Congratulations! You’ve just made a change in your cable service that saves you $8 per month. Or you’ve sold some clutter on e-Bay that netted you $50. Where did the extra money go? If you can’t answer that question or the money went to buy more clutter, then you my friend are a fritterer. Harsh words, to be sure, but some situations call for tough love.
It is easy to become a fritterer. Small savings are so easy to spend because they don’t appear to make a big difference in your finances. Yet like the Power of the Pawn, these small savings can make a huge difference given enough time. And it can be even worse for people like me. Why? Because I’m not all that frugal to begin with. I watch my money, but I have no interest in clipping coupons, having a garage sale, or figuring out 37 ways to save money in the [fill in some part of the house here]. But I do watch my money closely when it comes to monthly expenses, and that brings me back to the point of this post–not wasting the benefits of your frugality.
5 Tips to Stop the Frittering
So how do you make the most of the money your frugality generates? To answer that question for me, I’m starting a program I call “Buying the B Share.” I’ll come back to that at the end, but first, here are some tips to help us stop our frittering ways:
- Set Goals: If you know in advance what you’ll do with the savings, you’re much less likely to spend it frivolously somewhere else. Goals are critical to success in any endeavor, and they are particularly important when it comes to money.
- Catch and Release: Once your frugality generates some extra cash, you want to grab hold of it and then immediately put it towards your goal. Don’t wait until the end of the month to move the money to your savings account, if that’s your goal. Transfer the extra money immediately because the longer you hold on to the cash, the more likely you are to spend it something foolish.
- Snowflakes: I learned about this concept from I’ve Paid For This Twice Already. The basic concept is to make small payments on your debt as soon as money comes your way. So don’t wait until the next credit card payment is due. Send in the extra money immediately if that’s how you plan to use it. The longer you hold on to the cash, the more likely you are to spend it on something foolish.
- Increase Your 401(k) Contributions: Every dollar counts. If you make a change to your telephone service that saves $15 a month, increase your 401(k) contributions by $20 (remember it’s before taxes). It’s easy to increase the contributions online, and it will put your extra money to work for you immediately.
- Increase Your Emergency Fund: Boring, I know. But if you’re still saving up an emergency fund, this is a great place to park the money your frugality generates.
Buying The B Share
My goal is to buy a B share of Berkshire Hathaway (BRK). Berkshire is run by Warren Buffett, and I think it is a great alternative to buying mutual funds. Here is how my Buying The B Share plan will work. I’m going to keep track of every dollar I save by cutting back, generate by selling stuff I don’t need, or earn from this blog. I’ll keep track of it here, and when I raise enough money, I’m buying the B share. If you don’t follow Berkshire, a B share is currently (10/3/07) trading at just under $4,000. So this goal won’t be reached overnight. But my hope is that by having this goal and keeping track of my progress, I’ll put my money to work rather than frittering it away on who knows what.
If you’ve got other ways to make the most of your frugality, let’s hear about them!