Thursday, March 5, 2009

Intermediate Frugality

For those of you that have been able to follow these steps, I wish you success in the future. One person off of Facebook, address "I should be proud of her younger sister and her husband" they saved up and bought their 2BR/1Bath condo outright. I think this is terrific. I am glad to see feed back from this special I am doing. Another person criticized one of the authors of the books I put up on display: "Rich, Dad; Poor Dad". While I am debating him on the author's background history, I think the most important thing he said in relations to frugality is that people should not waste their money on things that devalue as soon as you take them out of the store. I will leave it at that mainly because I want to stick to writing about frugality for the next few months.

Ok, so you formulated a budget and have taken cautious notes. Good, now this section will focus on taking basic bills and making them "more basic." Some of the advice here is mainly to get out out of those expensive phone plans and contracts. You should only enter contracts if you are guaranteed to save money. In other words, if it gives you a fixed bill and not a fluctuating one, then it is permissible. However, this does not mean to go for them every time.

Contracts Equal Servitude

Let me make one thing clear. Contracts are anti-productive to success. Unless you are getting some deal where you are getting "cash flow" from a business or are the issuer, being the issuee is a no-no to frugality.

1. You are basically stuck with an obligation. You have to meet all terms of the agreement in order to opt out. Or you can opt out with cash, but you will pay a hefty fine for getting out early or can suffer a blow to your credit score.

2. You are not mobile. You cannot ever obtain true wealth if you cannot control expenses. You are locked into a agreement, thus, giving someone else cash flow. While cell phone contracts are the exception to the rule, most other agreements are actually detrimental to your success. Rental agreements should be taken with a "grain of salt". If you have reliable roommates and fixed expensive, then this should not really be a problem. If they tie you down with unwanted bills, then it is time to relocate and a replacement for your room.

3. Contracts often take away from your income. You usually have to set aside money in order to pay a certain bill. The more optional your bills become, the better. Except for my lease, (which builds credit) the bills that I have can be cancelled at anytime, at my discretion.

Prepaid Fallacies

There is some misnomers I want to clear up about pre-paid. You want to make sure the offer will not flucuate on you without advance notice.

Cricket has always been a flat rate for me except I have to stay with in Reno to make phone calls. However, while I can switch to Trac Phone and get a cheaper rate, the reason why I have not done this right away is mainly because I have been working on curbing my calls so I can actually do the prepaid cards at my discretion.

Again frugal people find them that work for them, not for deals that they have to work for. This is key to saving money. Will the card be cheaper for you? Not if you make a lot of phone calls. So figure out what works for you before you make a commitment that you will regret in the long run. The idea of being frugal is to not live paycheck to paycheck, but it is also to gear you towards investing. You want to have a service that is profitable for you to have before you commit to it.

Avoid Taxable Items

This will require some research on your part. What I do is try to find deals that you do not get taxed on. Right now, I just found out that my HSA account will tax me $36 in order to keep it open. So I am going to shut it down. Will I miss the $600 that Wal-Mart put in it? No, because I take care of my money and my body. I have only been to the doctor once for sinus infection in ten years so there is no need to pay extra tax for something that is damaging my income and putting me on the radar. I was rather upset that Wal-mart opened this without my consent, but this is easily fixed by closing the account. No problem there. I think this was merely an accounting error; so closing it would free up $36 dollars.

Another thing that could send you to the poor house is eating out everyday. The amount that you will get taxed on every dollar is around 7cents per $1. That is also why eating out is one of the main indicators of why you cannot achieve wealth. If you pay $10 for you meal, you are paying 70cents for that meal. $1.40 for $20, $2.10 for $30 spent and so on. Fortunately, this tax is simply avoided by buying goods from the grocery store that are not "prepared" goods. In lay man's terms, anything that is considered cooked equals prepared goods. Frugal people mainly cook for themselves. While I am not the best cook, can goods, makes sure I do not starve while other people are spending more time preparing the food. To me, time is also valuable, but I do actually make something for myself every now and then. If you want to take this to an extreme you can target food that is considered "Depression Cooking" by Clara, a nice 93 year old lady who is one of the gurus of frugality. If anything you can figure out how she lived to be 93! She has a YouTube special so just go there for the videos.

Shopping in bulk will also help you save money. Those of you that own a Sam's Club or Costco card will be aware of this already, but having one of these cards will allow you to go into Sam's Club or Costco and you can buy items by the unit, which is dramatically cheaper than buying per unit. Usually I pay around 35% less than I do for items that are in regular grocery stores.

Setting Dates to Pay Bills

This takes some commitment on your part, but I have to say this is one of the keys to keeping track of your budget, so I will emphasize it here again in order to drive home a point of responsibility. People do not get out of debt if they pay their bills late! Period. So while this is really a basic skill, it can also be classified under intermediate if you are trying to pay off some dead-beat loan. You have to follow the schedule if you do not have much money, but once you accumulate more than enough money, you can buy your freedom faster by making advance payments.

This is all for now. Join me for Intermediate Frugality II coming from a Wi-Fi station near you!