We may think that we need a lot of things.  We may think we need cable TV, our morning coffee and bagel, a couple of pints at the pub each Friday, or a really big house with a mortgage that the lender had to “make work for our income.”

These aren’t really needs when we get down to it, of course.  They’re wants.

The stuff we really need — after breathing — are (a) food (and clean water) in our stomachs, (b) clothes on our backs, and (c) cover over our heads.  To this you might add basic medical care, education, and a few other very important things.

Most people (especially if you’re reading this now, and especially me) can stand to cut out a lot of non-essential items if it’s needed.  This is extreme downsizing and simplification.  It isn’t fun, but it can be done.  Moreover, what’s spent on the essentials can be trimmed way down to boot as well, by doing the little money-saving things again.  Even the essentials can be simplified and scaled back!

Here are a few ways to get by on spending less for food:

• Consider generic brands over name brands.  Generic or store brands are usually (but not always) cheaper than the name brand, and for some products they’re comparable or even better than the name brands.  I prefer store brand diet soda in some cases because I like the taste of one sweetener over another.
• Use coupons for items you buy anyway.  You can get them a number of places, like your weekend newspaper, from magazines, online at the websites for the products, or online at places like CoolSavings or MyPoints.
• Substitute less expensive foods.  How about oatmeal instead of cereal?  How about eggs instead of meat?  How about rice and beans?
• Buy food that requires more preparation or reconstitution.  As in dried beans over canned beans, dehydrated milk over milk in a carton, raw oatmeal over instant oatmeal, or big bags of rice over instant rice.  The other advantage of reconstituting food is that it may keep longer than the “fresh” food.
• Buy food with less packaging.  Packaging means extra cost, and the food tastes the same if it can be resealed and consumed in time.  Binder clips work fine to keep “family-size” snack bags shut.  Reusable storage containers are great for all kinds of food storage.
• Buy in bulk if the price is right and if you know you’ll use what you buy.  We buy rice 50 pounds at a time, and use it.  I buy the big Costco-size box of oatmeal, and eat it.  It usually saves money to buy in quantity.
• Spend more at the grocery store and less at the restaurant.  The cost savings is clear here.  Eat in with friends as opposed to eating out with friends.
• Learn a few easy, cheap recipes.  I know how to cook rice well enough so that I can prepare a cheap, filling lunch (and dinner sometimes) merely by putting a few ounces of beans over the top with some Worcestershire sauce.  Heck, adding rice to a can of soup works, too.
• Be diligent about consuming leftovers.  Odds are you’ll only be eating the same stuff a few days in a row at most.  (Except at Thanksgiving: It’s turkey leftovers for at least a week!)

Cut your clothing bills, too:

• Make your clothes last.  Making things last can be a money-saver.  My wife is an excellent sewer and has given some of my clothes an extra life.  Simple Debt Free Living has a decent introduction and link collection for clothing repair.  But even before that, be kind to your clothes in the washer and don’t overdry them. 
• Check out yard sales.  We’ve found great deals on baby clothes at yard sales, as in maybe a dime apiece for a bagful.  My wife and I have found clothes for us, too.
• Check out thrift shops.  Sometimes the donated clothing has hardly been worn.  The bigger ones usually have a good selection of sizes.  Sometimes they run sales to make room for things.
• Check out consignment shops.  These are perceived as a little higher-brow than thrift stores but the premise is the same:  buy used and save.
• Check out the clearance racks in department stores.  Some department stores perpetually mark things up just to mark them down, but there are still good deals to be had at places like Macy’s or Kohl’s.  Since my wife has a Macy’s store charge card she gets special coupons that get her some really good deals.  Wal-Mart’s hard to beat, too.
• Check out eBay.  There’s always eBay!  They’ve been getting much more buyer-friendly these days.  Buyers cannot receive negative feedback anymore, and eBay is also waging war against inflated shipping charges (which is in their interest, but that’s another story).

