Budgeting: Frugality now in vogue

“After years of living large, U.S. households are finally learning what financial experts thought they never would: to live within their means,” said Nick Carey in Reuters. American consumers have been on a spending spree for the past several decades, and savings rates have long been dangerously low. Now, with the housing market in bad shape and the economy “teetering on the brink of recession,” more people are making a conscious effort to live by a budget. “Frugality is in, extravagance is out,” says Merrill Lynch economist David Rosenberg. Given that about 30 percent of consumer spending is discretionary, we all have plenty of room for belt-tightening.

Budgeting needn’t be time-consuming drudgery, said Alex Mindlin in The New York Times. Though “financial counselors often tell their clients to prepare monthly budgets rather than yearly ones, on the theory that it is easier to predict expenses over a short period,” a new paper in The Journal of Consumer Research suggests that might not be true. One group of college students, asked to predict their spending for the coming month, turned out to be “laughably off” in their predictions. “Those who estimated expenses for a year were closer to the mark.” The paper’s authors

note that budgeters looking at the long term tend to factor in unexpected expenses that short-term budgeters overlook.

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To make any sort of budget, first pinpoint where your money currently goes, said Allan Chernoff in CNNmoney.com. If you’re not saving enough—or are spending more than you earn—see what you can trim. “Big-ticket items may be most obvious,” but smaller expenditures, such as dinners out or weekends at the mall, should also be “targets for economizing.” Set realistic goals for saving and spending and then track your expenses to make sure you’re sticking to them. Just make sure your new spending plan is sustainable. “Budgeting is not a punishment,” says Erika Safran, a principal with Financial Asset Management Corp. in New York. “If you create a situation that is so uncomfortable, you’re not going to meet it.”