How to Live a Frugal Life

These are hard times for many of us. People are definitively feeling the impact of this economic downturn. I think that most people tend to live a little (or more) above their means so that they can feel better. Obviously this is not the best way to live because of times like this. The key to financial security is living below your means, setting up a budget, sticking to that budget and lowering your debt.

Things You'll Need

• Computer
• Excel
• Internet access
• Job
• Money
• Time

Instructions

1. The first key to frugality is living below your means. You want to try and leave 5 - 10% of your monthly income alone. Pretend like the money doesn't even exist. For example, if you make $5,000 a month leave $250 of it alone (5%). In other words, pretend that you only make $4,750 a month and setup your budget based off of this number. Living below your means will insure that during hard economic times you will not be in over your head. You will now have an extra $250 a month to make up for higher gas prices, food prices, ect. This will not last forever since downturns don't last forever. As your income increase, keep your "pretend money percentage" constant and never deviate from that number. You can use the very simple equation: A x B = C. Where A=Income monthly, B=% of pretend money, C=Budget income monthly.

2. The second key to frugality is setting up a budget. You can use MSN, mint.com, Yoodlee, or excel to setup a budget. There are other chooses but these are the most popular ones. I use excel to track my spending because I like the fact that I can set it up any way I want and it's free! I have tabs for all the different categories in my budget. The categories are income, automotive, utilities and bills, food and household, healthcare, retirement and savings, hobbies and grooming, fees, credit card, and totals. The totals page has my income and expense totals. I take the difference between the two and add any extra money into my high-interest savings account. This is a great way to save a little extra cash. You can also spend this money, which I explain next.

3. The third key to frugality is sticking to your budget. Let's say you have been eyeing that new Blu-ray DVD player and would like to go out and buy it. You see the price tag is $350 and are having second thoughts. The first thing you want to do is stop and walk away! Go home, open your budget worksheet and setup a tab for savings goals. Add any extra monthly money (step 2 above) to this goal and when you reach $350, go out and buy the Blu-ray player! Sticking to your budget will make you feel better and in the long run it will help you save some extra cash!

4. The four and final key to frugality is lowering your debt! This is by far the most important of all the steps. Eliminating your debt will increase your net worth and will increase your income to debt ratio. This will greatly increase your chances of getting a loan for a car, condo, or house. It will also increase your chances of getting an apartment. A great life is a debt free one!