Metro's Money Makeover: You Can Be Too Frugal

Being a super-saver can backfire. It’s important to allow for small splurges so you don’t end up using savings for impulse buys.The challenge: Metro’s finance guru Lesley-Anne Scorgie is on a mission to transform the finances of two young women; Annick, who is heavily indebted, and Yolanda, who is on a mission to save a down payment. Each week, they take action to improve their financial fitness. Join the conversation #MetroMoneyMakeover@LesleyScorgieThis week: Yolanda, a 27- year-old web communications specialist, is a super-saver. But, her ultra-frugal behaviour is leading to two undesirable outcomes. First, Yolanda’s friends are getting annoyed because they think she’s a cheapskate. Second, she’s blowing her savings because she’s depriving herself of regular intervals of fun like meals out and the occasional new pair of shoes.Next week: Annick learns how to take advantage of free money through her employer’s RRSP program while kicking her debt in the butt.The story: I’ve helped many people get their finances into shape but Yolanda is by far the most frugal person I’ve met… even more than myself. In fact, she even asked our Metro photographer to pay her $3 bus fare for the photo shoot for this series.That’s nothing. Yolanda coupons her way through the weekly grocery specials, surfs the Internet on free Wi-Fi, grinds retailers for discounts and trades her friend dates at restaurants and bars for homemade tea and a stroll.Minding her dollars and cents keeps her debt free and affords Yolanda the opportunity to save between $500 to $700 per month, all in an effort to build up a $25,000 down payment on a home within the next three years.The lesson: As some Twitter followers have pointed out, Yolanda should be saving more given her ultra-frugal spending, low cost of living and $42,000 annual salary.I thought the exact same thing until I discovered Yolanda has a bad habit of saving like a demon and then blowing her savings in one fell swoop on travel and her cute pooch. We are going to kick her binge savings habit to the curb.Yolanda has some homework to do. To control her impulse spending, she has to master her cash flow, through budgeting (a plan for her money) and monthly spending summaries (the reconciliation of her budget to what actually happened). Once she masters this exercise, I estimate she can save an additional $250 per month toward her down payment and still spend money on her favourite things.The other thing I worry about is that Yolanda is irritating her friends and family with her ultra-frugal behaviour. She’ll need to strike a balance between saving, without being a cheapskate. So, she’ll have to “up” the amounts of money she allocates to social activities and gifts in her budget.A surprise: Based on Yolanda’s first cut at her monthly budget, she’s got $435 left over. If she can stick to her budget, Yolanda can definitely save more!Total Net Income: $2,400Expenses:• Rent $750• Savings $50• RRSP $150• TFSA $250• Insurance $25• Groceries $200• Transit $120• Cell phone $30• Restaurants, entertainment, gifts $150• Personal care $75• Pet care $85• Charity $80Total Expenses: $1,965Surplus: $435This article was published by Metro News on February 7, 2016.