I should know. When I went to college, I took the route of money. I majored in something that I thought would bring me money hand over fist. Yes, I majored in…

…philosophy.

What can I say? I love philosophy. Did I make a lot of money from it? Actually, I didn’t do so poorly. The reason is that philosophy gave me the critical thinking skills to solve problems. It taught me how to think and how to express those thoughts in a clear and coherent manner.

Also, it gave me the basic foundation for doing what I do now. And what I do now is what I love. It excites me. And I am passionate about it.

And that is writing. The truth is I love writing. I love it more than anything else in the world. I like putting words down. I like people reading it. And I like inspiring people.

Currently, I am working for a publishing company in Korea and am using my writing skills to educate people. Am I a millionaire from it? No, but I do make a comfortable living. And I’m happier than I’ve been in a long time.

And best of all, I write this blog. I spend a lot of time on it. But it doesn’t feel like work. And that’s when you know you’re doing something you love. You’d do it for free.

What do you love? Or better yet, what excites you? What is the one thing that makes you get up in the morning? And if you’re not doing that thing, you should be planning on how to be doing it. If you lack the passion for what you do, you will find it increasingly difficult to motivate yourself, which could lead to a whole range of other problems, especially financial problems because many people try to “buy happiness” yet find themselves feeling both empty and broke. 

Identifying that one thing will be a major step in your personal growth, reduce much of the stress in your life, and allow a good portion of your life to fall right into place.

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There was only one problem. He was constantly buying new things because his old things broke so often. He’d buy cheap toasters that would break in less than a year. He’s buy cheap frying pans that started flaking in a few months. And he bought clothes that were constantly getting ruined.

The heart of the problem was that my friend was not frugal. He was cheap. And being cheap cost him A LOT of money over the years.

What’s the Difference Between Being Frugal and Being Cheap?

I have been accused on more than one occasion of being cheap. I’ve gotten this reputation not by what I have bought but what I haven’t bought. To most people, I don’t buy things fast enough. When new things come out, I don’t rush to buy them.

I am not “proactive” in this regard. I don’t buy a car because I am tired of my old one. I buy a new car when the situation calls for it—not before.

But what exactly do I buy? My lack of possessions might have other people calling me cheap but when it comes to the things I buy, believe it or not, price is NOT my number-one concern. It’s dead last.

I only needed to get burned a couple of times by “Wal-Mart” brands to know that the cheapest thing is cheap for a reason. When I look at products I want to buy, I consider the following:

l Durability: will this thing last me for years or months. One way to check this is to read online reviews but another way is to go with brands that are known for quality. For example, for electronics, I typically buy Sony products. And the Sony products I had over the years lasted me until the product itself was obsolete (as when I traded in my cassette walkman for an iPod).

l Specs: I look for products that have what I want. Typically, I avoid the higher-priced items with added bells and whistles that I could care less about. How many times has a salesperson upsold you to a more expensive gadget that did a million different things but you never used any of those bells and whistles?

l Warranty: How long will the manufacturer back up their product. If a product is an el-cheapo with a 3-6 month warranty, then I don’t even bother. But if a company is willing to put some teeth in its warranty, I will consider it. Think about how years ago people would not buy Hyundais because they were considered cheap, but once they introduced their 10-year warranty, sales jumped. Companies that stand behind their products are more likely to build better and longer-lasting products.

l Price: Yes, I do look at price. But it is the last thing I consider. Usually I spend more on better products. My Sony camcorder was about $75 more than a comparable competitor’s item. But I do pay for quality, and I have had no problems with my camcorder. One exception to this is with items I need but rarely use. For example, I will buy a cheap wine bottle opener because I hardly ever open up any wine. But I do use it about once every 6 months or so. Though my frugal nature had me buy a corkscrew with a bottle opener on the other end. Now, I use THAT a lot.

So, there you have it. Being cheap is ONLY considering price. But being cheap can cost you a lot of money over the years. Being frugal is getting the most value for your money while minimizing the things you buy.

