Ignoring Debt… #FrugalFriday

Friday at last, and as usual I’m looking for ways to help you earn more and spend less, leaving you more money to lavish on yourself.

For some the word “frugal” calls to mind images of shoeless orphans, dumpster-diving for left-over food in back alleys, or filthy wolf-children picking lice out of each other’s hair, scavenging and howling at the moon.

But that’s not what it’s about at all.

Frugality is not about being poor or smelly or turning into a year-round Scrooge and refusing to spend money on anything… it’s about reducing unnecessary costs and making use of the things you have instead of buying the latest toys (bendy iPhone 6 anyone?) which are choc-full of bells-and-whistles features you will probably never use. It’s about making your money go further so you have more cash to spend on the things you love: whether you get your kicks by hoarding cash under your mattress to save for the trip of a lifetime, investing it in gold or in the stock market, or splashing out on expensive meals – something a friend referred to recently as Frugal Decadence – it’s your money and I want you to have as much of it as possible.

The biggest enemy of frugality is ourselves. We’re weak. We’re wasteful. And we’re easily persuaded by slick marketing and advertising slogans. And when you combine that with easy access to credit, most of us find it all too easy to wave a magic plastic wand and buy a ton of useless crap on impulse… if that doesn’t describe you in any way, then you’re either lying or you’re a very rare creature indeed.

And then what do we do? We make the minimum payment when the bill comes in at the end of the month, right? Of course we do… the reason we bought our toys on credit in the first place is because we couldn’t afford to buy them for cash, but with our “buy now, pay never” attitude, you can have it all and never need to worry about paying the money back… just keep paying the interest.

What we’ve forgotten is future-you…

Eventually future-you will reach the stage where you can’t even afford to keep paying the interest on your credit card, let alone pay off the money you’ve borrowed: with interest building at an average rate of 20%, your debt is increasing month on month even before you buy those new shoes or that jazzy gizmo from the shopping channel which you’ll never use.

Now I realise it’s easy to con yourself into thinking that you’re some kind of credit-card Neo and that you’ve manipulated a clever loophole in the matrix which means that everything will work out in the end and you won’t have to pay a dime. But you’re not. You’re you. And you’re weak.

And while you may not pay immediately, your impulse-buying will catch up with you and it will mean you pay back much more in the future… exactly the way the credit card company planned it.

What has all this got to do with being frugal you may ask…

Today’s #FrugalFriday watch-word is“budget”

More than anything else, you’re missing a plan. The word “budget” sounds dull, because it conjures images of spreadsheets and graphs and… yawwwwwn!

But a budget is simply a plan. Nothing more.

Let’s get started: grab yourself a piece of paper and draw a line down the middle.

You with me so far? Good.

At the top of the left column write MONEY IN and underline it.

At the top of the right column write MONEY OUT and underline that too.

Not going too fast for you am I? Of course not… see how easy this is?

Back to the MONEY IN column: how much money do you get each month from your wages and from any side hustles you may be running? Write the figures down and add them up at the bottom of the column.

Now draw a circle around that number… “income” done!

Back to the MONEY OUT column: list all the stuff you have to pay for every month. Not the stuff you WANT to buy… I’m talking about your obligations – your rent, your mortgage, your car loan, your taxes, your utility bills, your credit card payments – and then add those up at the bottom of the OUT column.

Circle it and you’re done again… we’ll call this one “expenses”.

The difference between the two figures you have circled at the bottom of each column is what you have to play with for the month. It’s your AVAILABLE CASH. It’s what you have left to spend on food and clothes and entertainment and anything else you want to buy. It is YOUR money.

The other money — the figures you wrote down in the MONEY OUT column on the piece of paper — that’s not yours. And the only way to make more of that money yours is to increase your income and to decrease your expenses: make the MONEY IN column fatter and cut the MONEY OUT column down to size.

You have just created a BUDGET

You now have a plan. It’s not a complicated plan, but it doesn’t need to be. No graphs. No complex formulas. Just simple bean-counting. That’s all a budget is.

Congratulations, you are now a qualified accountant!

In addition, you have also just discovered the secret to happiness and financial stability: spend less than your AVAILABLE CASH LIMIT and you will be happy because you’ll be able to pay off your debts and you will be able to start investing in your future. Spend more than you have available and eventually you will be bankrupt.

It really is that simple.

Planning your finances is a vital, real-life skill which we ignore at our peril, and your debts are your responsibility: ignoring debt makes you your own worst enemy.

Do you have a budget? Do you have a plan for your finances? And if you do, do you stick to it? Or are you one of the millions who are winging it and hoping for a lottery win to get you out of the hole?