Friday, September 9, 2011

Prioritizing your Spending

Most of the suffering that comes from frugal living is not about cutting expenses, really, but from cutting the wrong ones. I am frugal so I can have the things I need and want. I just don't pay for anything else.

Often, personal finance gurus will tell you to know the difference between wants and needs and to spend only on the needs. That's a load of crap. No one can live a happy, frugal life without some of those wants! If you really want something, you should have it. The expenses you should cut are those things that you don't need, and don't really want either.

Every few months, I sit down for an hour and add up all of my check/debit/credit card purchases and organize them into different categories: groceries, utilities, eating out, business expenses, coffee dates, concerts, shopping, etc. From this, I can tell where a bulk of my money is going and figure out if it is going to the right places. On the more recent audit, I found that  "pleasure" shopping and eating out combined cost more than thrift shopping, coffee dates and concerts combined. In fact, we spent 3x as much on shopping/eating out as thrifting/coffee/concerts. However, we really don't like shopping and always feel guilty and less than satisfied with the quality of the food when eating out. Why were we spending so much on it then?

I am a pretty amazing cook, if I do say so. I also have a small apartment, so stuff takes up valuable space that I just can't spare. There is no need for me to spend money on those categories and I don't get very much pleasure at all from doing so. In fact, sometimes I feel sick after eating out (especially at Chinese buffets), so I am paying a high price to feel sick. On the other hand, I like going to local concerts and having coffee with Trucker where we read and talk for hours. I like finding things I need (or really want) for pennies on the dollar at thrift stores. I get a lot of bang for my buck.

There are a few of ways of looking at this. One: by cutting out the eating out/pleasure retail shopping categories, I would free up enough funds to go out for coffee/concerts/thrift stores four times as often as I currently do. This would certainly provide much more enjoyment for me. Two: I could take that money and throw it into savings for a big goal (right now my house down payment). Three: I could cut back my hours worked. The amount spent in this unwanted/unneeded category was the equivalent of 5 hours a week ($$$ spent divided by my pay rate after taxes). That's a lot of time spent for something I don't enjoy.

For now, I will combine the first two options. I will eliminate going out to eat, except under very rare circumstances (out of town guests, anniversary). I may go out for coffee once more a week. Otherwise, I will throw that extra money into my house fund. Just a note: by the time I am planning on buying my house, the savings will equal one third of my needed down payment! Once my goal is met, I may decide to cut back my hours, or I may wish to start saving for the next goal.

Look for things you spend money on that don't bring you pleasure and stop spending! If you make a rockin' homemade pizza that's far superior to any take out joint, stop ordering out! If you are annoyed constantly while driving three miles to work, start biking! Take the time or take the money for other things that will bring you happiness.

Happy living!

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