Quite often, I admire my cousin and his wife for some of the frugal things they choose to do in their lives. They buy late model used cars and drive them until they need replaced, eat out only on extremely rare occasions, and know cold which generic products are basically the same as the name brands. They’ve replaced almost all their light bulbs with CFLs and have actually disconnected their cable because they don’t use it much.
That’s why I was shocked recently to find out that they’re actually in a frightening debt situation. Why? They take that money that they save from frugal choices (and more) and then spend it on incredibly expensive toys. They have several ATVs, a huge array of hunting equipment, a taste for nice clothes, and their children have virtually everything they ask for.
The end result? Frugality isn’t helping them with their financial situation. They’re already doing it in some avenues of their life, but in other ones, the spending is so overblown that it undoes the buckling down. Often, the argument offered by people in this situation – including my cousin – is that the nice stuff they have is what they work so hard for, but if you ask them what happens if they were to lose their job, a deep look of fear pops up in their eye.
What can you do if you’re in this situation, where your basic needs are actually well below what you’re making, but you find yourself spending everything you bring in – and more? Here are some suggestions for putting yourself in a safer financial situation.
First, don’t give up your expensive hobbies. This might seem like shocking advice, but I’ve found that if you give up something you’re really passionate about, it works about as well as an “all-salad” diet – you do it great for a while, then relapse with crazy splurging.
Look at my cousin’s situation. He spends almost all of his free time with his family doing outdoor activities: riding around on their ATVs, hunting, fishing, and so on. It makes natural sense that he wants to spend his entertainment money on these things – and he should. Life is boring if you don’t have an outlet for your passions.
For me, my hobbies are reading and writing and some video game playing (and a little bit of music). My biggest expense is games for my Wii and DS and occasionally a computer upgrade. While I’m tempted to buy every interesting Wii or DS game I see, I’m pretty careful to not do this.
Instead of spending extra money on hobbies and entertainment, though, set up an automatic savings plan that takes some of the money out of your reach. That way, there’s no money sitting there to tempt you to spend. Take, say, $100 a month out of your checking and into your savings, and don’t touch it until you desperately need it.
You’ll find that your spending adapts to this new available amount. Maybe you’ll move from two new outfits a month to three every two months, or maybe you’ll hold off a few months on your next ATV upgrade. You still get to enjoy your hobbies and have those things that really drive you, but you also get to start putting away money for the future.
What I’ve found for me is that buying one video game, making a very earnest effort to master that game, and then move on to another one is a great way to keep my video game hobby alive with a lot of enjoyment but without much spending. Similarly, I hit the library and PaperBackSwap when I have a desire to read a new book (right now, for instance, I’m reading through most of John Steinbeck’s novels, all of which I could get through PBS or the library).
Over time, slowly increase the amount you’re withdrawing into savings. This works very well in conjunction with discovering new avenues of frugality or increases in salary, or if your interests begin to change.
You may also want to start making extra payments on outstanding debts. Now that our emergency fund is built up well, we have started making extra payments on our student loan debts, and it feels very good to watch them melting away. Once that’s done, we’re going to tackle our home loan with extra payments. This is a good move to make once you have plenty of money socked away to cover any emergency.
Soon, you’ll find yourself in a safer financial situation, and that’s exactly where you want to be.