Though do have enough $ in case the campout goes south and you need a room.
Do not be too proud to take a job. Even work temp if you are qualified. I learned a LOT by doing several years of temp work, that has come in handy in later years. (yes I have degrees and I've dug ditches and worked fast food too).
Know when to cut a loss, whether it is effort, time, or money; or a combination of all. There are times you have to give it up. This is the hardest one to learn.
Don't be afraid to learn. Learning is growing. Knowledge is a great resource. I have done grunt and drudgery work beside or for someone to learn from them, and I got far more I could take away than wages or food...
Frugality is moderation. It doesn't have to be miserable scrabbling for every penny. Moderation, planning ahead, and thinking outside the box.
This is a really good thread. I quite enjoyed reading all the different perspectives. For a long time I've had a philosophy. It says that there are 2 ways to earn money - one is by doing a paying job and paying taxes on the income. The other is to save money. I was a stay-at-home mom for about 20 years but I didn't think it a luxury. I grew a garden, raised rabbits and chickens, canned, dehydrated, traded work for others' excess apples, sewed just about everything that didn't come from the thrift store (including men's suits and underwear) and did alterations for people in the area. I worked very hard and enjoyed having lots of control over my schedule and having the opportunity to be very creative. It's nice to see there are other people in the world who live similarly.
But I'm alone now and nearing retirement age. I now work a paying job. I find myself without adequate savings but I'm not too stressed about it just yet. For one thing, God has provided for me continually and even when we were very poor I was never without adequate clothes or nutritious food. And they came in some very creative, (and sometimes humbling), ways. As others in this thread have said - Be Content.
Secondly, the cash savings I do have are rapidly losing value from the effects of inflation. I have come to worry less about having savings and have decided to do more to prepare for the future via stocking up on supplies, tools and skills, planting fruit trees and permaculture rather than putting my trust in dollars. If/when SHTF, having the knowledge and seeds to grow food will be much more valuable than even gold or silver. I have my own little piece of paradise now and plan to have a well drilled soon. Because of the events of the last year or so the cost for the well has increased by about 50% since I first asked about it some 9 months ago. The sooner I get it, the better! I won't worry about what it costs because if I wait it will only become more expensive although my savings will not increase similarly. And don't forget the stock market crash of the last century. Cash isn't any guarantee of security.
My other 'vice' is thrift stores. I go just about every week - the day after they change the 'sale' tags and only buy the items that are 99 cents unless it's just a really good deal on something I might have bought new if I could afford it. By going nearly weekly I am never desperate even if I did just ruin my favorite pair of pants or jacket. I always have a spare in storage. And sheets. I have lots of sheets. When I can get king sized, new condition sheets for $1, I often do. In a pinch or some future disaster sheets can be made into a multitude of items and are nearly indestructible - clothes of all kinds, rugs, kitchen linens, hammocks, etc. Sheets are an amazing source of useful fabric at rock bottom prices.
So my new approach, at least until the economy stabilizes, is to use as much of the cash I have on hand as necessary to buy equipment, supplies and learning skills that will support me if things don't get better. Of course I don't mean every single dollar but if I planned to buy a tractor 'someday' I'd be using savings to buy it now instead of waiting. My cash is losing value every day.