Can we all be frugal?

Posted On August 30, 2014| Leave a reply
©iStockphoto.com/iqoncept

©iStockphoto.com/iqoncept

Frugality is a lifestyle choice of cutting back on spending to save more and live on less but frugality isn’t for everyone. In a world obsessed with consumerism, and yes, we are obsessed, just check out the multiple shopping channels hawking everything from blenders to vacuum cleaners, gym equipment and much more. There’s a fast food chain on almost every corner of every suburb and advertisements showing us how easy it is to get a loan just by picking up the phone.

Being frugal means saying ‘no’ to the above and saying it proudly. It means not being persuaded or swayed towards opening up your wallet for non-essential purchases. And let’s face it, much of what people buy these days is non-essential. Do you really need a fourth pair of jeans when the other three pairs sitting in your wardrobe are perfectly fine? What about the ten pairs of heels that are crowding your entryway? Could you have made a cup of coffee at home instead of going to the drive thru for a double shot caramel soy latte?

Living frugally is being economical with your money, your food, and whatever else you might buy. It means finishing everything in the fridge and pantry before heading out to the grocery store. It might mean starting your own vegetable and herb garden. Or it might be cycling to work instead of driving. Frugality can effect one lifestyle variable or it can effect multiple variables. The choice is yours.

It definitely has its benefits but also its drawbacks. It’s easy to see the reasoning behind making frugal choices every day – making money last beyond your next pay packet, increasing the savings account and not being wasteful. Because let’s face it, the developed world is extremely wasteful.

What are the pros and cons of frugality?

Saving money is one of the biggest perks of being frugal. You spend less you save more. Your bank balance grows and you become financially free or independent or wealthy sooner rather than later, or at least you hope you would.

Frugality can also make you healthier. Since going out to dinner at a restaurant or stopping for fast food on your way home from the office is not an option it’s likely that you are cooking more nutritious meals at home and it’s so easy to make nutritious meals that don’t cost an arm and a leg.

Another benefit is the reduction of waste. Less plastic bags, less paper towels, more composting and recycling. We are a wasteful society and frugality often results in lowering our personal wastage. Can you relate to the cutting up the toothpaste tube to scrape out the last bits of toothpaste on the packaging for a few days?

But just like everything else, frugality does come with some disadvantages too.

Consumerism makes the economy go down. As soon as people stop spending the economy seems to dwindle and the media goes into a frenzy panicking about a recession and hinting of another great depression. Let’s face it, if we want to keep the economy turning and ensure unemployment levels stay manageable we need to spend.

Frugality can also have a negative impact on our level of happiness. Sure you’re saving on your grocery bill, your using solar to heat your house, you’ve started a vegetable patch and you’ve sold off your car. Your bank balance is growing but your life revolves around going to work, coming home, pottering around, ensuring you haven’t exceeded your daily quota of oats or water, going to bed, and then repeating the cycle. You’re saving and that’s great, but is it at the expense of living?

Can you be a personal finance blogger and not be frugal?

A while ago I wrote a list of things to do that are mostly free. They bring me great pleasure and satisfaction and don’t involve breaking the bank or even opening up my wallet. That doesn’t mean I’m frugal. I’m not, far from it. Just put me in a shopping centre and I’ll always find something I need and I will buy it. Going out for a coffee with friends or my other half a few times a week is a must, especially now that I’m on maternity leave and spend 100% of my time with an infant who is not yet the greatest of conversationalists, plus I need a reason to get out of my comfy pyjamas in the morning.

I’m a personal finance blogger, I’m a consumer, I love spending as much as I love saving, and I’m happy to say, I’m far from frugal.

I do however make choices and sometimes these choices result in me saving money. I love shopping when the sales are on. I prefer to go out for breakfast than dinner. I love to experiment in the kitchen. I like the idea of growing my own herbs. I don’t need an expensive gym to stay fit. I love seeing my bank balance grow each fortnight. I really like it when we keep our grocery bill under $150 per week but I won’t sacrifice a delicious salmon fillet for it.

The truth is that there are many successful personal finance bloggers out there who aren’t necessarily frugal. They know where to cut spending without sacrificing on life satisfaction. They focus on making more rather than just spending less. Here’s just a few that don’t focus on being frugal but more on lifestyle design:

IWTYTBR – Cut out coffee to save $3 per day. Ramit will laugh at you. That’s why I like him. It’s all about making more and living more.

