How to make the most of your frugal energy

As discussed in my entry on Tuesday, more and more people are trying to live frugally, either as a lifestyle choice or out of necessity. I've been doing some searching online and found lots of blogs, community groups, freebie sites, coupon sites, you name it, all on the subject of reducing those few extra cents from your purchases. But one of the things that isn't talked about much is what should be done with all those nickles and dimes that have be shaved off your grocery bill.

I think a lot of people use the money they save to just buy more stuff; the "I just saved a bunch of money with Geiko so I'm going to reward myself with a new Xbox game" cycle. The problem is, this kind of thinking is at cross purposes with the point of frugal living. If you are putting all this effort into saving money - clipping coupons, repairing and re-using things, researching deals - "saving" is exactly what you should be doing with your money. I find the best way to do this is to actually keep this money in a different place from your usual money reserves. That way, you can make absolutely sure you don't spend it "by accident". Some of the ways to accomplish this are simple, but to truly master your savings takes a little organizing and math.

First, start off by deciding where you are going to keep your savings. A high-interest savings account? A peanut butter jar on your bedside table? A cookie tin under your mattress? I personally like a combination of these. I save up small change in a jar in my bedroom and then transfer this to my savings account when there is enough to warrant the transfer. Who wants a 3-page bank statement itemizing every $.50 deposit into your savings account? Add the possibility that your bank may charge fees for the transfer, and you may end up wiping out all your savings, or even being charged more than you saved. An alternate to the jar would be to carry around a small notebook and keep track of every time you save money.

Next, figure out exactly how much money you save with each money-saving activity that you do. The simple example is when you buy discount or with coupons. If you saved $10 on that pair of pants, put $10 in your jar or record it in your log. Just make sure that your savings is worth it; purchasing a name-brand product on sale or with a coupon could still cost more than buying a comparable generic or store-brand product at full price (it's an industry secret that many name-brand products are produced and packaged at the exact same plants as generic products). Just watch for the temptation to buy something that you wouldn't normally buy or don't need, just because it's a good price. Buying it may save you 20% of the sale price, but not buying it will save you 100%.

To calculate other forms of savings you may have to get creative and flex those grade school math muscles. If, for example, you save money by baking your own bread you would have to figure out exactly how much it costs to make each loaf of bread: adding up the cost of the ingredients (in the measurements used) and the cost of gas or electricity to use the oven. Since many bread recipes make 2 or more loaves, you would need to divide this total by the number of loaves to get the per loaf price. Compare this to the cost of the bread you normally buy to calculate your savings and put this savings in your jar or log book.

This may seem like a lot of effort, but most of the work is just in getting the system in place. Once you've calculated the cost of baking vs. buying bread, you don't have to do that again (unless there's a price increase on one of the ingredients or you switch to a differently priced brand). Also, once you've figured out the cost of 1 cup of flour, you can use this information to calculate the cost of everything else you use flour for, so the longer you keep it up, the less work it will be as you go along.

And don't forget to regularly put that money into a savings account (inspect your bank account's terms and fees to determine the most economical way to do this). As all those nickles and dimes add up, they will also grow and multiply. And that's the true meaning of being frugal, Charlie Brown.