Living thrifty / Living within your means

Maybe you are trying to pay down credit cards, save up for something, or merely want to live within your means… you need a budget! You need to be living thrifty! OK, "living thriftily" would be more correct, but it sounds dumb.

My family had experienced a long series of financial difficulties, but when my wife got her dream job we thought we were in the clear for many months… then she got laid off 5 days before Christmas. The biggest problem is that when we thought we were going to be fine, we didn't budget things properly, or at all. So when she got laid off, we hadn't paid our credit cards down, we hadn't saved anything, and we were almost exactly as bad off as before.

So: this article.

A budget

On paper, a budget couldn't be simpler:

Income - Bills - Living expenses >= 0

If this equation is true, i.e. the number is positive, we can do this! If that the equation is false, i.e. the number is less than zero, you have more work to do.

1) Your income is likely mostly fixed: maybe you can work overtime, but not that much.

2) You bills are possibly variable: you can cancel any services you don't need. You can work out at home instead of spending money on a gym. You can watch free TV or youtube instead of getting cable and HBO. There may be other memberships and services you aren't using but are still paying for.

But you probably have rent or a mortgage, one or more car payments, and utilities like electricity, gas, water, trash, and we'll throw in phone and internet. You can't lower those a whole lot… You should turn off lights and electronics you are not using, set your AC or heat reasonably, etc, but there's only so far they can go down. Of course, don't overlook the option of moving to a cheaper place to live.

3) And then we have "Living expenses". This is your food, your clothes, your toilet paper, your movie tickets, your coffee, your wine, your lube, your apps, your music… everything else, basically. After paring down your bills, this is where most of your work will happen.

Credit card payments are part "Bills" and part "Living expenses", but more on that later.

Just always remember that the end goal of having a budget is to not spend more than you have.

Write your basic budget

1) Write down your monthly income from all sources.

2) Write down all of your bills, including credit card minimum payments.

3) Subtract "2" from "1".

Hopefully your answer is greater than zero, because this is the absolute most you can spend. If you can reduce "2" or increase "1", all the better, but in the end it's all you get for food, gas, clothes, entertainment, and everything else.

So you need to take that last number and begin to divide it up into categories like:

1. Groceries (food, toiletries, soap, etc)
2. Restaurants,
3. Gas (for vehicles),
4. Clothes,
5. Entertainment, Etc.

Your categories will vary depending on what you normally spend your money on, and what you want to accomplish. You'll need to set priorities and you'll probably quickly figure out you want to spend too much for your budget. If this happens, adjust your priorities.

If you have multiple people spending money, it gets more complicated. In addition to a "home budget" for buying food, toilet paper, etc, you'll need to each have a personal budget for when you are eating apart, driving separately, paying for your hobbies, etc. Some of them will necessarily need a larger portion of the budget.

Unfortunately, if you are in need a budget in the first place, gaining a budget means you will need to sacrifice something (sorry).

Specific tips

Don't use credit cards

Use cash or debit. Do not put money on credit cards if at all possible, except for a few very specific scenarios:

1) Use a credit card for online purchases and at places you don't trust with your debit card because credit cards have a built in fraud protection. So if someone steals your credit card number, you are not liable like if they steal your debit card and drain your checking account. However, it is vitally important that you subtract that number from the living expenses budget at the time of purchase.

2) Large unexpected necessary expenses like car or home repair or doctor/ER visits. I was going to add an "etc", but it really needs to be an absolutely necessary expense, as in there's no way around spending it. And you'll need to start budgeting to pay that expense down immediately.

For existing credit card debt, take your minimum payment, multiply by 1 ½ or 2 (if feasible) and put it in the Bills section. After you budget your basic living expenses (basic food, gas, etc), push as much as possible into paying them down: you are most likely losing hundreds or thousands a year to credit card interest, so getting them paid down as quickly as possible is extremely important.

Make do

The next step in any good budget should always be to not spend money on things you don't need.

Now, when I mention this, some say "Well, I don't need to eat anything but rice and beans! But I don't want to live like that!" As if there's nothing in between "wartime rations" and "whatever I want all the time".

Really, you don't need to dress yourself in rags and eat only rice and beans because you don't "need" any other food or finer clothing. If you want a candy bar, you can just buy it. But you do need to draw the line somewhere, or actually, a series of small lines. You can probably live on rice and beans (and I don't know, carrots maybe), but unless you are totally broke you can set your sights a little higher as long as you know your budget. I'm talking getting the pack of $5 chicken thighs instead of the $20 steak. Buy a frozen pizza instead of getting delivery. That kind of thing.