It might seem obvious. But you’d be surprised at how many people confuse the two.

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But the budget that works for me is the one I discovered…

… back in the good old days of elementary school. But before I delve into the nitty-gritty, let me show you how most people I know try to set up a budget and why it is almost impossible to stick to.

Because I am always talking about cutting the fat and clutter from life, some people think I use the “quicken” approach to do this.

Let me explain what the “Quicken” approach is:

You take all your expenses and divide them up by category. For example, here are some categories most people use:

• Eating out
• Mortgage
• Clothes
• Groceries
• Etc.

And then what most people do is assign how much they will spend per category. So, let’s say you give yourself $100 to eat out that month. If you go over that, then you lose—game over, budget destroyed!

But what if I told you there is an easier way to do this that lets you live the lifestyle you want, can keep you out of debt and living within your means?

The Budgeting Secrets of 10 year olds

One of the reasons people can’t seem to stick to a budget using the “quicken method” is that once they go over the dollar amount they’ve assigned, they feel like they failed or feel like it’s impossible.

And the key to sticking to a budget is in feeling like you can do it.

This budget is like this, and its one most of us all used at one time or another. I call it the “Allowance Budget. “Just give yourself a set amount of money to spend every month and don’t spend more than that.

Remember when you were a kid, you got a set allowance and spent it on whatever you wanted. It was easy. If you didn’t have enough for the toy you wanted, you saved your allowance until you had enough.

I’ve used this method for my personal budgeting for as long as I can remember. I tried the Quicken way once (thinking it must be an improvement…technology is supposed to make it simple, right?), but it never worked as well as my Allowance budget. Luckily, my wife talked me into abandoning the Quicken method…But , honey, they wouldn’t make it that way if it didn’t work…and I just spent money on the program.

You live, you learn.

The only thing left to figure out is the amount to give yourself. It will differ for each household, but a simple way to figure that number out is this:

1. First add up all your necessary expenses: mortgage/rent, any loan payments, estimated monthly utilities/phone, etc. Do not include groceries or food. Only set expenses.

2. That is your base number.

3. Subtract it from the income you bring in.

4. You decide what to do with the remainder. You can’t save all of it, but I recommend saving a good portion of it. If you have enough remaining a good rule of thumb is give yourself double your base amount and save the rest.

There you have it. A simple budget that even a 10 year-old can stick to. Good luck.

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In debt?

Well, I’ll go ahead and “solve” the whole debt problem for the nation’s youth. It will probably be the simplest way to get out of credit card debt that you’ll ever read. Ready?

Don’t charge things on a credit card if you can’t afford to pay cash for it.

Simple, huh? Well, it doesn’t seem so simple for a lot of people. As a marketer, I know first-hand how people delude themselves into believing they “need” things when really they just want it.

But what if you are already in debt?

Have a massive student loan? I sympathize. I really do. I worked full-time when I was in college so that I could minimize my debt. And when I graduated I had $150 to my name, a sizeable student loan, and had a one-way ticket to South Korea in search of a job.

A year later, the debt was gone—and that was in the midst of the Asian Financial Crisis that saw a loss of 60% in the Korean currency against the dollar.

How’d I pay it off?

I did it by doing without. Don’t get me wrong. I went out with friends and had a good time. I even took a trip or two in that year. But the key was I didn’t buy anything. At the end of one year, I owned about as much as I did at the beginning of the year.

It sounds almost too easy, but I see too many people who want everything and want it now. They don’t think before they buy. And they wonder why they’re in debt.

The key is simple. Do not buy what you cannot afford. As I found out that first year I lived in South Korea, there wasn’t much that I really needed. There was no “thing” that could give my life meaning.

There was only me. There was only time. And what I lost in possessions, I gained in time, experience, and even money. And the money I saved by not buying things I didn’t need took me out of debt.

It can do the same for you.

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