I am not cheap, I’m frugal; yes, there’s a difference. Often when people think of saving money or having to pinch pennies, they think of limitations and the things they can’t do. However, when it comes to saving, it’s important to consider the opportunities it affords you. In the past year, I have travelled to Europe, visited my future in-laws in the Maritimes, and flown for a concert in Toronto, and yet, I still have a strong retirement plan in place. When I say I’m not cheap, I’m frugal, I mean it. The true art of budgeting isn’t about limitation; it’s about value-assessment. Consider what really matters to you and focus your money on that. The best part is that this idea is not limited to a specific tax bracket. These principles apply to everyone no matter what your income.
The first step to budgeting is to decide what you value. Are you in love with designer fashion, travelling, or new tech hardware? It is important to prioritize where you spend your money so you are not spreading yourself financially thin. You do not need to be miserly when it comes to spending your money, but it is wise to be considerate. Often, people don’t consider why they are spending their money or what other costs may come into play. For example, if you spend $100 on a new piece of clothing, you are “unspending” $100 on a new piece of technology or not investing in a savings account, both of which may have been more valuable for you.
Often people give into multiple vices or indulgences and that can be a large money suck. Once again, do not cut out all vices but figure out which splurges really matter to you and put that money aside. If you are a diehard Starbucks fan, have an automatic deposit put onto your membership card at the beginning of each money and, voila, you have your funds for the month. Treat this as you would your allowance. It is a finite amount which forces you to determine if you really need the coffee or if you could make do with the stuff at the office.
It is important to set a reasonable (not cheap) spending allowance each week. It is similar to a diet. If you deny yourself too much, you’ll eventually slip, overspend, and then deal with the emotional repercussions. Instead, look at your monthly budget, consider what would be a healthy budget that wouldn’t have you feeling limited while ensuring that you are addressing the other financial needs in your life. It is also a good idea to have your spending allowance in physical cash; this will decrease the likelihood of your overspending on your weekly expenses.
Then again, there are those larger splurge items that, when indulged, can make a serious dent in your savings and cause financial stress as you try to ensure all your financial obligations are also covered. Plan ahead for these grander indulgences so you can avoid the sudden dips in your bank account. To help you save for larger, passion items such as travel or designer clothing, set up a separate account and put money aside in it each month. You can set up an automatic deposit on your payday and avoid accidentally “unspending” it on something else.
Automation can be a young saver’s best tool. In addition to avoiding unnecessary interest charges or generating a negative credit history, having funds automatically withdrawn from your bank account to pay bills or add to your growing savings account means you can focus on budgeting with the remaining money. Not only would this provide you with peace of mind that you’re financially covered in both your savings and expenses, but you have a more realistic idea of what money you can play with after the fact. You can set up automation through your bank, billing vendors, and robo-advisors.
It can be intimidating to imagine creating or maintaining a budget when you don’t want to limit your life but start small. I remember when I was a university student struggling to make ends meet and experiencing anxiety over my financial situation of never having enough. Then I began implementing a weekly spending allowance. Ironically, limiting my spending to a finite amount gave me freedom. I was able to indulge in my vices guilt-free because I had budgeted for them, all the while covering my bills and saving for the future. Be frugal with financing your passions and you’ll avoid being cheap for life.
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