The Simple Dollar (12 page)

Look into pay-as-you-go phones or Internet telephony.
For many phone users, standard plans are simply overkill for their usage. For a domestic phone line, look into an Internet-based telephone solution like Skype, which offers unlimited long distance calling, a number of your own, and voicemail for $2.99 a month (plus the initial cost of an inexpensive phone). If your cell phone use is limited, look into pay-as-you-go phones, many of which offer all the basic services you need without a required monthly bill.

Eliminate your cable bill entirely.
The Internet provides an abundance of free access to television programming, and for a very small fee, services such as Netflix offer on-demand, commercial-free access to television programming and films. If you’re looking for an idle entertainment fix, you can get all you’ll ever need through the broadband Internet connection you probably already have.

More than half of the annual income of the typical American family is spent on housing and
transportation—51.7%, in fact.
⁷
With housing and transportation filling such a large role in our financial life, it’s easy to see how a few clever choices in this area can make an enormous difference in our bottom line.

Rent.
Unless you (a) plan to live in the area you’re at for more than five years, (b) have more than 20% of your down payment saved, (c) relish the idea of investing a hundred hours of year in home maintenance, and (d) prefer to handle your own plumbing and electrical problems instead of calling a landlord, renting is almost always a better financial and personal deal for, well, everyone.

What about home equity? During the first few years of a home mortgage, more than 80% of your mortgage payment goes directly toward paying the interest on that mortgage. Add into that the financial and time costs of maintaining a home versus maintaining an apartment and, in most cases, renting really is the better option.

This, of course, assumes that you’ll do something responsible with the money you save by renting. For renting to truly be a financial boon, you have to be saving or investing a substantial amount each month, either toward a home down payment or some other equally important financial goal (like seed money for a small business).

If you’ve already made up your mind to buy for other reasons, rely on the lessons of the past decade. If
the housing bubble of the late 2000s taught us anything at all, it’s that no one wins when you borrow more money than you can afford. Avoid the pitfall that caused so many people to be evicted from their homes—rent until you have 20% of the total cost of the home in the bank and your credit is strong enough to get a low fixed rate mortgage with payments below 28% of your household income.

Live small—even downsize.
The best home to live in is one where you actually have a real use for every room in the house—unused space is incredibly expensive to buy and maintain. Instead of buying a house that exceeds your needs, focus on finding one that meets your needs. If you have rooms in your house that go unused for weeks, you might want to consider downsizing into a home that offers all the livable space you actually use and smaller payments to boot.

Rent out spare space in your home.
Another option, if downsizing doesn’t work in your area, is to rent out the unused space in your home. Convert your basement into an apartment and rent it to a quiet college student, a recent college graduate with a fresh new job, or a married couple that’s new to town. This directly increases your income and likely increases the resale value of your home.

Buy cars solely for reliability and fuel efficiency.
When you boil it down to the core, a car’s purpose is to get you from point A to point B as inexpensively and efficiently as possible. Comfort? Cars cannot match the comfort of home, so you often end up paying a huge premium to sit in slightly less miserable conditions for
an hour or two a day. Instead, focus on bang for the buck—what will get you where you need to go with the least amount of money spent? Generally, used cars offer far more bang for the buck than new cars.

Use public transportation.
Another option—if it’s available to you—is to simply get rid of your car and its associated expenses and use public transportation. Public transportation passes in most large cities are incredible bargains—they get you where you need to go throughout the city without the hassle and cost of owning a car and paying for parking. If you live in the suburbs, look into commuting by train into the city if you need to, or at the very least, look into forming a car pool.

Maintain what you have.
Careful maintenance of your home and automobile can greatly extend the life of each and also reduce the amount of costly repairs that are required. Follow the maintenance schedule in your car’s manual to the letter—if you’re buying a used car and can’t certify what needs to be done, get a trusted mechanic to evaluate what maintenance should be done. With your home, develop a home maintenance checklist and follow it carefully each month—such checklists are easy to find on the Internet.

Entertainment is the trickiest part of a family’s budget. Some entertainment spending is great—it can be the source of quite a lot of personal and social enjoyment. However, entertainment spending is often misdirected into buying things instead of having experiences.

Discover the library.
If you’re into reading, watching films, or listening to music, the library is an incredible free warehouse to fill your entertainment needs. Many public libraries have extensive DVD and CD archives, as well as an enormous collection of books, often including bestsellers. Many libraries now have an online reservation system, making it easy for you to reserve exactly what you want from the convenience of home. In some rural areas, the library will even deliver materials to you via the postal service. The question you should ask yourself is this: Do I enjoy reading or do I enjoy spending money on books? Do I enjoy watching films or do I enjoy spending money on DVDs? The answer will often point you straight to the library.

