Lately I have been thinking a lot about different ideas of frugality and budgeting. Although the name of this blog is FruGal, I have always been more interested in the wider concept of healthy finances than in sheer frugality and money-saving for its own sake.
There are all sort of motivations that may drive you to begin taking finance seriously, and when you first decide to get your finances in order, determining what you want to get out of the whole process is an important first step: do you simply want to clear debt, save for a goal, or just feel better about your finances overall, and make a clear plan for long-term savings, retirement, etc?
The foundation of any financial goal is the budget. Your budget is the tool that will enable you to achieve your goals over a certain timeframe; but different goals will require different budgeting methods to obtain them. For example, John, who needs to cut his outgoings in order to free up enough money to cover his mortgage after losing his job, is going to do different things with his money in order to make this happen than Sara, who wants to free up enough money in her budget for reaching a long-term savings goal to make a down payment on her first home.
A lot of the things you read on personal finance blogs are geared towards the fictitious John of the above. Bloggers will advise him to cut all non-essential spending in order to meet his repayments, and rightly so – keeping a roof over your head is the most important outgoing in your budget. On the other hand, Sara might read this advice and find it a little hard-line for her. She doesn’t want to stop living her life for the sake of buying her first home, and is happy to take it more slowly and save steadily while still enjoying herself along the way.
There is no right and wrong when it comes to budgeting. Frugal hard-liners may look at Sarah’s budget, with her daily morning cappuccino, meals out with friends, and weekends away, and be appalled by – what they might think of as – waste. They will say things like, ‘don’t you know that by giving up your morning coffee you will save you approximately seventeen million pounds a year??’ Which may be true, but at what cost? If she likes her morning coffee and monthly shopping trips, and they keep her moving in the right direction overall, where is the harm? Personally I might argue that the person who does things in moderation will be more likely to achieve their goals than the die-hard who cuts every ounce of fun out of their life, and fails after six months.
For me, budgeting breaks down into three categories: ‘Needs’, ‘wants’ and ‘wants I need’. And finding your own personal ideas of these three categories is the trick to sticking to a budget long-term.
For me, ‘needs’ are the obvious: rent, bills, food, transport, etc. These things are essential for survival.
‘Wants’ are the new shoes that I know I will never wear but must own, a designer handbag, a few trips away each year, etc. These things are the nice to haves that make life more enjoyable, but sure, I can do without them.
‘Wants I need’ are good coffee every day, monthly hair and beauty appointments, my gym membership, regular trips to the bookstore, regular shopping trips, a meal out at least once a week, and drinks with friends at least once a week.
While I don’t need these things in a traditional sense – I’m not going to die if I don’t get them; I do need them in that they enable me to stick to my budget long-term in order to reach my financial goals. This is a subtle point, but a vital one – and one that is often overlooked by hard core PF bloggers – when it comes to learning the knack of sticking to a budget.
What are the wants you need?