I often find that most of life’s situations were covered in at least one episode of Friends. And you won’t be surprised to learn that one of my favorite episodes has to do with money. It’s actually the pilot. In it, the group encourages Rachel to embrace her new independence by getting rid of her dad’s credit cards (yes, that’s plural). She had to learn to fend for herself, which meant getting a job as a waitress and, presumably, watching her pennies.
Jenny was in a similar situation after her divorce. She was used to a luxurious lifestyle, funded by her ex-husband’s successful career. Impromptu vacations and splurges were the norm. Then she landed back in reality, with a $27,000 salary and rent coming due.
How do you learn how to be frugal when you’re accustomed to spending as you please?
Track your spending. First step is to know what’s going out the door – how much you’re spending on groceries, entertainment, and flexible utilities like your cell phone and cable. You may find that not only is HBO out of the question, but Netflix or Hulu do the job and save you $60 a month. Look for other line items that can be eliminated or drastically cut back. That’s what this exercise is all about. It’s easy to say you don’t blow a lot of money at the grocery store, until you see it in black and white.
Create a budget. If you’re still living your same lifestyle, but trying to do it on a much smaller income, you need to create a picture of where you stand. A budget does that for you. And because you tracked your spending, you’ll know how much you already spend in each category – I break things into the following five categories: housing (35% of your income), transportation (15%), debt like credit cards and student loans (15%), savings (10%), and other living expenses (25%). You can borrow among them, except for savings. (Note: If you can’t get to 10% now, work your way there in 2% increments.) And if one category is dragging down the others, take a hard look at the changes you might be able to make.
Start saving. We just touched on this – 10% is the goal – but where do you put it? You should first have an emergency fund, if you don’t already have one, with three to six months worth of expenses you can access in a jam. Then start working toward retirement. Contribute at least enough to your employer-sponsored account to grab matching dollars. If you have extra money, add more. Set a goal to raise your contribution by at least 1% each year.
Make it fun. You may not think saving money is fun, but it can be. Otherwise, Extreme Couponing wouldn’t still be on the air! Challenging yourself to save more and more each week – whether by clipping coupons in a non-extreme way or selecting one or two days a week and dedicating yourself to not spending a cent – can be exciting, especially once you start to see the savings add up. And don’t forget to surround yourself with frugal friends, who want to have a glass of wine at home instead of going to happy hour and who support your budgeting endeavors.