Have a “media swap.”
Invite some friends over and allow them to simply borrow a large portion of your DVD or CD or book collection. A few weeks later, have them reciprocate, allowing you to borrow a large portion of their collection. This gives both of you an enormous source of free entertainment—and often, because it’s entertainment picked by your friends, it will already match your tastes quite well.

Get to know the community calendar.
Most cities have a thriving free cultural life, with concerts, festivals, and other events going on regularly throughout the year. Locate your community’s event calendar and see if any events are of interest to you; similarly, check the event calendar of nearby towns and cities as well.

Join a club.
This ties directly into developing a sense of community, but clubs and organizations also fulfill a role for socializing and entertainment at a very low cost. Look at options in your community that match your
interests—book clubs run by the local library, gaming clubs, volunteer and service groups, a church, and so on.

I regularly give talks to various groups on personal finance and my own experiences with debt recovery and talk with people about their own debt recovery journeys. At these events, I always find that people equate frugality with some form of misery—they either see it as being cheap or see it as putting themselves through misery. I argue that it’s neither—that instead it’s joyful and life-affirming. I boil down the entire discussion on frugality to five simple rules. If you keep these five rules in mind when you evaluate your spending, you’ll always find happiness and freedom, both now and in the future:

1. Don’t
   give up the things you love.
   Yes, it’s always worthwhile to give any lifestyle change a trial run—don’t just assume you can’t live without something until you give it a shot. However, if you find that a money-saving choice really is making you miserable,
   don’t
   be miserable. Bring that element back into your life. If you are constantly making choices that genuinely bring you down, you’re going to hate what you’re doing and, eventually, you’re going to rebound in a very financially painful way.
   
2. Find inexpensive ways to enjoy the things important to you.
   We’re all passionate about certain things, and for some of us, those passions often translate very easily into spending money and buying things. Strive to dig into what your passion really is and ask yourself if that passion really is met by pulling out your wallet. For example, if you’re as passionate about reading as I am, you know how tempting a bookstore can be. But ask yourself this: Are you passionate about reading and enjoying books, or are you a book hoarder who likes to overstuff his or her shelves? If it’s the reading you’re passionate about, find less-expensive ways to fuel the hobby. One great way to start is at your local library.
   
3. Cut back
   hard
   on the things that matter less.
   If you’re not entirely defined by the clothes you wear, give thrift shops a shot. If your self-identity isn’t ruled by the brand of window washer you use, try using vinegar out of a spray bottle. If preparing gourmet meals that take all afternoon isn’t at the center of your emotional life, stick with just a few high-quality kitchen implements and forget the rest. If something’s not a central value in your life, don’t invest even a dime more into it than you possibly can. Seek stuff that works well for the lowest possible cost and move on with life.
   
4. Never go shopping without knowing exactly what you want.
   If you ever walk into a store without a plan, it’s highly likely you’re going to walk out the door with something you didn’t intend to buy—which means it’s something you didn’t need. That something you didn’t need sacrifices part of your future, because it’s money that’s not going toward paying off your debt or building your dream home or freeing you up to have the career of your dreams. Every time you enter a store, know
   exactly
   why you’re there and, if it’s not to buy a specific item,
   don’t
   walk out with an item. Sure, you might find something you like there, but if you do….
   
5. Use the thirty-day rule for any unplanned purchase.
   If you find something you’d really like to have and you’re trying to talk yourself into it, stop for a second. Jot down what that item is on a piece of paper, and then leave the store. Give yourself thirty days to think about that item. See if you can’t find it for a lower price elsewhere. Ask yourself if you honestly need or even really want this item. At the end of the thirty days, if you still truly want the item, pull the trigger on it using the best deal you’ve found. That way, even if you do decide you need this impulse buy, you’re not spending as much as you would have to begin with.
   

Sextus the Pythagorean once said, “What you wish your neighbors to be to you, such be also to them.”
¹
Jesus of Nazareth said, “Do unto others as you would have them do unto you.”
²
Robert D. Putnam, in his book
Bowling Alone
, spells it out in detail: “Even more valuable, however, is a norm of
generalized reciprocity
: I’ll do this for you without expecting anything specific back from you, in the confident expectation that someone else will do something for me down the road.”
³
In other words, it’s all about the
golden rule
—the idea that by giving to the community at large and individuals in specific, you will be treated with the same type of value in return.

Our lives are filled with relationships and communities—some cultivated and some uncultivated, some positive and some negative. Shifting the balance toward more positive, stronger relationships through your own positive actions lets the golden rule work in your favor instead of against you. It fosters positive communities, enables you to connect with more people, and provides more resources and help when you need them.