MSOC – I love Michelle’s post on her income goals and successes. Raking in 5 figures each month in freelancing income in her twenties is fantastic effort and it means having more choices when it comes to spending and saving.

Afford Anything – I started reading this one not too long ago and I love the idea of creating a passive income through real estate investing, spending more time travelling and being location independent.

You can be smart with money without resulting in self deprivation. Ok, so a little self deprivation or as I like to think of it as delayed gratification at the start of your journey can be beneficial but remember you don’t want to be the richest dude or dudette in the cemetery now, do you?

Frugality is beneficial when you’re working on eliminating personal debt or saving for a house deposit or a six month overseas adventure or whatever your goal may be. By cutting down on your every day spending you can reach those goals much faster but in the long term frugality is overrated nor does it make you a martyr of finance world either.

It’s foolish to think that we all can or even should live frugally. Spending keeps the economy turning. When too many people stop spending businesses lose money which leads to job losses and an increase in unemployment. An increase in unemployment can increase the crime rate and drive the economy into a recession. Neither of which scenarios are good.

That doesn’t mean we should spend everything we earn either. Personal finance is personal and needs to be adapted to individual needs. There are thousands if not hundred of thousands of personal finance bloggers around the world sharing their thoughts, knowledge, world views, opinions and experiences. Not all might agree on everything or they may just agree to disagree on certain theories. In the end whatever you read you need to adapt to your own circumstance and personality to reap the most benefits.

Sometimes frugality isn’t a choice, it’s a necessity whether it’s by the poor choices you’ve made in the past, the loans you’ve taken to maintain your level of lifestyle, the life hurdles you’ve had to face, or something else.  So in the end or at the beginning, you have to figure out what works best for you. Spend less than you earn, aim to earn more, enjoy the simple pleasures but don’t bereave yourself of all indulgences. Find a balance between hedonism and self denial that makes you happy and enjoy the journey, wherever it may take you.

How important is being frugal to you? Do you think being frugal is necessary to become financially free? 

 

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Can you afford your bucket list?

Posted On August 16, 2014| Leave a reply
©iStockphoto.com/allanswart

©iStockphoto.com/allanswart

I was reading an article with the same title on a news website the other day and was surprised to read that around a third of Australians are unlikely to afford their bucket lists, here’s the link if you’re interested. It got me thinking about my own bucket list. Can I afford it? Will I ever be able to get through the list? Have I been realistic when creating it? Will it continue to grow and expand? What will it cost me over my lifetime? What can I do today to start crossing off more things off my bucket list?

Taking a closer look I was pleasantly surprised.

Out of the 100+ items on my list, a quarter of them won’t cost a thing, a quarter will be costly and will require planning and time on my part, and the rest fall somewhere in between. Am I likely to achieve them all? Probably not, but that’s ok. They’re just a guideline of some of the things I would like to do, experience, try and achieve. If I only manage half it’ll be awesome.

Several experiences will take years to achieve, like training for an Ironman and completing one in a certain amount of time. It’s unlikely that I’ll achieve the goal straight away. Reading the top 100 novels on Amazon won’t happen overnight, it’ll probably take several years given my current pace. Another is writing a novel. While I have written several, they’ve mostly ended up in the bin without anyone besides me having read it. So the novel writing goal is not just writing a novel but also edit it, give it to someone to read and publish it. This will take time, effort, dedication and down the track cash to invest in a good editor and also to market the book.

Some I’ve already managed to complete like starting a family, finishing a 70.3 Ironman, starting a share portfolio, flying in a helicopter, riding a camel in Egypt and seeing the pyramids, as well as visiting Dubai, going on a cruise to the Pacific Islands, and teaching English in a European country which I did for two and a half years.

Take a look at your own bucket list. What type of things do you have on it? Can you afford any of them today? Are any free? Will some take months or years to complete? Are any of them, or all of them, really important to you?

Bucket lists are great but unfortunately not always realistic and rarely do they come with an action plan. Most of the time they are just a list of dreams that get written down and shoved into the bottom drawer or lost amongst the myriad of word files on your computer. But there’s a way to start making things happen and living out those things you’ve been itching to get done. Here are a few steps I’m using to work through my bucket list.

