It's About Budgeting Smarter - Not Harder!
Two years ago I really started focussing on my own money. Before this I was always focussed on earning money and what I could spend it on. Fast forward and today I have increased money left over at month end by over 50%. Budgeting and living more frugally can be tough at times but being smart can alleviate much of the effort. By learning from others hopefully you can me more frugal faster and easier than those ho have walked the path before. Here are some of the mistakes I, and many others, have made so you don't have to.
Budget Mistake 1 - My Best Tip
Always, when buying anything for more than $20 - ASK FOR MONEY OFF!
I was once asked by a friend "Do you ever haggle in high street shops?" I'm embarrassed to say I thought he was crazy - "No, I certainly don't"
Well - 2 years on I can now tell you "I do" and "It Works!"
It is really a matter of perception. Living in the UK haggling and bartering are almost considered rude - and pretty unheard of in any shop. But think about it - If I want to buy, for example, a pair of Nike Training shoes - I can purchase these in 10 shops on the same High Street. In each shop the shoes will likely all be similar in price, and the product is identical. So the only variable is which shop I choose to do business with. They need my business - not the other way around.
And think bout this - all the amazing offers they put on from time to time - they still make money at the discount rates. Permanent discounts offered of say 10% to students or military - they STILL make a profit - so really you are just asking them to make slightly less profit and in return you will choose to do business with them and none of their competitors.
Managers have discretion to reduce prices (there is an allowance for damage and shop lifting for example) - so just ask.
Worst case scenario is they say no, all the other shops selling the same item say no. Well - the original price hasn't gone up - just buy the item now with the satisfaction of knowing you couldn't have got it cheaper.
Budget Mistake 2 - It Is Only A Great Deal If You Wanted It
Everywhere we look these days vendors are trying to attract us to purchase their wares with "Huge Savings" and "Time Is Running Out" offers.
The number 1 rule when being more Frugal is "Do I need it and actually, do I even want it?"
If you didn't think you needed it when you left the house - you don't. If you didn't know you wanted it until 5 minutes ago - you probably won't want it 5 minutes after you have bought it.
One of the big mistakes I have seen is people buying something purely because it is a "Great deal!"
By way of example - In the UK there is a government scheme called Bike To Work. Basically the government loan you up to £1000 so you can buy a bike - you then pay in installments from your pre tax earnings so you get a huge discount to new. Higher tax earners could save around 30% on purchase price so you get a £1,000 bike in the shops for £700 after a year's payments.
HOWEVER - This is only a saving if you were going to buy a bike at that price! If you were going to buy a bike at £350 but due to the "savings" offered you have now shelled out £700 - you have just gone over budget by 100%.
Budget Mistake 3 - Focus on ALL Your Expenditure
The more you read the more diverse the opinion. Some say focussing on the small spending is key, some say you should spend your time focussing on the big ticket items - I say both are crucial.
There can be some big wins on the bigger items - if you can reduce your rent payments by $10 a month that is $120 a year - in your pocket not the landlord's!
I realised I was rarely in to watch my satelite TV package and after a lot of deliberation I cancelled it. Now I LOVED my TV package when I was in - but really I hardly got to use it. This move saved me £1200 over the last two years - now if there is sport on I want to see - and I have time to watch it - I go to the pub. Far cheaper in the long run and more sociable.
That said a focus on smaller costs also goes a long way and most importantly changes your perceptions. I take my own lunch to work every day now and target £1.50 as a maximum spend. This saves me at least £1.50 a day from when I bought it at lunch (so over £300 a year assuming 220 work days). But more than the saving I now look at things differently. Before I wouldn't think twice about buying a bag of crisps for £3 - now my mind tells me "That is 2 lunches!"
Budget Mistake 4 - Habitual Spending
This is a common topic in the frugal community but so important and so many people's downfall.
I'm picking on coffee here as it is a good example but it can be anything that you buy regularly without thinking.
If you buy a thermos flask and make coffee at home to take to work your cost will likely be £15 for the thermos and 3 cups of coffee a day at 20p (depending on the coffee!) - so 60p for a day or £132 fo a year assuming again 220 work days. This amounts to;
£15 + £132 = £147 for the year.
If you buy 3 coffees a day at £1.50 ( so £4.50 a day) this amounts to;
£4.50 x 220 days = £990
So by making your own coffee in your own flask you could save over £840 a year. Enough to get my satellite TV back if I wanted!
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Budget Mistake 5 - Focus On Your Income!
There are two important parts to smart income;
1) How many hours do you need to trade for the income?
2) How much actually goes in your pocket?
Point 1 sounds obvious but it is a major unseen mistake by many focussing on their finances.
It is important to analyse your earnings properly.
Most people say I earn £50 a day and I work 10 hours - I therefore earn £5 an hour. This is wrong.
You need to think about all the time it takes to go to work you wouldn't otherwise have spent. So - did you have to go and buy appropriate work clothes? Dry clean or mend a uniform? Well the time spent doing those should be added to your "hours worked".
What about commuting - more or less than 30 minutes each way? - well that has to be added too.
Say every work day you spend 30 minutes preparing your clothes and an hour travelling each way (so 2 hours total). You are told you are getting £50 to work 10 hours so £5 an hour. But actually your commitment is 11.5 hours due to travel and prep so you in fact earn £4.35 an hour.
This is really important because it opens your options - if there is a job 5 minutes away from your house available at £4.50 an hour you would be better taking it than the £5 an hour job with the commute.
Point 2 is How Much Goes In Your Pocket? This follows on from point 1 - What is the cost of buying and preparing your work clothes - again this has to be deducted - you aren't keeping the money!
And that commute - how much does that cost a week - again this has to be deducted - say your 1 hour commute above costs £5 a day - This has to be deducted!
So Instead of earning £5 an hour we can break it down differently;
10 hours at £5 = £50
less £5 commute cost = £45
From point 1 we know it actually requires 11.5 hours to go to this job, so;
£45 divided by 11.5 hours = £3.91
Actual hourly rate is £3.91!!!! Not quite the £5 per hour the employer is claiming. That job for a lower wage but closer looks better and better - you can spend less time to earn the same!
It's about budgeting smarter - not harder!
The book in the link below is a really worthwhile read and outlines a very straightforwards series of steps to get to financial independence.
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One of the key steps in the book above is investing an element of your savings each month to build a passive income. If you are interested in investment basics this link may help.
The final thing to say is learn more about your taxes. These, for people in employment, are likely to be your BIGGEST EXPENSE every month. Knowing a little more can go a long way!