Frugal Living 101

[Tallysmom]

Originally Posted by mysticaltyger

When I really got serious about my money at age 26, this is what I did:

--Kept my rent to 20% or less of my gross income. That meant living with roommates for 8.5 years until all student loan and credit card debt was paid off and I had a decent amount socked away in retirement accounts.

--Paid cash for decent used econoomy cars. I bought my current car when it was 4 years old. It is now 15 years old and still runs ok andithas not needed a ton of repairs.

--Try to live as close to work as you reasonably can. See if it's possible to live without a car altogether by living close to work & taking mass transit. If you can't do that, get as close to that ideal as you reasonably can.

--Even if you have debts, you should start putting something in a retriement account (either IRA, 401K, 403b, or 457), even if it's only $50 a month. Then focus on paying down debts and building savings. Once debts are paid down and savings built up (to 6 months of living expenses as a minimum), then it's time to ramp up the savings. Don't put so much in retirment accounts that you can't continue to put away at leas some cash, though.

--Invest in a "boring" mutual fund that invests in a mix of stocks and bonds. People tend to go to extremes with risk. They either way overestimate their risk tolerance (usually men) or they way underestimate it and invest only in things with guaranteed rates of return (usually women). The answer for most of us is between those 2 extremes. i wish I had learned this. I'm a typical man. I overestimated my risk tolerance. I should have invested in "balanced" mutual funds that buy a mix of stocks and bonds. I would have a lot more money today if I had done that.

Here are a few really good balanced mutual funds with great long term returns:

T. Rowe Price Capital Appreciation

www.troweprice.com

T.Rowe Price will let you invest for $50 a month if you have it automatically taken out of your checking account.

Other good balanced funds to consider, any one of which will do fine:

Vanguard Wellington (great fund but has a steep minimum investment)
Vanguard Star (not quite as good as the above fund, but only $1000 minimum)

www.vanguard.com


Oakmark Equity and income www.oakmarkfunds.com

Dodge and Cox Balanced www.dodgeandcox.com

All good info -- and there are plenty of online quizzes to assess your tolerance for investment risk. I'm a riskier sort than Tyger, and frankly, the other thing people need to keep in mind, you don't need to be as educated as a broker to invest. You just need a little education....

[mysticaltyger]

Originally Posted by Tallysmom

All good info -- and there are plenty of online quizzes to assess your tolerance for investment risk. I'm a riskier sort than Tyger, and frankly, the other thing people need to keep in mind, you don't need to be as educated as a broker to invest. You just need a little education....

Yes, I thought your post was good, too. I like the idea of online quizzes to assess your risk. I also agree with you it's really about consistency. I know there will be a fair number of excptions to the general rule, but people tend to stay with "balanced" funds because they are less volatile than 100% stock funds...so they are much more likely to achieve or even beat the fund's publishd returns if they stay with it. It's easier for most of us to stay with funds that aren't super volatile. That's cool that you're the exception

There is a solid core of balanced funds that seem to match or beat the stock market averages over long periods of time. For those who don't know here's a list of popular balanced funds (60-65% stock / 35% - 40% bond) that have done well over time:


Vanguard Wellington
T. Rowe Price Capital Appreciation
Mairs & Power Balanced
Dodge & Cox Balanced
FPA Crescent
Fidelity Balanced
Fidelity Puritan
Vanguard Balanced Index

The more conservative, good performing balanced funds (40% Stock / 60% bond) are here. They are bond-heavy...so they are not likely to match the stock market averages over the long haul.

Permanent Portfolio
Berwyn Income
Vanguard Wellesley Income

If you have these in your 401K and they are worth checking out. Otherwise, they're not because they normally charge a sales charge if they're not part of 401k plans:

American Funds American Balanced Fund
American Funds Capital Income Builder
American Funds Income Fund of America
Invesco Van Kampen Equity and Income

[Tober138]

Originally Posted by Winter_Sucks

Hi y'all, I'm a younger man and money has never been an issue with me. I've never had a lot, but I've always had some. But I'm starting to get older and I really want to start saving and investing. I was just wondering what are the basic rules and guidelines y'all live your life by? What attitudes help you succeed at living frugally and saving? Where do you save or invest your money to help it grow?

Thank you for your help.

Before you make any decisions, sit down and look at what you currently make and what you need to spend. In otherwords, plot out a budget - figure out what bills you need to pay every month (rent / mortgage, utilities, groceries, etc). Plan to set aside the money needed from every paycheck to cover those costs, then look at what you have left to save or spend. Set savings goals for yourself - put aside a certain amount each paycheck in the bank or an IRA; plan for long term savings as well as shorter term savings - say you want to take a nice vacation during the year, figure out how much it will cost and put some money away towards that from every check).

I think the important thing to do at this stage is look at your budget, figure out what you need to spend, what you want to spend and what you want to save. Putting down real numbers on paper (or in a spreadsheet) can help you get organized.

Also, I don't know what you mean by "younger" but if you have 20, 30, 40 years until retirement, invest in a Roth IRA so you can take advantage of the non-taxable distributions later in life. Don't get spooked about short term stock market activity - invest your money in retirement funds and learn to let it go for the most part; look in on your investments from time to time, but know that, with any stock ups and downs, you will come out ahead in the long run.

And if your employer matches 401k contributions, put in at least as much as they are willing to match - its like getting free money.

[Tober138]

Originally Posted by rfr69

You can take frugal as far as you want but personally my feeling is many people who think they are frugal are actually cheap.

Be smart about how you spend your money, be able to differentiate and have the discipline to stick to whats a need and whats a want....

...Basically my thing is you cant take it with you when you die so be frual, save money, be responsible, make sure you have retirement and an emergency fund but dont save save save and never enjoy yourself bc whats the point of having money if you never get to enjoy it.

I agree with pretty much everything you've said and my thinking is along the same lines. I've always considered myself to be fairly frugal in the sense that I try to live well within my means - I bought a house that was not at the very top of my potential budget, I make sure my budget includes money going into savings every month for an emergency (or to supplement my income at a much later point down the road), socking away money for retirement and cutting down on costs where I can (your example of bringing lunch to work instead of eating out every day is one of those things). If I do accrue any debt, I make sure it is for the right reasons, such as a mortgage or my student loans (I know a few people on here bemoan student loans but, to be perfectly frank, if I hadn't taken out the loans I did to help pay for college and grad school, I'd be lucky if I made half of what I make now). I do use a credit card to pay for most of my day-to-day expenditures, but I never spend more than I can afford so that I can pay my bill in full every month. In short, I try to be smart about my money.

But at the same time, part of being smart about my money is making sure I can also afford to do the things I like. For more expensive items, I work that into my budget and save for it throughout the year so when I do pay for those things, its in cash. I like being able to take a few vacations per year, which typically includes a week at a nice, tropical resort somewhere or in a suite in Vegas (I love Vegas but don't really like to gamble). If I need to buy a new suit, I want a nice suit, not a $120 polyester deal. I tend to be a t-shirt and jeans kind of guy, but I have a small handful of designer shirts - not because of the label, but just because I like the way they look and sometimes I want to look a bit snazzier. I like going out and having a good meal at a nice restaurant a couple of times per month.

And because I am smart about money and saving for a rainy day or for big ticket items, I can afford those things that I do like. And that leaves me with sufficient disposable income that if I do decide to go out or want to buy something smaller, I don't have to stress over it. I save first and foremost, and saving outweighs spending - but I'm not going to fret over and pinch every single penny I make. I make a fairly comfortable salary, so I don't see the point in living like a pauper. Life's too short not to have some fun.