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How to Beat “Frugal Fatigue”

Q: I’m 28 and trying to get better with money. I’m enrolled in a debt management plan through a consumer credit counseling service and have paid $21,000 in credit card debt down to $8,000. The debt was left over from my divorce three years ago. My ex is nowhere to be found, so it’s all on me to pay it off, which should be done in a few years. The biggest chunk of my paycheck goes to this debt and rent. Otherwise I don’t spend much. I use coupons for groceries and anything else I need. My car payment is reasonable (less than $200 a month), and my student loans are in forbearance. I spend less than $50 a week on food. I don’t have cable—only Internet and Netflix. I cut my cellphone bill to a manageable rate. I’ve switched car insurance companies several times to get lower rates. I usually bring my lunch to work and rarely buy clothes, eat out, get haircuts, travel, give gifts, or do anything extra because I don’t have the cash at the end of the month. I went from paying everything late to paying everything on time. This is a great achievement for me. But all of this cutting back hasn’t helped. I still don’t have any money in savings, and I have very little in checking. I transfer money into a savings account but then take it right out when it’s needed. And it’s always needed. I’ve been trying to find a second job or even a new job that pays more, but I feel like it’s impossible right now. Do you have any advice that could help me?

A: What you’re experiencing is frugal fatigue. You’ve cut and you’ve cut, but you still have a long way to go. It’s easy to look at the road ahead and feel discouraged.

But you have to give yourself credit for paying off $13,000 in debt. That’s a huge achievement. Give yourself another pat on the back for staying current with your bills.

The discipline you’re learning will help you enormously in the years to come. You’ll be able to build a substantial emergency fund after the debt is paid off simply by redirecting a portion of the money you’re now sending to creditors.

In the meantime, don’t sweat the fact that you don’t have a huge savings account. Work on setting aside just $500 or so, which should cover most small setbacks and keep you from having to use your credit cards. If you have to drain your savings for an emergency, that’s okay—the fund is serving its purpose. Just build it back up again.

Earning more money is usually the fastest way to dig yourself out of a hole. If you can’t find another job or a better job, create your own job. Perhaps your work skills lend themselves to moonlighting. If your job allows you to take on freelance clients, that’s a good way to bring in extra money. Otherwise, if you have a talent or skill you can teach, do that. If you don’t, consider providing services that others need: house cleaning, house sitting, dog walking, errand running.

You can look for some ways to give yourself more breathing room. If you’ve cut all the small expenses, it’s time to look at the big ones: your rent and your debt payment. You may be able to free up more money for saving, and for living, if you find a roommate. Also, ask your credit counseling agency about the possibility of reducing your payments a bit. It will take longer to pay off your debt, but it could make life more pleasant in the meantime.

Q: We’re a newly married couple with an 11-year-old and hope to have another baby soon. We have $20,000 in emergency savings, $40,000 in investments, $480,000 in retirement funds, $20,000 in low-interest student loans, and $43,000 in high-interest credit card debt. If we have another child, we’d like for my wife to be able to stay home. I am struggling with how to prioritize debt reduction, college savings, home improvements, and an emergency fund. I don’t want to tap our savings or investments, as life often holds surprises and I do not want to be caught short. The problem is that aggressively paying down the debt hurts our cash flow for our other goals.

A: It’s understandable that you don’t want to tap your savings or investments, since it’s difficult to build up those funds. But it really makes no sense to carry high-interest debt when the returns you’re getting on these other accounts are probably much lower.

Talk to your tax pro about the implications of selling some or all of your nonretirement investments. If your investments have gained substantially in value, you’ll want to factor in the tax bill or consider selling some of your money-losers instead.

After paying off the credit cards, you’ll free up some money that used to go to those payments and can use it for other goals.

Your priority needs to be saving for retirement. When you’re on track there, you probably should focus on rebuilding your emergency fund to equal at least three—and preferably six—months’ worth of expenses. You may not be able to accomplish that before your second child arrives, though, so consider opening a home equity line of credit as a proxy for a larger emergency fund. Leave the line of credit open and unused, however, because racking up a balance defeats the purpose.

Saving for college is a worthy goal, although it shouldn’t take priority over retirement, paying off toxic debt, or having an emergency fund. You may not be able to save enough to pay the whole bill, but you can shoot for saving a third or half of the expected cost, and your child can use federal student loans for the rest. SavingForCollege.com has a calculator to help fine-tune your plan. Even if you can’t save as much as you’d like, you should save something. Even $25 a month over time will help reduce the amount your child needs to borrow.

Home improvements should be last on your list of priorities, and you should try to pay for those with cash. Despite what the real estate and remodeling industries tell you, they are not an investment in your home. The right home improvements can increase the value of your property somewhat, but you’ll typically get back less than 70% of what you spend. An expenditure with a 30% or greater built-in loss is not an investment—it’s consumption and should be paid for in cash.

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