Wednesday, May 7, 2008

I have a confession to make

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.

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.


  1. Many people should follow your lead! Sadly so many are in huge debt! Keep going, sounds like you have your head on straight (if not a little wobbly)!

  2. There is a lot of debate between frugal vs. cheap. You might need to buy a computer and cell phone worth $1400 and I'm sure you researched and found the best price and maybe another person would have spent $1800 or more on the same items. Like at my job, some folks can get by with a mediocre computer, while others need to have lots of memory, hard drive space, etc. It took me a long time to learn to stop going for the cheapest of cheap because I learned if I had just invested in the better item it would last longer than the cheap one. You live within your means, it sounds like you are doing a great job.