Cutting costs on shelter can be a touchy subject but please remember, it boils down to a roof over your head:

• If you’re renting, think very carefully before buying a house.  Owning a house is a worthwhile goal but it can be very expensive.  During the real estate bubble times of the past few years it was more expensive to own a house than it was to rent.  Or, if it was affordable to own a house, in some areas, it would become too expensive later (adjustable rate mortgages).  The start-up costs can be a bit of a shock.  Plus, you’re a lot less mobile in a home than in a rented apartment.
• Reduce operating costs of your living space.  Keep the temperature warmer in the summer and cooler in the winter.  Use compact fluorescent lightbulbs where you can.  Seal cracks where heat (or cool air) can escape.  Don’t use the clothes dryer for one pair of socks.  And so forth.
• Reduce financing costs of your living space.  Pay the mortgage (or rent) on time.  Consider paying the mortgage down a little faster.  Consider refinancing an adjustable-rate mortgage to a fixed-rate mortgage to remove interest rate risk and take advantage of a depreciating currency.  Work to get rid of private mortgage insurance as soon as possible.
• Test the waters for signs of trouble.  Is the checkbook balance going down month by month?  Why?  Is it due to increasing costs associated with your living space?  Is is possible to move into a cheaper living space if the costs of your current living space are getting out of control?  (A good friend realized this.  His family had built a larger house and had been renting their original, smaller house.  The costs of the larger house were too much, so they are working to sell off that one and move back in to their original house.  Hey, it happens, but they recognized what the problem was and are fixing it.)
• Can someone share your living space?  Can you take on a boarder or a roommate?  An unmarried woman at work has a house and has taken on a roommate to subsidize her housing cost.  Alan Corey did this to great benefit; he took the smallest room in the house so that he could rent out the larger ones for more money.
• No affordable options in your area?  Since moving is costly, it’s usually easier to cut other expenses before contemplating a move, especially one out of town to a less expensive area.  But if nothing else seems to work, this is an option.  It may mean leaving friends and family, and finding another job, but the housing cost issue can go away if the price difference is large enough.
• What if the worst happens and you lose your living space?  There are some options.  They’re not great options, obviously, but better than nothing.  Living after foreclosure or eviction might mean moving in with someone who will take you (and your family if they’re involved).  It can mean finding a church or other group that will take you as a “shut-in.”  It could mean taking whatever job you can and renting by the week (Barbara Ehrenreich, author of Nickel and Dimed found this to be a tough life ).  Even more simply, it could mean pitching a tent or sleeping in your car.  This kind of living isn’t something I’d wish on anyone, but unfortunately more people will be thrust into this kind of situation.  And in any case, it doesn’t have to be forever.

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Being in debt simply means that at one point you borrowed money to fund some purchase, and are now paying it back over time.  (For the purpose of this post, I’m not going to lump in “profitable” or “good” debt that is used to make money reliably for the borrower through some other vehicle.)  The debt can be, for example, a student loan, a mortgage, a car loan, a title loan, a pawn ticket, or a credit card balance.  There are many reasons why people go into debt, and they’re all not bad reasons.  Funding a college education can be a good use of debt for many people.  Buying a house with debt that is, and will likely be, affordable can be a good use of debt for many people.

Buying depreciating, or even consumable, assets with debt often is not a good use of debt in many situations.  Overconsumption, or living beyond one’s means, is usually a bad use of debt.  Buying a car with a loan, though sometimes unavoidable, is usually not as good as paying for it in full.

Then there are the times when people are thrust into massive debt because of a financial catastrophe, like serious illness in the family, job loss, an injury, or a lawsuit.

Whatever the reason for the debt, it must be repaid, and the longer it takes to be repaid, the higher the amount of interest that must be repaid in addition to the amount borrowed.  Carrying debt means sacrificing future income to the debt, as well as any passive income that this future income would earn.  In this light, it makes sense to pay off debts as quickly as possible without opening up the rest of your finances to undue risk.

Here are a few things to consider as you reduce debt:

