This probably won't come as a surprise to those who can read between the lines of my blog. I'm not particularly frugal. I have no real intentions of saving hard for retirement - the odds that I make it to 59 1/2 (and can withdraw from an IRA account without penalties) are miniscule. Instead, my time horizons are much shorter - the next 10-20 years. I don't want to be tied to a specific job, living paycheck to paycheck, but I also intend to work as long as I can. I've taken my year and a half off from the job market, and honestly, I'm happier working, even if individual days are sometimes rough.
There are, however, a few guidelines I'm using in my money management that I think are important.
- I spend intelligently. I just spent nearly $1400 on electronics (a new laptop and a new cell phone). That's a lot of money. But I thought seriously about both purchases and they're ones that will last me a long time and add significantly to my quality of life. I keep track of every penny I spend, so that I'm able to identify the areas where spending is not contributing to the enjoyment of my life, and make changes in those areas.
- I don't live paycheck to paycheck. That is one of the most stressful things I've done, not knowing whether I was going to make payments for all my expenses. Now, I plan for recurring expenses in advance and reserve that money the month before it'll be needed.
- I keep an emergency fund. For the unexpected expenses, I know that they won't wipe me out financially. I have very few obligations at the moment (I'll have rent, utilities, groceries, and medical bills) and I'm only responsible for myself. So I have 10% of my gross annual income set aside. This would cover 3 months of no external income whatsoever, comfortably, 4 months if I really stretched. As my expenses grow, or as I acquire more points of failure (for example, a car that might need repairs), I'll increase the amount in the funds. This came first and was absolutely my highest priority.
- I don't buy on impulse. I readily admit, I have expensive tastes, and I would much rather pay a premium for quality. But I heavily research purchases and give them a lot of thought. When I do make a decision to buy something, I feel good about it and can enjoy what it contributes to my life, as opposed to regretting it and feeling locked into a purchase.
- I don't go into debt for purchases. If I can't afford it now, I wait. Moreover, I don't throw every penny I have towards a purchase. My set-aside funds don't get touched, my bills and obligations, including automatic savings, come first.
- I set goals, both short-term and long-term, and I work towards those. I want to get out of debt. I want to buy a car. I want to get out of the rental market and own my own home. I work towards these diligently and I don't lose sight of them just because a shiny new object comes out. In other words, I spend money now to make my life better, but I also put money away towards my future.
So on balance, I earn more than my monthly obligations. Once those obligations are satisfied, I split the balance between long-term goals and short-term ones. Does this fit the traditional definition of frugal? No, not really. I would reconsider my position if my life circumstances were different. But for me, I think I've started on the road to a good balance between now and later.