My first lesson in frugality comes as a story. When I was a kid I had a friend whom I believed was the most frugal person in the world. By the time he was twelve he had saved nearly a thousand dollars solely on the income of a meager allowance and payments from odd jobs, like mowing lawns and shoveling snow. He kept the cash in a shoebox in the bottom of his closet.

That figure was enormous when I was a kid. A thousand dollars? I could hardly believe it. Even now, while not containing the immeasurable possibilities it once did, a thousand dollars is nothing to scoff at.

What was the secret to hoarding all that cash? When I asked him, my friend told me he saved money by following one simple rule: don’t spend it, and wait.

The rule is simple, but that doesn’t make it easy to follow. We all know people whose paycheck seems to slip through their fingers. They are overly generous, they don’t keep track of their expenses, or they just don’t care. Some never manage to save more than the cost of the next month’s rent, and when the time comes to pay it they have to scrounge for spare change between couch cushions just to make ends meet. And then there’s the hydro bill — a whole different beast.

I’m not talking about people who actually have trouble making ends meet — that’s a topic for a different day — I’m talking about those who have the means, but lack the skills to manage their budget.

Managing money is never a simple task. There are always unexpected expenses, and once you start spending the money it disappears fast. However, if you can learn to follow my friend’s one simple rule, you may never have to scrounge for change again.

Want Vs. Need

One essential way to determine whether to buy that new laptop, camera, or pair of shoes you’ve been eyeballing for the past few weeks is to put it to the “want vs. need” test.

Your rent, hydro bills, loan repayments, auto and health insurance — these go under the “need” column. New toys, new clothes or shoes, expensive dinners — these usually get filed under “want.”

Of course, from time to time, we have to treat ourselves to something special, and a non-essential expense becomes a need. A few years ago I spent a thousand dollars on a new Nikon camera. About six months ago I bought a new lens for it. I didn’t need these things, but I couldn’t be happier with my purchase. That was money well spent.

If there is any doubt in your mind whether the thing you are about to buy goes under “wants” or “needs”, try to be patient. Go to the store, or browse online for the best price, find the exact one you want, then — here’s the rule again — don’t buy it and wait.

In a week’s time, if you still feel that you need it, and if your budget allows for it, then by all means purchase it. Oftentimes a need is only perceived and not actual, and once the excitement fades your needs turn back into a want and you realize that you can learn to live without it. Waiting can be the difference in saving money.

Out of Sight, Out of Mind

Whether it’s a shoe box at the bottom of your closet, a separate bank account, or a safe in your parent’s house to which you are not told the combination, out of sight, out of mind is another essential guideline to help you save money.

Perhaps you are one of those people who spends whatever is in their pockets. If you have it, you’ll spend it. But you don’t want to go to the trouble to create a budget system (covered in the next section). Or maybe you’re like me and you don’t have enough expenses to require a budget system.

In that case, figure out how much you need to save and separate it from your spending money. It will eliminate confusion and worry from your spending.

For example, say you calculate that you need $600 a month to cover your bills. And every two weeks you get paid $600. You decide to put half of each paycheck into a savings account which you use to pay your bills, and the rest goes into your spending account or into your pocket.

That way, when you run out of spending money, that’s the end of the line. You don’t see the money in the savings account, so you don’t think about spending it.

Budget Systems

Out of sight, out of mind works for some people. But others say that if they know the money is there, they’ll spend it anyways, even it’s hard to get to. In that case, I recommend a budget system.

Freelance Folder has a wonderful article on the modified envelope system. It’s written for freelancers, but anyone can use the highly customizable and time-proven budget system recommended in that article. You may wonder how you ever lived without it.

The basic premise is to separate your income into separate categories (i.e. one for rent, one for gas, one for hydro bills, one for insurance, one for new shoes, etc), so that all expenses are covered. Perhaps you need a “food and drinks” envelope. Do whatever it takes.

The hardest part is stopping when the envelope is empty. If you can’t control your own impulses, no budget system will ever work and money troubles will always plague you.

With a budget system, if nothing else, when you violate the sanctity of the “rent” envelope to buy new shoes or expensive foofy drinks, you know what to expect at the first of next month.

When in doubt, resort back to our simple rule: don’t spend it and wait. It’ll never lead you astray.

Immeasurable Possibilities

You say you’ve tried our simple rule? Guidelines don’t work for you? Well, maybe incentives do.

As I mentioned, a thousand dollars no longer contains the immeasurable possibilities it once did, but let me share with you some of the possibilities it still contains:

• A new macbook
• 100 $10 Martinis
• A week long vacation at a nearby resort
• A one way ticket to Europe (prices vary)
• Christmas presents for 10 good friends.
• A new camera
• Anywhere from 5 to 20 pairs of shoes, depending how thrifty you are
• A safety net

No matter how much I love macbooks, new cameras, or a trip to Europe, my favorite incentive is the last one, “A safety net.” You can’t put a price on ease of mind. If you suddenly need to find a new job or a new apartment and you have money saved up, it could make the difference between surviving comfortably in the meantime.

And once you have saved a thousand dollars, why stop there? I’ve shown you some of the possibilities a thousand dollars contains. What about five thousand? Ten? Maybe then it’s time to invest, or to start that business you’ve always wanted. Maybe it’s time to live your life how you always dreamt it could be lived.

All this from following one simple rule. Not to mention all the practice you get in being patient, an essential skill in every walk of life.

Conclusion

There is no flawless system. Each of us has to adjust the guidelines to fit our lifestyle. But the essential rule for saving is the same: don’t spend it and wait. Assuming your expenses are less than your income, you will save money. It’s basic subtraction. Have faith in the math, and have patience.

Once you’ve saved the money, whether you plan to invest it or spend it on a new toy or just keep it there for peace of mind is up to you. It’s the first step that’s the hardest.