How to be Frugal: The Role of Information (Part 1)

How can you be frugal? To answer this question, it depends at what kind of frugality you are looking for, are you doing to do a clean cut on the budget, looking to implement austerity?  Just trying to stretch the budget a little further? Just trying to save enough to afford a new hobby? Looking to retire early?  No matter your strategic goal, frugality boils down to decision making.  How do you make good decisions? With good information, information is a necessary condition of frugality, without good information any serious attempt at being frugal will end up in a cloud of confusion and the occasional look at bank statements will be one met with disappointment.

When it comes to being frugal, there are two general kinds of information. The first type of information is internal surveillance information. Yes, you have to be your own NSA, you have to have records and knowledge on what you spend.  Internal surveillance is really knowing what you are spending.  This is accomplished through careful monitoring through software, bank statements, and budgets.

The second type of general information is marketplace information (external information), this is consumer knowledge, an example of this is knowing to evaluate price based on per unit over absolute cost, or knowing that Flinstones chewable morphine is chemically the same as your normal morphine (generics vs. name brand). It’s also knowing what an “appropriate cost” is to pay for something.  An economist may charge that the appropriate cost is the cost you decide to pay, however, to clarify, it is about knowing which local fine Entrepreneurial enterprises that sell that good for the cheapest. This is especially relevant for goods that are purchased frequently.

Internal information

The most common tool for knowing your own situation is budgeting.  The most basic type of a budget is a line budget where you list your income and your liabilities and assign a particular set of money for different purposes.  To be frugal you have to know where the money is going, some may think they have a good cognitive handle on what they are buying, but once they finally check their bank account they realize that they have spent more than they thought.  This is the hard part, you have to know what you spend.  A bunch of small purchases add up and start to corrode the financial integrity of your accounts.  The internet has made this easy, online banking apps allow you to easily check your balances and transaction history.  Financial software like Mint goes further and can categorize those transactions has specific areas of spending and helps to budget.  I have to stress that internal information is paramount, you cannot do much in life without knowing what you are doing.  You cannot fight a battle if you know very little about yourself or forces, you cannot prepare for a test well if you do not know what you already know and do not know, you cannot manage a business if you do not know what your worker bee employees are up to.  Knowledge is key, and knowing your own financial situation, in real time (or at regular intervals), is one of the ingredients for frugal success.

Some don’t like this, they say it is obsessive.  But here is the part that makes no sense, many people work, they work full time or part time, putting in 40 hours a week, but spending 30 minutes a week to protect the 40 hours worth of wages by opening a web app to observe their spending is considered “obsessive”. So instead people will hemorrhage money, money that could have been protected better by letting the person know that the daily trips to Star Bucks are starting to add up, or it serves a reminder that the lottery ticket purchases are getting out of hand, for these people loosey goosey spending is acceptable, but knowing your financial situation is somehow obsessive.  I can’t tell you what you should value or not, but to abuse an overused and dead cliche, knowledge is power.

External information

There are various goods that you will purchase frequently and knowing what price is a good price for those goods is essential to being frugal.  For instance many years when I first moved out I bought a lot of chicken quarters, but I did not know what a great price was.  I bought it frequently, I considered it one of my corner stone grocery items, but I wanted to buy more when the price was low and freeze it.  How I came to know a good price was by creating a document on my phone called the chicken price index, I recorded the price of chicken every time I went to a store and recorded the price per weight, the store and the date. After collecting much data I knew what was a good price, I could count on various stores to be reliably cheaper.

A few years ago I decided to buy a new TV, at the time I had not included buying things second hand (a weakness of my old procurement model) but I didn’t want to pay a lot. I also knew I could wait awhile until a good price came up, so what I did was the same with the chicken, every time I was in a store that sold TVs I recorded the size, the price and the model. At the end of my data collection I had over 100 data points and I had a good feel for what I wanted to pay for a TV which was ~$200 for a 32″ about 4-5 years ago.  When I stumbled upon a cheap TV at an electronic store I knew it was the price I wanted.  I still have my cheap TV and I hope to get many more years out of it.

Apps to help:

Most of us have sandwich of glass and metal (smart phone) in our pockets everywhere we go, most use it for buying things, checking into the local bar on Facebook and retweeting  Kim Kardashian.  These pocket computers i.e., smart phones can be instrumental in managing and collecting data about the world and make information gathering easy.  Here are a few apps that I have found useful, feel free to suggest your own.

Collecting data: notepad apps, I don’t use these apps heavily so I do not have in-depth insight on them.  I typically use Evernote for longer documents such as my chicken index and I use Google Keep for writing down something in a hurry.

Google KeepGoogle Keep
publisher: Google
Average rating: 4 and a half stars

Google Keep is Google’s answer to other popular notepad apps out there such as Evernote and Catch.

Publisher: Evernote Corporation
Average rating: 4 and a half stars
Evernote is one of the big names in note collection.  It’s strengths come in the fact that it syncs between app and browser.

Publisher: Intuit
Average Rating: 4 and a half stars
Mint uses your web banking and does analytical work on your data.  It codes your transactions that are listed on your bank, i.e., a $20 purchase at a gas station will be coded as a fuel purchase.  This app is great for budgeting, assuming most of your purchases are mostly done electronically i.e., debit, credit or credit card.  You can manually code and split transactions, for a visit to a big box store, half of your transaction is groceries and the other is clothing you can manually split the transaction and code as appropriately.

I would also suggest checking the app of your bank.  Mint is strictly information/analytical, where as a banking app usually supports more features for your account e.g., transfer funds, desposit cheques, and pay bills.

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