It'd be nice to get bigger TV, a faster computer, fancier workout gear, shinier shoes, or brand-namier pre-packaged snack foods, but… maybe you can do without? Is buying more clothing actually necessary? Will this next purchase really make you happier or your life better? Maybe you can just make do with what you have, or what you can afford?

The answer is setting priorities: Pick your one or two things you really really want, and "splurge" on them by using a bigger portion of the budget. However, this means you'll need to scrimp elsewhere.

Buying clothing and household items

If you are anywhere near being an average person, you don't work in a place which requires you to have $200 tops and $500 shoes. You probably wear standard business casual clothing, a uniform/scrubs/overalls, or even just "oh whatever". So forget Kohls, forget JCPenny, forget even K-mart. The answer to your clothing question is "thrift store!" (No, not a "consignment" store: A thrift store.) A charitable thrift would be best because they generally have the lowest prices (Goodwill, Salvation Army, Savers, etc), but even a for-profit thrift is better than retail.

We have a good thrift store near us named "Adelante" where I've bought basically all of the clothing for me and my children for probably 1/5th to 1/10th of what it would have cost at even Walmart. I bought 90% of my kid's clothes and Christmas presents there, a large dresser, some chairs, electronics, dishes, books, CDs (yeah, I still get them), and a ton of other stuff.

Grocery

I have one word for you: Aldi*. If you are lucky enough to have one of these near you, do all of your grocery shopping there. Literally get all of your food, toilet paper, detergents, etc from there if at all possible. My motto is: If it's not at Aldi, I don't need it. No, you probably won't find your favorite brands there, but you'll most likely find something that's close enough and about half the cost.

That said, sometimes maybe there might be something you have to have that isn't found at Aldi. For example, if you want certain spices or weird vegetables, try an Indian/Asian market, preferably one that looks dirty and has whole fish staring up at you. The more un-fancy the better. You'll get great deals on spices, good rice, fresh vegetables, etc.

Finally, pay attention to those annoying fancy-grocery-store coupons and deal papers that magically appear in your mailbox. When you see deals on frozen vegetables or meat, go to said fancy store and stock up. A packed freezer is a good sign. Other than these deals or have-to-have items not found at Aldi, completely avoid normal "fancy" grocery stores.

Personally, I hate places like Sam's and Costco. You may find some good deals on certain things, but everyone I know who goes to those places ends up getting way too many things they could easily do without, because the "low prices" trick you into thinking you're getting a "good deal" on things you never needed in the first place.

• If you don't have an Aldi near you, look around. There has to be someplace nearby with a similar price structure.

Pitfalls

Where can you go wrong?

Small things add up extremely quickly

It's true that the absolute difference in cost for a single item between the expensive store and the cheap store is usually only a matter a dollar or two or three on average. At times it seems "why bother? I'd only save like $1.25 on that!"… But you're not getting a single item. You're most likely getting dozens of items dozens of times a year. So even an average of one dollar per item times 50 items times 52 weeks a year is $2600 a year. And that's only for one dollar less per item on average. It could easily be thousands more depending on what you get, and if you pare your shopping list down ("make do") and really bargain shop you could spend hundreds less per month.

But a note about "bargains": Your shopping trips should be made because you are going to buy a specific set of things that you need, so if you stumble on a "bargain" or a "great sale" on something you don't actually need and weren't intending to buy: that is not a bargain.

"One time" purchases

You're minding your own business when you spot something "awesome" for sale. Or maybe there's an event coming up and you'd like to spend a lot of money preparing. Or maybe you want to surprize everyone at Christmas with extravagant gifts. You might try to justify a purchase like that, telling yourself that it's just a one-time thing and you can pay it off next month by skipping your budgeted restaurant trips.

But don't do it! It's a trap! Because next month you either won't skip the restaurants, or more likely, there'll be a new "one-time" "awesome" thing. You know there will be. Honestly, you know it, and it'll get the exact same justification, just like the "one-time" expenses you've justified in the past.

Much better is to save up a little extra ahead of time so you have enough in free cash for something amazing when it pops up. If you don't have enough, well, better luck next time.

Conclusion

A conclusion?

1. Don't buy stuff you don't need.
2. Set your priorities.
3. Make do with what you can.
4. Use cash/debit only.
5. Pay off your debt without acquiring more.