• Not in debt?  That’s great!  Stay out of debt.  With the economy going downhill, jobs become less reliable.  Now is an especially bad time to take on more debt, or to start taking on debt.  The consequences of getting caught jobless will generally be more severe until the economy recovers, which could take years.  (Yes, years!)  Work on doing the little money-saving things and protecting your income streams so that you don’t have to resort to debt.
• Read books on how to get out of debt.  There are many books out there on getting out of debt.  If you need to be dragged kicking and screaming to face your problem, then Larry Winget’s You’re Broke Because You Want To Be is good for slapping you upside the head and getting you on track.  For a less abusive, shorter, and equally powerful message on the philosophy of debt, check out Michael Mihalik’s Debt Is Slavery.  For tried-and-true detailed steps on dealing with creditors yourself as opposed to hiring a debt consolidation company, look at Harrine Freeman’s How to Get Out of Debt.
• Read blogs written by people getting out of debt.  If you’re in debt, you’re not alone.  No Credit Needed is one of the originals who has gotten out of debt and still blogs about debt reduction.  Paid Twice, Blogging Away Debt, Debt Hater — there are dozens, if not hundreds, of blogs written by people whose primary focus is getting out of debt.  Learn from them.  Connect with them.  Interact with them!  Check out the Carnival of Debt Reduction to see what’s going on.
• Get support and encouragement as you get out of debt.  You don’t have to go through it alone.  Check out financial forums and contribute to the discussions.  Ask questions, ask for advice.  Or start a blog about your debt reduction as a way to solidify your resolve to get out of debt and to possibly make a little money in the process!
• Develop a plan for debt repayment.  Our situation is relatively easy: we just have a mortgage, so planning involves keeping up with the mortgage payments and evaluating whether to throw more at the mortgage.  If your situation is more complicated than this, check out this slick debt reduction calculator or get organized with something like the No Credit Needed Notebook.
• Be careful about stretching yourself too thin.  It is likely a good idea to have a small “emergency fund” built up as a buffer against taking on more debt.  If you’re starting with absolutely no savings and have debt, then it’s probably wise to trade off a little debt reduction for building up an emergency fund.  Once the emergency fund is built up, then it’s “safer” to throw more money at the debt reduction.
• Pay off the smallest card first?  Pay off the highest-interest card first?  For the most part, it doesn’t really matter.  As long as the balances continue to go down, they’ll eventually all go away.  Attacking the highest interest-rate loan first will mean less interest paid over the long run, but attacking the lowest-balance loan first gives the psychological satisfaction of “slaying a dragon” and might be exactly what’s needed.
• When raising money to reduce debt, grab the low-hanging fruit first.  Some expenses are easier to cut than others.  Holding a yard sale for things you haven’t used in years can raise money by getting rid of things you probably forgot you had.  Other things that you’re not using, like 500 TV channels in foreign languages, might not be missed either.  Downsizing or simplifying can be fairly painless, too, and help you to spend less than you earn so that you can reduce your debt.
• Build up speed.  The good news with debt reduction is that you regain some of your financial muscle each time you pay off a loan.  That’s a payment you don’t have to make anymore.  Flex that extra muscle and throw that payment at the next debt in line, and it will go away faster.
• Celebrate your progress.  Just like getting into debt (usually) doesn’t happen overnight, getting out of debt doesn’t happen overnight, either.  It can take years, and celebrating along the way (say, for every $1,000 down or for each credit card paid off) reward yourself with something nice.

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If you’re like me, you have a job, and you also may have money invested and in savings.  Your investments may have lost some, or a lot, of their value over the past months.

But you are still making money, hopefully.  Having a job or a source of income is more important than having a good return on investment.  You can always make more money, but to do that, weelllllllll … you need to make more money!

Protecting your job is crucial.  Developing more sources of income is also crucial.  Your financial situation can go downhill quickly if you stop making money, and it can go uphill only if you continue to make money.  Here are some suggestions for keeping your personal printing press up and running:

• Don’t do something stupid at work.  If your workplace has Internet policies, follow them.  These kinds of infractions are trivial to catch.  Hopefully it goes without saying that you don’t defraud your workplace of materials or misrepresent your time card.  Basically avoid doing the dumb things that will get you fired even if we weren’t in a recession.
• Look for ways to get off the short list of people to be let go.  Just like if you’re hiking with a group, and a bear finds your group, you only need to run faster than the slowest runner in the group to avoid being mauled.  Don’t be the slowest runner.  Find ways to get off the short list like taking on extra responsibilities or reminding your supervisor what you bring to the table so that it’s fresh in her mind.  (Gary North has had a number of very smart ideas in his members’ section for impressing one’s employer.)
• Take overtime if this is in the cards.  If your employment arrangement compensates for overtime, and you can do it, this adds to your emergency fund or increases the amount you can use to pay off debt.  If you’re salaried, putting in overtime gives your employer one more reason to keep you off of the short list for being fired.
• Take a second job?  A second job does mean another paycheck, but taking another job isn’t the best option for everyone.  Taking another job does bring in more money right from the start, but if you are fairly secure with your current job, starting a business has a higher potential for growth.  Consider both getting another job or starting a business.
• If you decide to take a second job, consider all the costs.  How far do you need to drive?  How much does that cost?  Do you need extra child care?  A second job will do you very little good if it costs you more than you bring in.
• If you or your spouse decides to go back to work outside home, consider all the costs.  What will be the cost of day-care if you have kids?  Would you be able to do as many of the little money-saving things if you or your spouse had a job?  Two incomes will do you very little good if it costs more than it brings in.
• Start a side business?  A side business has the potential to replace and exceed a job’s income.  But, as H. Jackson Brown said in Life’s Little Instruction Book, overnight success takes about fifteen years.  If you feel you need the extra money right now, a second job or overtime at your current job is a better bet.  Consider both getting another job or starting a business.
• If you decide to start a side business, consider putting time into it initially rather than a lot of money.  “Business opportunity” magazines are more than happy to sell you a $10,000 vending machine package but it’s quite easy to start up a business with almost no financial outlay.  If you want to begin blogging as a second source of income, You can get functional, professional web hosting for $6.95 per month with an included domain name (or you can register that one separately at GoDaddy.com, which is probably smart).  That’s about $8 per month, and the rest of the needed scripts can be obtained free.  Then, just add your time and effort!  This way is prudent in times of downturn.
• Check your tax withholding.  This is a smaller fix but by adjusting your federal tax withholding you can keep more of your money throughout the year and get less of a refund the following spring.  Just check the rules so that you don’t have too little withheld and end up paying penalties.
• Take advantage of your job’s benefits.  A health savings account?  401(k)?  Gym membership?  Subsidized meals?  Subsidized transportation?  Education reimbursement?  Your salary might be just part of your “pay” so check to see that you’re using everything that your employer offers that makes sense.

