Wednesday, May 31, 2006

The Frugal Mind-Set


It’s not easy, or natural for everyone
to think like Scrooge. For most people,
frugality does not come without some
effort. But everyone can achieve it. It
really depends on how much you
want it. The rewards of frugality are
many: getting free of debt, paying off
a mortgage, having cash in the bank,
buying a car with cash, etc. It also
means you can be more certain of your
fi nancial future and less dependent
on the charity (or tolerance) of others.
For some people the frugal mind-set
is forced upon them at an early age
through family poverty. These people
are denied credit, have a diffi cult time
getting a proper education and are
often caught in the endless cycle of
poor education and poor wages.
Some of these people learn frugality
as a way of survival. Some others may
develop an “I want more” mind-set.
On the other side of things some are
born into affl uence and have so much
money that they could never be in want
unless they spend it like a total fool.
But the vast majority of people are born
into the middle class. They work for a
living, are moderately well educated and
employed at better than average wages.
They have easy access to credit. So easy
in fact that over the past few years they
may have been offered dozens of credit
cards, bank loans and credit accounts.

Their combined credit limits on the credit
instruments they were granted may be
in excess of $100,000. And most of
these people have never had a single
course, seminar, class or a “talk with dear
old Dad” about handling credit. Naturally
some of these people get in trouble by
buying too much and then having diffi culty
paying for it. Just like the very poor, they
too get caught in a trap, but this trap is a
consumerism-credit trap, and the misery
it brings can be as tormenting as poverty.
The answer is to change the mind-set. The
way one thinks must be changed to control
the spending urges and plan for the future.
In lieu of a talk with some favorite relative
or friend, I offer the following points:
1) Everyone really does need to plan
their income and expenses. Budgeting
is a dreadfully boring exercise. It
is also one of the exercises that
will make the difference between
poverty and riches in your later years.
2) Once you know what your income and
expenses are for a year, then you can plan
your purchases. Don’t forget to allocate
some of your money to charity. It might
sound odd for me to be recommending
giving away some of your money, but
believe me, the good you do to others will
always come back to you. Some charities
will even be able to give you tax receipts
so you can get some of this money
back when you fi le your tax return. (But
please don’t make the availability of a tax
receipt the determining factor for which
charity you choose - go with your heart.)
3) Don’t buy what you don’t need. If you
think you need something (other than
food, clothing, housing or medical care)
detach yourself mentally and have a good
long talk with yourself to fi nd out exactly
why you need it and determine where
the non-credit money is coming from.
4) Always pay with cash, check or a direct
bank debit. (But don’t use your debit card
like a credit card, spending now and
paying off the overdraft protection later. If
that’s what you tend to do it is better to go
and get the cash fi rst from a bank. At least
that way it forces you to have a cooling
off period when you can really think about
the purchase you are planning to make.)
5) Always look for ways to lower your
expenses.
6) If you must buy something look for the best
value (combination of price and quality).
7) Never own more than one credit card.
8) Never use the credit card unless
it is an emergency. If you think you
need it for online purchases try
using something else like PayPal
(www.paypal.com) and have the money
sent directly from your bank account.
9) If you must use the credit card, pay it
off in full before the statement due date.
Never, never, never carry a balance on a
credit card! The interest will suck you dry!
10) Force the bank to keep your
credit card spending limit low. Is
there any reason it should ever be
over $1000? The bank will want to
increase your limit. Don’t let them do it.
11) Each payday, as part of planning
your purchases, transfer money from
your checking account to a savings
account. The amount you transfer
should be what you determined you
need to save for future purchases.
12) Keep three running balances posted
in a prominent spot in your house (like on
the refrigerator door). The fi rst balance
is your checking account. The second
balance is your savings account. The
third balance is your credit card (which
99.9% of the time should be 0...right?).
Having these balances in plain view
several times a day will keep you mindful
of the importance of keeping your
fi nancial affairs in order. Money will mean
nothing the day you leave this earth...but
until then wise money management
will mean the difference between a
miserable and a comfortable existence.
13) Read point 3 over and over
and over again until it sinks in.
Scrooge

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