Never a Better Time to Become Frugal

September 30, 2008 By Debbie Dragon

As our economy continues to nose dive, it’s never been a better time to put away the credit cards and change from the “spend, spend, spend” attitude this generation has adapted to one of “pay off and save”.   It’s probably not the best idea to sit back and try to ride-out the current market downswing - here are some tips for changing your lifestyle and becoming more frugal.  (The good news is adapting these changes now will result in larger pay-offs later, when the economy is a little better and your debt has been paid off)

Don’t Take Money Out of Your 401K Account Early!  A large number of people are taking money from their 401K accounts because they’re “losing” money in them.  While you may be watching the numbers go down, the market will recover eventually.  Taking money out early results in high penalty fees as well as having to pay income tax on that money at tax time.  If you really don’t trust your 401K account will recover before it’s time for you to retire - you should at least be considering moving the money into another approved investment that won’t cost you the early withdrawal penalty - just keep in mind, if your employer matches your contributions, you will miss out on that “free money”.

Save Money the Old Fashioned Way.  Even though things are tight, you want to continue to save money.  Banks are insured by the government up to a certain amount (typically $100,000).  If you aren’t confident in the stock market or other investments at this time, take the safe route and save money in a traditional bank or even in a jar at home (but you give up even the small percentage you could be earning in a traditional bank; or the 3-4% you could earn on your money with an online bank).  Just be sure to be setting money aside.

Reduce Your Living Expenses.  Use less water, turn the heat down, buy groceries on sale, cut back on your entertainment expenses.  Skip things you don’t really need and apply that money to paying off debt or savings.  Now is the time to reduce expenses so the money you’re earning can be put to better use and go further.  Avoid using credit cards at all costs, and concentrate on learning to live within your means.

Work Hard to Eliminate Debt. Whether you are concerned you may lose your job or have faith in your job security, it’s a good time to establish a plan to getting out of debt - once and for all!  Try the Pyramid or snowball method to get out of debt.  If your credit is good, consolidating with a loan may be a good option for you.

It’s never in anyone’s best interest to panic, but with all that’s happening in the financial world it’s a good idea to take some action and put yourself in the best possible financial position.

Posted in budgeting, credit cards, entertainment, financial plans, financial problems, investing, jobs, lifestyle, miscellaneous, money, personal finance

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