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I’ll admit that when I get a little bit of breathing room in our budget, I get lazy.  I’ll go out with friends to lunch, or head to the vending machine for a snack.  I don’t plan finances as much as I should.  And it costs me more than if I did plan and went the cheaper route.

Doing these little money-saving things takes time.  Time that might have been “free” or at least discretionary.  It’s always a good time to be frugal and to save money, but with the economy officially in recession now — unofficially in recession for months now — it’s crucial to save for a rainy day, because if it’s not raining now, storms clouds are just over the horizon.  It’s time to revive the (possibly) lost art of frugality.

Since we’re coming fresh off of Halloween, here are thirteen of those little money-saving things that you can do to lessen the pain during these trying times:

• Pack your lunch and snacks.  This is a tried-and-true money-saver.  It needn’t be a huge time commitment: five to ten minutes in the morning or the night before to put together a good lunch to take.  A half-hour a week to save, say, $4 per weekday by not heading out to the sub shop, or over to the vending machine, works out to $20 per week, or $40 per hour.
• Brew your own coffee.  I drink a lot of coffee, so this is a big money-saver for me.  I don’t save even as much as I could.  At work we have a coffee club that’s $2 per month for as much as I can drink.  Besides that, though, I can fill up Green Stanley about four or five times for what one cup of coffee would cost from a coffee shop. 
• Clip coupons.  As in with a pair or scissors and the weekend paper.  Or you can join MyPoints or CoolSavings.com to print out coupons online.  The tricks here: 1) Check to see that the item with the coupon is less than a comparable generic brand; 2) use the coupon on the size that minimizes the unit cost unless you need a lot of the item; 3) use coupons only for things that you’d buy anyway!
• Eat in rather than dine out.  It’s fun to troll Restaurant.com for restaurants that use their coupons but even with this discount it’s far more frugal to prepare dinner at home.  Expenses for dining out add up quickly.
• Combine errands to save gas.  Using a good gas credit card can shave off a dime or more per gallon, but combining little trips into one big one makes that tankful of gas go further.  Pulling this off requires planning.
• Weigh the cost of a wholesale club.  Buying more at a lower per-unit cost isn’t a bargain by itself; you have to use what you buy before it goes bad.  Wholesale clubs like Costco, BJ’s, and Sam’s Club let you buy in larger quantities than are typically available in retail stores.  Be sure to compare prices, as there isn’t one store that always has the lowest price on a particular item.
• Repair and make do rather than discard and buy new.  Over the few years we’ve lived in our current house I’ve revived some of our appliances when it made sense; www.RepairClinic.com is a favorite site for tracking down tough replacement parts.  Electronics are a bit harder to repair, unfortunately. 
• Buy larger quantities and make your own snack sizes.  Most of the cost in “100-calorie” sizes is in the packaging.  The bigger packages of trail mix, pretzels, peanuts, whatever, are required to have calories per serving on the label, so you can make your own.  This requires only a small amount of planning.
• Substitute less expensive foods.  You can get more carrot for your buck by buying the full-size ones as opposed to the baby carrots.  The right combination of vegetables can deliver the same proteins as meat.  And don’t forget to try out the generic brands to see if they’re comparable to the name brands.
• Entertain low-cost or free.  A trip to the library or a walk around the park are free (aside from time and gas).  A potluck (or “pot blessing” as our church calls them) are cheaper than a catered get-together.
• Buy used whenever it makes sense.  This is my very, very best money-saving tip.  Especially with vehicles.  We haven’t bought a new vehicle yet.  We bought a scratch and dent dryer and just got a used dishwasher from a friend who was cleaning out his garage for things to sell.  (Ours is intermittent now.)
• Spend time at yard sales, thrift stores, and flea markets.  Place a little more weight on “new to your children” rather than “new” when buying toys or other things.
• Substitute reusable for disposable.  We just let a colleague try out some of the cloth diapers we used with our daughter, and she likes them a lot.  Cloth diapers are cheaper in the long run, and getting used to cleaning them isn’t horrible.  Their resale value, surprisingly, is quite good!  Handkerchiefs are another money-saver; Trent embraces this one so it’s probably not something to just blow off.  Sturdier plastic containers are better than plastic bags in this regard, too.