8 Steps to Bucket List Success

1 – Firstly make a bucket list. Write down everything that comes to mind that you would like to do, experience, learn, see, taste, etc. Don’t limit yourself. For example, you might say: I want to run a marathon or I want to volunteer at an animal shelter or I want to swim with sharks in the Great Barrier Reef.

2 – Categorise the list into three: Things that don’t cost a thing, things that are super expensive, things that fall somewhere in the middle.

3 – Categorise the list into things that will take time to complete, for example, running a marathon will require at least four months of training or longer if you haven’t run before, it will require you to choose a race and sign up for it, and then to finally run it, and recover from it.

4 – Put a star next to all the things that you can get started on right now. So if you want to get published in a magazine, why not pick the magazine and start brainstorming story ideas or write a letter to the editor. Just get started.

5 – What can you realistically achieve this year? Focus on two or three things each year. Pick one that is easily achieved to stay motivated (read War & Peace or volunteer at a hospital), one that is a little bit harder (sign up for a French cooking class or spend two weeks visiting your family on the other side of the country) and one that will pose a challenge (enter a sprint triathlon or purchase an investment property). If it’s too easy you might not appreciate the experience as much.

6 – Create an action plan for the three you have picked to make them more achievable.

7 – Read your bucket list regularly and work towards the things you want to achieve every day or at least every week. You might be surprised at how much you can and have achieved.

8 – The best things in life are free and you might find that many of the things on your bucket list will cost under $100 whether they are reading certain books (I’d love to get through Warsaw Uprising and Sienkiecz’s Trilogy in Polish), hosting a three course themed dinner party for eight (Japanese, French, Spanish or Mexican), or exploring the hidden treasures in your home town by being a tourist for a weekend.

Personally, I don’t want to leave the bucket list for when I’m 65. It just seems like a waste of 34 years. Besides it’s likely that my bucket list will evolve over time, as will yours. Your financial circumstances are likely to change too, so while today some of those experiences you’d love to have might cost an arm and a leg, others might just require a little bit of planning and can be acted on right away.

Don’t let money get in the way of enjoying life and following your dreams.

What’s on your bucket list? What can you get started on today? How do you plan on living out your bucket list?

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We’re getting married!

Posted On August 3, 2014| 2 Replies
©iStockphoto.com/arnoaltix

©iStockphoto.com/arnoaltix

Marriage: a costly union between two people who’ve decided to spend their lives together; a piece of paper to tie the knot; whatever you want it to mean.

J and I have been together for 7 years. We were meant to marry back in 2010 but due to a few unforeseen circumstances we decided not to go ahead, J’s dad passed away, the wedding date was of a family members death anniversary, and well, no one was in the mood to throw a big party that year.

It was a smart decision. We avoided spending tens of thousands of dollars on a party for over 150 people.

Fast forward to 2014 and much has changed. We decided we wanted to start a family at the end of 2012, little J came along in April 2014. And since little J’s other grandma and his great-grandparents are coming over from Europe for his Baptism in September we thought why not surprise them and get married as well. On the same day too, giving us 8 weeks to plan the big day.

According to Money Smart, the average Australian wedding costs around $36,200. That’s insane! That’s a deposit on an investment property. Honestly, I can’t justify spending that much money on one big party.

Our budget: AU$6000. That’s ⅙ of the average.

How can the budget be so small?

  • We’re limiting the guests to 40-50 people who are actively involved in our lives.
  • One of my best friend’s is doing my hair and make up.
  • My friend’s mum is making the wedding cake as a gift and her auntie is an expert on flowers.
  • J and I are driving ourselves to the ceremony. With baby J in a car seat I don’t trust anyone else to drive with him so this will be much easier.
  • The wedding dress will be purchased online. I can’t fathom spending $$$$ on a dress I’ll wear once and only for a few hours.
  • We found a venue that doesn’t charge for room hire.
  • Dinner will be a simple sit down three course meal after canapés and champagne on arrival.
  • We’re using our own music. I’ll compile about two hundred songs on my iPhone, chuck into the iPod dock and off we go.
  • We’re postponing the honeymoon until our planned 2016 Europe trip.
  • We’re going home instead of a hotel after the wedding.
  • Our biggest expense is the photographer. We were going to use a family friend who’s a professional photographer but unfortunately he’s out of the country that month. My brother wants to cover the cost of the photographer as a gift to us which is extremely thoughtful of him.
  • I’d rather spend more money on a house, increase my investment portfolio or go on a long family holiday.

