Sunday, June 1, 2008

Living Frugally

Unless you are born with a silver spoon in your mouth, we all have to learn to live frugally. The sooner we come to terms with it, the better. This is even more pronounced now with the down turn in housing due to foreclosures, and the rising cost of everything due to high energy costs. What I write here are things that we all know about intrinsically, but fail to recognize some times, because we are looking at it from a point of view of paying monthly; its only $100 a month, I can afford it! or the selfish point of view of "I deserve this!" When you look at it from the total cost point of view, the picture may be much more worse.

Living frugally doesn’t mean you have to live the life of a miser, or that you have to buy everything at a dollar store. What we have to learn is to distinguish what is important and what is not. For instance, lets take a look at that $2500, 50" LCD/Plasma HDTV that you keep dreaming about. Yeah, it sure is nice to be able to watch a game with your buddies, but is that really worth the price you pay for it? $2500 can pay several months of your rent or mortgage, or have 250 $10 meals, or buy you few months of gas (625 gallons at $4) and drive you 15,625 miles at 25 mpg. With the above figures, that should be over 3 years of gas money if your commute is 20 miles a day and you work 20 days a month (12x20 = 240 work days a year). Now if you have financed this, the picture is even less attractive because the cost of financing is added on to your monthly payments. This is not the end of the hidden costs. To spend that extra money, it has to come from somewhere else. Maybe you have to work longer hours to pay it off. If you are now working extra hours to pay off that TV, isn’t it taking away from the time you have to enjoy that wide screen TV? If you don’t have the time to watch the TV you paid so much for, is it really worth it? Have you also considered any emergencies that may require that extra cash? If not, you will be forced to go into more debt or fall behind in other payments, which will drive up the interest rates making matters even worse.

So, instead of rushing out to buy that next cool toy, could you learn to spend that money for necessities rather than spending it on the niceties that make you look cool? Only after you have taken care of the necessities, can the niceties have its turn. This is what I call "Living frugally." Please visit Suze Orman's web site for excellent advice on financial matters.

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