I just know there are lots more little money-saving things that can make a big difference.  Have you got any?

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(By the way, NCN has a new podcast out after taking a break for a few months.  He talks about staying true to the basics in this one.)

In times of plenty it’s natural to want to enjoy more of what life has to offer.  When people feel rich, they feel the draw to supersize their lives.  Larger vehicles, larger houses, larger vacations, larger boats, larger plasma TVs.

Larger things often cost more money to buy, more money to maintain, and more money to fix.  When money becomes tight, these large things become large liabilities, and downsizing is a way to lessen those liabilities.

Downsizing in times of hardship isn’t fun. Giving up the Hummer for a Yaris is probably very scary, especially the first time you take it on the interstate.  Trading a yearly trek to Disneyland for a staycation can sting a little bit.  Getting rid of the boat can … well … OK, that one might feel pretty good

But just as any major life event has an adjustment period, adjusting to a lower-consumption lifestyle takes time, too.  As a rough analogy, after six and one-half years of marriage I hardly remember what it was like to be single, and by all measures it’s better than being single.  This isn’t to say that moving from a 4,000 square-foot home to a 1,500 square-foot home or an 900 square-foot apartment will ever be better than it was, but it will become more familiar with time and easier to deal with.

Where are some areas that can be effectively downsized?

• Downsize your vehicles. Many people are already doing this because smaller cars are less expensive to fuel.  Even though we’ve gotten a little bit of a breather on gas prices recently, they’re still north of $2 per gallon.  It’s still expensive to gas up a Hummer.
• Downsize your cable. Going from extended cable to basic cable can save $30/month or more, depending on how many premium channels you carry.  Or turn it off entirely, save even more money, and find lots of extra time to build your wealth.
• Downsize your memberships. Maybe the gym membership has to go, or the monthly massage.
• Downsize your vacations. Instead of an elaborate cruise, maybe visit a few nearby museums or hike on a trail near your home.  Besides, the boarding pass is just the start of the expenses on a cruise.
• Downsize your taxes. (Legally of course!)  Take advantage of a 401(k) if it makes sense, or contribute to a flexible spending account for health care with pre-tax money to reduce your tax liability.  This requires a little planning, though.
• Downsize your family’s activities. Being involved in three kinds of dance lessons, little league, PTA, Awana, Cub Scouts, etc., are great.  Some of the more expensive ones maybe can be cut.  What may end up happening is that the children can dedicate more time to the activities that remain, and may become more proficient in them more quickly.  For grown-up activities, it may come down to giving up ones that consume lots of cash in consumables (like paintball, for example).
• Downsize your house. This downsizing is one of the more drastic ways to cut expenses, but it has the potential to save quite a bit of money, assuming of course that the current house can be sold.  Heating and cooling costs probably will go down with a smaller home, as well as other repairs, landscaping, etc.
• Downsize your location. This is more drastic still.  Are you in an expensive area?  The cost of living definitely varies from place to place.  Moving means leaving many things behind: friends, family, school, church, work, and everything else that’s familiar.  If the cost of living is too much to bear, then there may not be too much choice.
• Downsize your tithe? Some friends from church are self-employed and in the course of their business have run into lean times.  They tithed faithfully through these times, and the Lord provided richly for them.  (This isn’t meant to suggest causality but regardless, God will provide.)  (Update: I should have been clearer: I don’t think downsizing your tithe is a good idea.  The question mark on “Downsize your tithe?” and the example of what happened when a family didn’t downsize their tithe weren’t enough to convey this.)

What other areas are ripe for downsizing?

