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1.  Spend Less Than You Earn

Obvious but essential, being frugal requires spending less money than you earn. Don’t let the simplicity of this rule cause you to disregard it; living within your means is so counter-cultural that it’s almost un-American (as evidenced by our anemically low saving rate). Having more isn’t freedom if you have to go into debt to acquire it. Reigning in spending is the first, and most critical, step on the path to financial freedom.

2. Set Goals, Large & Small

Like mile markers on a highway, goals help you identify how close you are to your destination. Setting and reaching small goals builds the momentum and wise habits you need to attain long term goals. Together, short and long term goals fuel a lifetime of frugal living. Having a long term goal that you’re passionate about motivates you when you’re tempted to give up on saving.

3.  Budget Wisely

With this new mindset of frugal living in place you can put pen to paper and establish a budget. Use Microsoft Excel or free, online programs like mint to set a simple budget and get your finances in order. Budgeting requires discipline, not pauperism. See my post about budgeting for step by step instructions on setting up your budget.

4. Pay Yourself First

Make yourself the first line item on your budget; not spending, but personal saving. Don’t make low income or bills an excuse for not saving. Think of your savings account as the first bill that you pay each month. Automatic transfers are easy to establish and make the saving process painless. For more on automating your saving process, click here.

5.  Avoid Credit Card Debt Like the Plague

Credit cards have their place and when used appropriately, are harmless. The danger comes when they are used to fund lifestyle choices that lead to living beyond your means. They are not, as many think of them, sources of free money received with no strings attached. All credit card charges must be paid back. Avoid credit card quicksand by learning from my mistakes.

6. Create an Emergency Fund

Think of an emergency fund as a safety net for your family; setting one up is an extension of Rule #4 (Pay Yourself First). An Emergency Fund should contain enough money to provide for at least three, but preferably six, months of living expenses. Living expenses constitute everything you need to get by each month. Read more about how to tackle this saving goal in my Emergency Fund article.

7.  Be Frugal and Take the Impulse Out of Buying

We’re immersed in a culture of impulsivity. Advertisers prey on our desire for the newest, coolest toys and clothes. Even grocers know our inability to resist impulse buys; that’s why they place gum and magazines next to the check out lines. The rush of an unplanned purchase can be addictive; unfortunately, it can also lead to disastrous consequences, including bankruptcy. Whether it’s a car or a candy bar, make a fun purchase truly guilt-free by waiting until you can afford something to buy it.

8.  Live for Yourself

Don’t try to keep up with the Joneses; the relentless pursuit of outdoing others is meaningless in the end. No one wants to be seen “brown-bagging” it for lunch when co-workers are going out, or waiting to see the latest movie on Netflix but frugality embraces such choices. Focus on your financial future and be true to yourself, not to others’ perception of you.

9.  When you Can, Do it Yourself

Save yourself money by refusing to hire someone to do something for you that you can do yourself. If, for example, you know how to invest, save on fees by managing your money yourself through an online brokerage. If you don’t know how to manage money, take the time to teach yourself. Start by reading Frugal Rules’ first steps to investing.

10.  Invest for Your Future

Frugality demands that you think about the future while living in the present. An enjoyable retirement, for example, is largely determined by the amount of savings you amass during your working years. If you only think about the present, you’ll forget to save appropriately for the future (and take advantage of free money like your employer’s 401k match).

11.  Keep Your Eyes on the Prize

The frugal life is not an easy life and often requires denying your desires today to enjoy life in the future. Keep your goals in front of you to remind you why you’ve chosen the tough road of self-discipline and budgeting. If you’re saving for a big vacation, then have a picture of where you’re going on your computer to encourage you as you save. If you’re saving for your children’s college fund, then have a picture of your child nearby to remind you why you’re saving. Turn your saving goals into a driving force to keep you going when you want to give up.

12.  Act!

The road to vanity is paved with good intentions. If your desire for financial freedom stops with reading this list, you’ll never find what you’re looking for. Take the painful step of making a commitment to frugality. Remember that living within your means is both a choice and a habit. The sooner you start, the closer you are to enjoying the freedom that comes from living wisely.