Ask Consciously Frugal

Welcome to the first installment of Ask Consciously Frugal, a weekly advice column for those who want to live well, spend less and respect the earth and our human family. This week's questions focus on spending plans and emergency savings. Feel free to contribute your own suggestions to help these brave gals!

Question #1
Dear Ask Consciously Frugal:

I think that $200 is a lot of money! That is what I've budgeted for me to spend a week, and yet when I go to the cash machine on Friday to get that money it is almost gone by Tuesday.

This money is for everything--books, clothes--stuff that I buy not every week, as well as groceries and meals out.

I'm either lying to myself and then I need to face that I actually need more money in which case I need to make more money, or save less money--I think this might be the case, as historically I always budget over ambitiously, thinking I should spend nomoneyever. I put away about $200 a month. I don't want to save any less, but when I go through my rent and student loan payments the only way I can really come up with extra spending money is to save less and I don't want to do that?

Unless I'm missing something? Any suggestions?

Signed,
Single female NYC dweller who spends too much money on rent!

Dear Single NYC Expensive Apartment Diva:

First, let me congratulate you on making saving a priority. That’s quite a feat in our debt loving culture, particularly for one living in such a ridiculously expensive city. Let me take a moment to perform a Broadway musical (complete with jazz hands) in your general direction.

Now, onto the “advice” portion of our musical. I asked my newly converted frugal friend Sarah (not her real name) what she thought of your predicament. She sighed, rolled her eyes and said, “Duh. Tell her that’s what credit cards are for.” Like I said, she’s a new convert. Give her time.

Let’s shove Sarah down a well and get back to your concerns. In your question, you’ve given yourself two options: save less or make more money. Making more money is definitely a good choice (see next week’s column about making more money), but the option of saving less needs to be removed from your radar, particularly if you do not have six months of emergency savings or 12 % (yes, you heard me correctly) of your income going toward retirement.

So, how about a third option? Yep, you guessed it—spend less.

Although you say your budgeting includes “spending nomoneyever,” it’s obvious that you are spending money—about $200 each weekend. But where is it going? Having a fund for “everything” turns your finances into a compost pile. Eventually, it’s all going to turn into stinky poop.

I suggest the following:

1. Write your financial goals down and put them in a spot where you will see them every day. Do you have six months of living expenses saved in an emergency fund? Are you saving 12% of your income for retirement? Do you want to do a 3-month tour of Italy? Whatever your goals are, write them down in a place where you will be reminded, every single day, of what you truly value.

2. Keep your eyes on the prize. Delayed gratification is the key to staying strong in a savings plan. Yes, it’s going to take X amount of time to reach your emergency savings goal or to get enough money for that trip. But if you don’t stay the course, it’s only going to take longer. (See question #2 for a discussion on emergency savings.)

3. Track your spending. Everyone, including me, talks a lot about “budgets.” In reality, budgets are like diets—they don’t work. Spending is like nutrition. You could splurge on that new blouse (Big Mac) and feel great for a minute (mmmm, special sauce), but eventually you’ll regret the purchase (God help me, I think I’m going to puke. Was that even food?).

Throwing all of your expenses into a compost pile doesn’t allow you to learn where you can cut back. So, write down every single cent you spend for at least a month, ideally for three months. You’ll notice trends and will be able to create a “budget” (realistically, a spending plan) that will allow you to divvy up expenses accurately. If you notice that you spend approximately $70 a week on groceries and $50 eating out, you can determine which is more important to you and where and how you can reduce spending.

We nickel and dime ourselves into debt daily. Expensive, specialty coffees out instead of brewing at home and taking our reusable cup to the park to sit and people watch. Reading women’s magazines only to discover an immediate and intense need for the latest and greatest lip shade. The list goes on and on and on. By carefully tracking spending, you can learn just how and why that $200 disappears by Tuesday.

Although you may think you can’t cut back, I’ll bet you that $200 that you actually can. It’s just impossible to know where to cut spending if you’re not carefully tracking where the money is flying off to. Once you see where it’s going, it’s much easier to figure out how you can spend less in each of the budget/spending plan areas you’ve uncovered.