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At the beginning of this series, I mentioned that part of the reason for the series was to remind myself of the basics of wise personal finance.  The risk in doing that was that I would run across one (or more) of the basics that I was utterly incompetent in, and would need to write a post on it anyway.

Well, this is one of those basics that I’m really not qualified to write about.  I’m very poor at planning the financial life for me and my family.  I still use The Force for most of our spending, and it’s getting harder and harder to get by doing this.  We came really close to needing to carry a balance on our credit card — something I’ve never had to do before.  Mike from Quest for Four Pillars commented a response to my admission that our six-month car insurance payment was part of the cause for last month’s mini-emergency:

This is probably 20/20 hindsight but you should have been able to plan for the insurance payment.

That’s exactly right.  I should have been able to plan for these expenses easily, but it takes a level of discipline that I obviously haven’t applied to financial planning.  This is pretty reckless, actually, since if no one cares as much about my finances as I do, there’s really very little hope of us achieving decent prosperity if I don’t care enough to plan.

So, knowing well that I’m talking about stuff that I don’t really do myself yet what things are a necessary component about a financial plan?

• Plan to plan.  This is a bit like meta-planning but developing a plan takes time and this time needs to be set aside more or less without interruption.  This doesn’t happen by itself; it must be planned for.  Busyness and an overly complicated schedule make this difficult, so simplifying can make this easier.
• Plan to spend.  This is known as a budget, written down on paper or in a computer.  Budgeting isn’t a feeling (like I’ve done) but an activity.
• Plan for big expenses like a car, education, or a house.  The larger the expense, the more careful the plan.
• Plan to save.  Saving purposefully is essential.  Saving without a purpose increases the likelihood that the money will be tapped into without a real emergency.  Even if the money isn’t tapped into, there’s no reason to enjoy it later if the saving was all without purpose.
• Plan for marriage.  Getting married was one of my better moves (I’d like to think my wife agrees, but I’ll just speak for myself on my own blog ) and we planned pretty well for the two-lives-become-one part.  Money has probably been the source of half of our disagreements for the past six and a half years.  Planning how both you and your spouse will save and spend is better handled sooner.  I wouldn’t think to say that the way your (future) spouse handles money should be a deal-breaker or not, but it probably should be paid attention to.
• Plan for birth.  A child is a big expense (absolutely worth it, though) and this is better planned for.  In the short run children add a lot of stress on a family both emotionally and financially at the same time that they add joy.  Planning to set aside extra money beforehand and planning expenses with the child in mind is a good thing to do.
• Plan for death.  A will or a trust ensures that your assets go where you want, and don’t go where you don’t want.  Without one or the other, the state decides where these assets go.  Also plan to update these documents as the family makeup changes.
• Plan for the best.  Financial windfalls can come at any time.  Will you use them wisely?  It’s more likely that you’ll use them wisely if you plan.
• Plan for the worst.  What if you’re out of work for six months?  What if you plow into someone with your car and kill them?  What if you get hit with a six-digit medical expense?  What if you can’t buy food at the grocery store for a month, or more?  What if we go to war with Iran and gas spikes to $15 per gallon?  Plan for what you can and it will be easier to get through.    
• Plan for retirement.  What will you do?  How much money will you need to retire?  Do you even want to retire?  Can you retire?  Few things require more planning than retirement.

What other components would you put in a financial plan?

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(I thought that Thoreau said that word three times in a row in Walden but it was only twice.  Oh well.)

Simplify, simplify, simplify.  As in make things simpler.  As in get rid of the minutiae that weigh you down.  Here are some suggestions for freeing up money and freeing up time by freeing up your finances:

• Simplify your clothing.  This may not work in every situation but can you get by without dry-clean-only or gentle-cycle-only garments?  Or what about buying clothes that match more of the rest of your wardrobe?  Or one brand of tube socks so that a lost sock doesn’t render the unpaired sock useless?
• Simplify your hair.  Again this is a matter or choice but a low-maintenance hairstyle costs less money and time than a really good looking style that needs attention.
• Simplify your meals.  Cooking a bunch of servings of rice and varying the stuff you put on the rice means only needing to cook rice a quarter of the time.
• Simplify your bill-paying.  Getting as many bills on automatic payment means fewer stamps, fewer envelopes, and fewer finance charges.  Having fewer billable services accomplishes this, too; are there any that can be dropped?  Can you bundle services with one provider and possibly save money in the process?
• Simplify your accounts.  There are some advantages to having multiple checking accounts, multiple savings accounts, and multiple credit card accounts (as I found out this past weekend when my wife lost her wallet).  If you have more than you really need to cover the bases, then canceling the unnecessary ones makes your life easier, and avoids possible expense in keeping the extra accounts open.
• Simplify your grocery shopping.  Buying more groceries less often saves time and gas.  (Just make sure you can use what you buy before it goes bad.)
• Simplify your family’s activities.  (This is one thing I’m finding I need to do.)  What are the most important activities your family does?  Have some of them become more trouble than they’re worth in terms of time and cost?  Dropping commitments can be very liberating, and money-saving.
• Simplify your career or business.  (I’m working on this one, too.) There’s something to be said for keeping options open with career choices but how many can you maintain?  Just like pruning a bush helps the healthy parts to grow, cutting the losers in your career or business frees up resources to allow the others to flourish.
• Simplify your gifts.  (This may be up for debate but hey, that’s what the comments section is for!)  Aside from your close family and friends, if you feel the need to give gifts, why not get a bunch of the same thing?  This saves a ton of time and could save money.  I usually don’t feel such a need but I know that’s not everyone.
• Simplify your landscaping and decorations.  Fewer things to take care of, fewer things to break, fewer things to clean and dust.
• Simplify your stuff.  (I’m a pack rat in a long line of pack rats, so this is tough for me.)  Stuff needs attention, commands attention.  Stuff takes up space.  The self-storage industry is booming, and it’s printing money as far as I can tell.  Pass your unwanted stuff on, and liberate that part of your attention to more important matters.

Any other things that can be simplified?

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Resoling your shoes.  Patching a pair of jeans.  Repairing a clothes dryer.  Doing regular maintenance on your vehicle.

Making things go a little further.  Making do a little longer.  Making things last.

Dr. Thomas Stanley, author of The Millionaire Mind, found that economically-productive households were more likely to "extend the lifecycle" on possessions like shoes, suits, furniture, etc., than non-economically-productive households.  My mother-in-law’s father, who ran a dairy farm, was fond of saying that if you bought something cheap, you bought it three times after all was said and done.  Earl Proulx co-wrote an entire book on extending the life of just about everything.

It used to be easier to make things last because things were made to last.  A few years ago I went to a birthday party for the daughter of one of my colleagues.  One of the gifts was the game Hungry Hungry Hippos.  I was pretty excited at the prospect of playing this game with her because I remember begging for that game for Christmas when I was little.  Well, I was very disappointed with the remade version.  It was cheap, the marbles were plastic and flew all over the place (unlike the glass marbles in the original), and it broke that day.  It was a piece of junk!  If you scroll down to Claude Bouchard Jr.’s one-star review of this game on the Amazon page, it says it better than I can.  As of now, everyone who read the review and voted on it found it helpful!  His parting shot:

Forget this rubbish, you’re better off getting an original. Thank goodness for eBay, second-hand stores, and flea markets. Happy hunting!

With this, here are a few general tips for making things last:

• Part of making things last is buying quality to begin with.  Well-made furniture lasts for generations and is a joy to use and look at.  Cheap furniture falls apart, wracks out your back, and is an eyesore.  The bottom-of-the-line item is usually cheaper than the top-of-the-line item, but you pay for quality and length of service.
• Stuff that lasts might even be cheaper.  We bought a smoothie maker new, and it lasted for less than a year.  Our replacement?  An old Hamilton Beach blender that we picked up for $5 at the Salvation Army.  It’s been going on two years now with maybe three or four smoothies a week.  (Granted, we don’t stick ice in it, but that’s OK.)  The older stuff was built to last!  What’s more, buying used is my favorite way to save money.
• Read the fantastic manual!  If the manual is any good it will probably have maintenance instructions in it.  If it’s an expensive item, it will probably have lots of maintenance instructions in it.  Following the maintenance instructions will make things last longer.
• Repair things yourself when you know what you’re doing.  (Or you’re pretty sure you can figure out what you’re doing.)  Repairing things without good knowledge of what’s going on can be dangerous, or fatal.  Or, at the very least, you’ll really break what you were trying to fix.
• Repair things when it makes sense to repair it.  I know, this goes counter to "making things last" if you decide not to repair something, but sometimes things just get so bad that it’s not worth it to make it last any longer.
• Have someone else repair it if it can use it, and if you don’t want to do it yourself.  It could be either too time-consuming to repair, or too tricky, but if it saves money in the long run, it’s a good thing to pay someone to repair your item.
• Don’t be afraid to use bubble gum and duct tape if the item is truly on its last legs and you’re just trying to squeeze another month out of it so that you can shop around for a new one.  Because, after all, if the women don’t find you handsome they should at least find you handy.

