Living frugally to retire early - is that possible?

by Wendy Wedum, Pondera County Extension

The past couple of years I’ve been participating in a book club with MSU and North Dakota Extension Agents.  It is fun to get the perspectives from others during our weekly chats and to learn new information that I might not have read about myself.

This year’s book is How to Retire the Cheapskate Way by Jeff Yeager. Over the next several weeks, I’m going to share the tips he’s learned from other frugal savers and his own experiences along with the comments from other experts in the field of financial management.

From a former colleague, Jeff learned about the "Cheapskate’s Hierarchy of Moolah Management." It has four steps.  Today we’ll start with step number one.

Step One: Reduce your dependency on money as much as possible, thereby reducing your need for great cash flow. He says, "Cheapskates place the highest priority on spending less…not earning more."  Do you know anyone who has gotten a raise and still seems to be living paycheck to paycheck?

In step one it is important to place the highest priority on spending less, not earning more; there are three parts to step one:

First, identify your needs and your wants. Try to reduce your routine living expense needs to be no more than 50% of your income and allocate no more than 20% of your income to your wants or extras. Then put the remaining 30% into savings.  Take small steps to live within your means and whenever you can live below your means.  One suggestion is to make setting aside money for your savings part of your spending plan.

Second, establish a permanent standard of living and refuse to let your living expenses grow as your income grows during your working years.  As you income grows, put the extra income into your savings account or increase your contributions to a 401k or if you need to make a major purchase, save up for half or more of the total cost to reduce payment amounts for a loan. 

Third, avoid as much debt as possible and when you do take on debt, work on paying that off as quickly as possible.  Doing so will save you money in less interest paid and it helps people to avoid things like foreclosure and bankruptcy.  Pay ahead on house or car loans by adding extra payments to the principal.  If you have several credit cards with balances and loans to pay off, check out Utah State University's PowerPay - a free program to make a 'personalize, self-directed debt elimination program'.  

See the Resources below for more information.

Resources:  

MSU Extension has MontGuides to help with the budgeting.  

Developing a Spending Plan   https://www.msuextension.org/publications/FamilyFinancialManagement/MT199703HR.pdf 

Schedule of Non-Monthly Expenses   https://www.msuextension.org/publications/FamilyFinancialManagement/MT198910HR.pdf 

Track'n Your Savings Goals

https://www.msuextension.org/publications/FamilyFinancialManagement/MT200303HR.pdf

If you want all the details, get a copy of Yeager's Book:  How to Retire the Cheapskate Way - The Ultimate Cheapskate's Guide to a Better, Earlier, Happier Retirement by Jeff Yeager, 2013.

Utah State University Extension "PowerPay"  https://www.powerpay.org/