4. Become a dork. I use a ridiculously dorky accordion coupon holder to keep my various spending categories separate. I determined how much to put in each category by tracking my spending, seeing where I could cut back and assigning an amount accordingly.

Each payday, I withdraw money from my account and put a certain cash amount into each category. When the next pay day rolls around, I take the excess from any area and put it in the back slot. If I run out of wine or clothing money, I’ll take from that reserve. If I don’t have any in the reserve after spending my allotted amount, too bad, so sad. Granted, I could use Sarah’s suggestion and just charge it, but then I’m back to square one, forever chasing my tail.

5. Make more money. See next week’s article for a discussion on this topic. Be it through a raise, a new or additional job, freelance work, etc., making more money certainly helps the finances. Just be sure not to do like most Americans do—spend more the very second we start making more.

6. Move to Missouri. You can buy a four-bedroom house with an in-ground pool for what you’re paying in rent now, and there isn’t nearly as much to do, providing little opportunity to spend money. I should know; I spent most of my life living in that green, rural splendor.

In short, write your financial goals down, keep your eye on the prize and maintain careful records about where your money is going so you can skim a bit here and there to stay within your weekly allowance. If you’re diligent enough, you may even find (despite New York’s expense) that you can start saving more money.

And, as always, Consciously Frugal is here to help. If, after tracking expenses, you don't think you can cut back, send your notes in and we'll help you shave a little here and there to keep you on the right track.

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Question #2

Dear Consciously Frugal,

I'm trying to build an emergency savings. I live in an expensive urban area and need $2,000 a month to live. That's $12,000! I'm currently saving $150 a month. I have $750 in savings now. At this rate, it will take me SIX YEARS to save enough for my emergency fund! It doesn't seem very realistic. Is it really necessary to have six months of savings?

Sincerely,
Feeling Hopeless on the West Coast

Dear Soon-to-be-Hopeful:

Like our New York friend above, I'd like to congratulate you for making savings a priority. Yay you! There's certainly nothing helpless about that! It's a proactive, self-respecting endeavor and you should feel extremely proud of yourself for working toward such and important (and achievable) goal.

The beauty of time is that it happens no matter what we do. You could save or not save. Those six years are still going to roll by. Better to use them doing something positive than giving up and spending money on crap you don't need.

But let me help you find some perspective in this. You're assuming that you're always going to save the same amount and that other money will not become available. Also, you're not taking into account the beauty of compound interest. Here are a few tips to help you build that all important emergency savings:

1. Read this weeks Question #1 and follow the same tips. You may learn that you don't really need $2000 every month. After carefully tracking spending and cutting back (this blog is full of tips on how to cut back, so read away!), you may find that you only need $1500 each month. You've shaved $3,000 off your goal right there.

2. After uncovering your expenses and cutting back, put that extra cash in your savings plan. Even if you're "only" able to increase your savings by $50 a month, you'll be able to reach your goal that much faster.

3. Put all raises and monetary gifts into your savings. We often view extra or unexpected money as a windfall meant for mindless spending. Mindless spending doesn't provide much of a savings cushion, unfortunately.

4. Look for ways to increase your income. If you're diligent about savings, I bet you're just as capable of increasing your income and therefore the monthly amount of your savings. Are you being paid what your worth? Go to Salary.com and see if your income is comparable to others in your field.

You could also consider getting a second job over the holidays, placing all of your temporary job's earnings into a savings account.

5. Make sure you're getting the highest yield possible from your savings account. Many online banking centers like Emigrant Direct and ING are offering substantially higher yields that traditional banks. Thanks to the beauty of compound interest, your dollars will grow with no effort on your part.

6. Reward yourself. Obviously, spending money to reward yourself isn't the goal here. But you're doing an extremely important thing by actively pursuing financial security. Go swimming. Have a friend make you dinner. Spend time in your favorite nature spot and soak up the good mama earth vibes. Find a frugal way to celebrate your commitment to self-care.

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Thanks to to Ms. NYC and West Coast Hopeful for their questions! Here's to continued savings, financial security and excellent self-care!