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Pretty much any good personal finance resource you run across will talk about this:

Spend less than you earn.  All this means is that your expenses (everything that leaves your wallet) are less than your income (everything that enters your wallet).

If you’re spending more than you bring in, you’ll have to borrow the difference.  Each month, interest must be paid on the amount borrowed.  If you continue to spend more than you bring in, the amount owed to the people who lent you the money will increase, and the payments back to the lender will increase as well.  Eventually, so much of your income will be dedicated to repayment of debt that there will be nothing left over to live on, and you’ll be forced into bankruptcy.  You may be able to borrow again eventually, but the interest rates will be much higher.  For a while, you may not be extended credit at all.

Is it clear that this is not a good thing to do?

On the other hand, if you’re spending less than you bring in, you’ll be saving the difference.  These savings can be used for an emergency fund.  They can be used to buy a car.  They can be used for a down-payment on a house, for college expenses, and for retirement expenses.  By living within your means, you can make your money work for you, rather than the other way around.  The larger the percentage of your income that you save, the bigger your savings will end up being, and the more conservative you can be with your investments.

If this sounds really straightforward, it is.  However, straightforward doesn’t necessarily mean easy or even fun.  Not only must you not spend the money initially, you may need to put it in a strong piggy bank in order to continue not spending it.  Spending less than you earn consistently means having lots of financial discipline, monitoring your expenses and adjusting your budget, putting small windfalls or stimulus checks to work rather than blowing them, and resisting the temptation to borrow in order to look rich.  If you’re married, it means being on the same page with where things are headed.

If it were easy, everyone would be doing it, and the would be a lot fewer people in danger of working at a job they don’t like until the day they die.

I mentioned in the introductory post to this series that one main reason I’m writing these posts is to remind myself of solid personal finance, so I hope to be able to learn from my own advice occasionally.   My biggest shortfall remains that I don’t budget and monitor our expenses carefully enough.  As a result, some expenses slip through the cracks and bigger expenses occasionally blind-side us, making things a little tighter than they usually have to be for a few weeks.  Part of this too was adjusting first to marriage, and then to having a daughter; spending less than we earn is more difficult than it was before these things happened.

Financial independence rests more on living within one’s means than it does with bringing in a big salary.  A big salary makes it much easier to save, but it doesn’t guarantee it.  Even the wealthy have to live within their means or they will soon not be wealthy.

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Millions of people in the US are feeling at least a little pain as the market whipsaws and home values go down.  The people feeling the most pain now have more mortgage debt than they can handle, the inability to refinance that debt, perhaps a lot of credit card debt, and maybe even unemployment.  People who aren’t in this kind of situation now may well be in it soon.

The banking crisis and the ongoing bailout effort are consuming a lot of the headlines now, and it’s difficult to avoid thinking about it or even to avoid hearing about it.  The fundamentals get lost in the shuffle and get displaced to some extent by damage control.

I had been thinking for a time about doing a "basics" series of posts, and this is probably a good time to start, if for no other reason that I need to remind myself of the importance of the basics of wise personal finance amidst a lot of disturbing economic news:

• Spend less than you earn.  Just like it’s hard to make up on volume what you’re losing on each sale, it’s hard to make up with time when your expenses are greater than your income each month.
• Make things last.  Disposable things are relatively recent.  Things used to be bought less frequently, and they used to be repaired.  Repairing rather than re-buying can be wise.
• Simplify, simplify, simplify.  Getting rid of things, services, commitments, anything frees up more than just money and time.  It frees up brain power.
• Plan, plan, plan.  Plan for employment.  Plan for retirement.  Plan for next month, and next week.  Plan for birth.  Plan for death. 
• Downsize.  Do you still need an SUV when a sedan will work?  Do you need the 52" plasma or will (gasp!) a 26" LCD work fine?  Five hundred channels, or fifteen?  Or none?
• Start doing the little money-saving things again.  Like lunch packing, coupon clipping, comparison shopping, and staying in.
• Keep on top of your income streams.  Money can be replaced as long as you have a job or some income source.  It can’t if you don’t.
• Reduce your debt.  Carrying a balance erodes your ability to save and prosper.
• Food, clothing, shelter.  It doesn’t get any more basic than this …
• God.  … well, except for this.

These are the topics I’ll be posting on initially, and I may add some here or there.  We’ll see how it goes!

If you have other suggestions, let me know in the comments!

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