Back to the Frugal Basics: Creating a Plan

When I first started getting serious about getting a handle on my financial situation, things were a big mess. And chances are that if you have found your way to my blog and are reading this post, you’re not too happy with how things are going in your own financial life.

So here you are, with a nagging sense that things aren’t right. Maybe it’s that feeling in your stomach when you check the mail and see your bank statement waiting to be opened. Or it could be the knowledge that you’ll finish the month with a positive balance if (and only if) the car doesn’t need more gas and the cat doesn’t need to go to the vet. Perhaps it’s just that you don’t know how long your job will last, or when you’ll find a new one.

It isn’t the end. Things do get better. And it starts with a plan.

Having a plan doesn’t mean that you’ll immediately start making progress- in fact it can be even more disheartening when you don’t- but even the little steps you take will bring you one step closer to meeting your goal.

At the beginning of learning about frugality, I only knew that I was sick of feeling all the feelings I described above. I wanted things to be better, and I tried to make them so. I’d throw a lot of money into savings, because I knew I should be saving money, but then I’d need to use it the following month.

What was the problem? I didn’t have a plan. I had no goal to work towards, just an idea of how things should be, and so I kept treading water and going just a bit more under every month.When I created a step by step plan to managing my finances, I was no longer out of control- instead I immediately started to take control.

The first step in making a plan is to have a dream.

So you wanna be more frugal? That’s great… but why? Is it because frugality is the latest buzz word and you don’t want to be the last person to jump on the bandwagon? Or is there another reason? You would like to buy a house, pay off your debts, create an emergency fund or be able to afford to buy groceries every month. Whatever that reason is, that is your dream.

My dream is to be debt free, to have enough money saved that I don’t feel a pit in my stomach when an emergency happens, to have a ‘moving away from France’ fund and a down payment on a house.

The second step in creating a plan is to break it down into goals.

Have I achieved my dream? No, and I’m not even close. It’s a big dream, several big dreams in fact, and that can seem kind of daunting. So I broke down the dream into a more manageable goal.

Why? Because I can only do so much with our limited resources at the moment, and it seems reasonable to me that I not bite off more than I can chew. So my goal, as I elaborated on at the beginning of the year, is to save money towards our emergency and retirement funds and not to take on any new debt.

Creating a plan is about more than breaking down your greater dream into smaller goals. Making a plan is also about how you are going to meet those goals. So when I resolved to save money towards an emergency fund, I came up with an amount that I wanted to save (€1500) and how much I would need to put aside every month to meet that goal (€125).

I have had to empty my emergency fund of the money I’ve put into it so far- we’ve been going through some really hard financial times recently. But boy was I glad that we had the fund to empty, and having to do so hasn’t dissuaded me from continuing to save, not one little bit.

And it is possible to make plans, even when life is full of uncertainty.

Here’s a nice article about how planning (and frugal living) has helped one couple make plans even in a bad economy.

A recent study by the Financial Planning Association and Ameriprise found that people who have a formal plan have more confidence in their ability to reach their financial objectives even in times of uncertainty. In other words, they don’t freak out when their portfolios take a hit and stash their money under the mattress.

We’ll talk next week about building a budget, about finding that extra money when you really feel like you have nothing left at the end of the month. And a few weeks after that, we’ll talk about how to stick to your budget and avoid falling into some deadly, goal busting traps.

But for now, let’s talk about your plans.

What are your dreams? What are your goals to meet in making those dreams a reality? What kind of plan are you making?