Frugal Finance

Tips for managing your money so that more of it stays in your (laughing) wallet

Frugal finances are key to keeping your wallet laughing. You may be saving money when you shop and travel but still be giving it away with how you manage your finances. These tips can help you keep your money where it belongs - in your pocket!

Establish a budget. Having a budget, and sticking to it, is essential for maintaining frugal finances. In fact, it's a cornerstone of frugal living. Every business has one, and so should every household.

Some people use sophisticated software programs like Quicken to track their spending and income, but a number of free, simple budget templates are available online. A good one that covers most of the basics is the Monthly Household Budget Worksheet for Excel from vertex42.com. When you first get started, make sure you track all of your expenditures and income for several months to get an accurate account of what comes in and goes out. Once you have a true picture of your finances, you can see clearly where you might be able to cut spending.

Choose and use credit cards wisely. Credit cards are a great convenience and, if used wisely, they can be part of a frugal finance plan. If used recklessly, however, they can create a real problem. According to CreditCards.com, as of March 2010, of U.S. households that have credit card debt, the average debt is $16,007 per household. That's a car. Follow some simple strategies for frugal credit card use and own your credit cards, instead of the other way around.

Check your credit report. Bad information in your credit report can screw up your frugal finance efforts without you even knowing it. Checking your credit report is an important way to make sure that no one is using your credit wrongly (i.e. identity theft) and there isn't incorrect information in your file (for example, Bill Smith, Jr.'s information is showing up on Bill Smith, Sr.'s report).

Everyone is entitled to one free report each year from each of the three major credit reporting agencies: Equifax, Experian and TransUnion. You can order the reports all at once, or, better yet, space each one out so you're checking your report once every 4 months (Ex: Equifax in January, Experian in May, TransUnion in September, for example). That way, if there's a problem, you won't wait a year to find out. To order a free report, go to www.annualcreditreport.com.

Use cash. Using credit cards may be convenient, but if you stick with cash, you'll stay true to the biggest rule of frugal finance: never spending more than you have! Studies show that people spend less when they use cash instead of credit. It's just harder to part with the cold, hard stuff. (The studies also show people spend less when they track their expenses - see the entry above about budgeting!)

Barter. Know how to do something useful? You may be able to trade your skills with someone who has a service you need. Negotiate directly with a business owner or join a barter exchange, such as ITEX, a national company that franchises local exchanges. Many cities have local barter exchanges, though some charge a membership fee.

Keep an emergency fund of savings. Unexpected expenses are part of life. The air conditioner goes out or a big car repair hits, and you don't happen to have an extra few thousand dollars in this month's budget! If you don't have a stash of emergency cash, you'll be stuck putting that big expense on a credit card, and the high interest rates on credit cards will balloon the expense.

But if you've diligently put back a little bit of money each month into a liquid savings account, you'll be able to pay for that expense when it happens, with no added interest or penalties. The easiest way to do this? Make it automatic. Have a certain amount of your paycheck direct deposited into your savings account each month. If you never see the money in your checking account, you never miss it, and it's there when you need it.

Avoid bank fees. If you're paying bank fees, you're just giving your money away. That doesn't sound like frugal finance, does it? See my frugal banking tips for avoiding bank fees and keeping your own money.

File your taxes for free. You can't avoid paying taxes, but you may be able to avoid paying to file them. A number of companies will help you file your taxes online for free if you meet certain requirements. The IRS has a Free File page to help you find out if you meet the requirements and help you choose a participating Free File company. Nothing says "frugal finance" like "free."

If you don't qualify for a free program, there are services that help you prepare and file your taxes for a discounted rate compared with some of the more well-known services. CitizenTax, for example, charges flat rates for tax return preparation and e-filing, from $19.99 to $29.99, depending on whether you're preparing a federal return, state return or both.

Keep insurance deductibles high. A higher deductible on an insurance policy will mean a lower premium. That's true for any policy - car, health, homeowners, etc. The premium is what you pay each month, and the deductible is the portion you must pay out of pocket if you make a claim. If you have an emergency fund, you should be able to pay any deductibles that come your way, and in the meantime, you'll pay less each month.

Claim your homestead exemption. Many states offer homeowners a tax break on the home they live in. But the homeowner must apply for the break, which is known as a homestead exemption. The exemption can save a homeowner thousands of dollars for simply filling out a form, which is definitely frugal finance. Check with your county tax assessor to find out if your state offers the exemption and how to apply.

Protest your tax assessment. When your county assesses the value of your property for tax purposes, it notifies you of the new valuation before it takes effect, giving you a chance to protest the assessment if you don't agree with it. If your valuation, and thus taxes, will go up, protest it! Most homeowners don't protest, and over time, ever-increasing valuations can significantly increase your tax bill.

Take advantage of flexible spending accounts. Many employers offer flexible spending accounts (FSAs) to their employees. With these accounts, an amount of money you designate is taken out of your paycheck before taxes. When you have a qualifying expense (like a doctor's visit copay with a regular FSA or a childcare expense with a Dependent Care FSA), you get reimbursed for the expense from your account.

Some people don't take advantage of these accounts because they think they can't afford for their paycheck to be smaller, but the accounts actually save you money. The money comes out pre-tax, so you're not taxed on it (paying fewer taxes is awesome frugal finance!). And when you have an expense, you get the money back. So, it's your own money, and it ends up in your pocket, but you're spared paying Uncle Sam for it. One important note: You must spend all the money you set aside - anything left in the account at the end of the year is forfeited. So, plan the amount you want taken out wisely!

Frugal Credit

Frugal Banking

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