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Monday, May 19, 2014

Basic Principles of Frugality; Budget Math 101

There is one grand principle of frugality: do not spend money on something you can live without or you can get for free (legally!).  Basically, do not spend money.  Easy, isn’t it? Well, except you will need to spend some money.  After you have a budget outlining the basic expenses you will have, take a look at your top 4: most likely tuition, rent, books and food.  Look at these and try to reduce your top one that has ‘wiggle room’ (rent) by 10%.  The reason is that if you reduce your largest expense by x%, this will be a larger dollar amount than if you reduce a smaller expense by the same x%.  For math majors, this is obvious; but if math is not your strong suit, here is a breakdown.
annual savings
monthly rent: $600
$60 (monthly)
$60 x 12 months (leases are 12 months long) = $720
monthly food: $350 (that’s generous for one person)
$35 x 12 months = $420 (assuming you are paying for your own groceries 12 months a year)
books, one year: $1000
So even though saving 10% of any expense doesn’t seem very difficult (BEFORE signing a lease), the same 10% can mean something different in dollar amount.  Because tuition is linked to where you live and the program you take, as well as the distance from home, a reduction in tuition may mean an increase in another area.  However, it’s likely that you can volunteer for the smallest room in an apartment at a saving of 10%, or simply choose the apartment (with your housemates) that has only a shower and no tub for an overall reduction in rent for all (to me, a tub is not worth $750 per year).
So before spending money according to your budget, try to trim the budget by a percentage in the categories that are the largest parts of your budget.
And now you have completed Budget Math 101!

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