We were going to have the wedding reception at home but when my mum started talking about hiring marquees in case of bad weather, creating a five course menu and much more, well, I figured it was time to look for a suitable venue. We were lucky to find one by chance, and one that is very flexible with our needs and wants. The wedding is going to be just the way we want it without breaking the budget.

As we come from a European family, my parents insist on paying for the full amount. Umm, I don’t think so, after all I’m 31 years old. If I was ten years younger well then sure, why not? So, we’re still in negotiations as to who’s paying for what but I think we might be close to settling on my parents paying for food and drinks and J and I covering the rest which works out to be 50/50.

Below is what our wedding budget looks like. So far, the rings and dress have come under budget which means should we need to overspend in other areas we definitely have room to move.

                     Wedding Budget
Celebrant

$450.00

Rings

$500.00

Photography

$500.00

Food

$2000.00

Bar tab

$750.00

My Dress

$400.00

J’s Outfit

$300.00

Baby J outfit

$150.00

Decorations

$150.00

Arbour & chair hire

$450.00

Misc

$350.00

TOTAL

$6000.00

What is the average cost of a wedding where you live? How much did you spend on your wedding? Do think people spend too much/too little on their weddings? Would you borrow money for a big wedding?

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Should you pay off your HECS-HELP debt?

Posted On July 25, 2014| 4 Replies

It’s tax time, between July 1 and October 31, people are lining up to do their tax returns and hoping they’ll get a refund. I’ve done mine and looking forward to some extra cash in the bank. Generally, I like this time of year because it allows you to reflect on the past year’s spending, earning and giving. It also reminds you of the education debt you may or may not have accumulated for your tertiary studies.

Once upon a time, like 40 years ago, tertiary education was free in Australia. The Whitlam government abolished university fees back in 1974 to provide opportunities for middle class Australians to get an education. Then, in 1989 the Hawke Government introduced the Higher Education Contribution Scheme, which has now changed to HECS-HELP (Higher Education Loan Programme) where the government pays the education institution the fees upfront and then the student once earning above $53,345 (2014/15 F/Y) will begin repaying their loan through the ATO on a sliding scale of 4-8% dependent on their income level.

The HECS-HELP is great but in hindsight I wish I had saved for my education so that now I wouldn’t have an debt currently sitting at around $37,000 (original was $44K) over my head or better still I should have chosen a tighter subject, like medicine for example. At least then I’d be working in the area I studied in and wouldn’t have such a hard time figuring what I can and cannot do.

Unfortunately, I didn’t get the right advice. My parents didn’t tell me that medicine, engineering or even a trade might be a more lucrative choice. They didn’t push and steer in any specific direction, instead they allowed me to make my own choices. The school I went to wasn’t all that encouraging and supportive either when it came to helping me make a career choice.
This is good and bad at the same time. I could have used some more guidance even if I assumed at the time that I knew best. I didn’t.

Anyway, $37k that is getting slowly repaid as my income rises. It’s not pretty when I get a bonus and most of it goes to the ATO to cover my tax bill and HECS-HELP. I wish I could strike lucky on Lotto so I could get rid of it. Once can dream, can’t they?

Generally, Australians can use up to $96,000 on HECS-HELP. They start repaying it once their annual income exceeds a threshold which as at 2014/15 financial year it’s $53,345. It’s a good system but it’s still debt.

Until recently I hadn’t thought about my HECS-HELP debt. That was until I received a statement from the ATO showing that even though there is no interest, the debt indexed annually at the rate of inflation which is between 2-3%. To me, that’s like paying interest so I want to get rid of it sooner. Besides in five years time the law might change and they might want the loan repaid up front. For peace of mind, I’m going to make an attempt to pay off my HECS-HELP debt faster.

So should you pay off your HECS-HELP debt?

That depends on your current financial situation. If you have high interest debt that should be priority. If you have a mortgage, pay it off first. If you have investments making more than the rate of inflation, well you know where your money should be. If you have savings and don’t want to be paying your HECS-HELP over the next 10-20 years, you know what you have to do.

The benefit of paying it off quicker is that the government gives you a 5% discount on any amount repaid over $500. So if you make a voluntary payment of $1000, the government gives you $50 off. It’s not much but if you’re making larger repayments the discount does add up.

What do you think? Would you pay off your HECS-HELP debt sooner or just stick to just the compulsory repayments which are subject to your annual income?

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