by Mike Fernandez on Monday, July 23, 2007
You know how sometimes you go online at the end of the month to check your balance and then find yourself asking (sometimes out loud), “Where does all the money go?” Well, it didn’t just disappear. You spent it somewhere. Like that $150 you dropped in Target (when you went in to buy just toothpaste and toilet paper). Or the shoes you “just had to have” because they were on sale (a $200 pair at 60 percent off is still $80). Or that spontaneous weekend trip to visit your friends from college. OK, you get the idea. If your money seems to be disappearing like Alice down the rabbit hole, you need to find those holes and plug them.
According to Mary Hunt, author of “Living Your Life for Half the Price,” every time you spend, “money is transferred out of your life into the life of someone else,” and you need to pay attention to where it goes. Many times you have to spend the money, but often you’re throwing money away mindlessly. And when you do, there’s some better thing in the long run that you’re missing out on.
Want to shrink the wasteful outgo? Start by plugging these holes.
Paying too much for insurance
Neil Atkinson, author of “The Shrewd Christian: You Can’t Have It All, But You Can Have More Than Enough,” recommends reviewing insurance spending every year. “Any time an insurance bill comes, sit down and take 45 minutes to call and get comparisons,” he says. “You’ll save money every year.”
Independent agent Jonathan Pritchard, president of Crest Stone Insurance, agrees. “You can save $50 to $100 every six months to a year, depending on your policy, by going from one carrier to another,” Pritchard says. “The same person with the same driving record and the same car is going to have different rates at different companies because they have different formulas on how they calculate rates.”
Turning down free money
Most any financial expert will tell you that saving is a good thing. The discipline to delay gratification? Not so easy. One way to put away for the future is a 401(k) plan. The best part is that most companies put in their money every time you put in your money – that’s free money for you.
Here’s how it works: Your money goes into your account pre-tax, and the company match is also tax-free going in. Any earnings on investments are tax-free while the plan is in place too. At retirement age, you can pull out the money, and it will be taxed at that point.
Sounds great, but what if you work for a small business that doesn’t offer 401(k) matches? “You might consider a Roth IRA,” says CPA Michael McKerley, of McKerley and Noonan accounting firm. “A Roth IRA does not give you an up-front deduction from income, but the money grows tax-free, and you can pull the money out at retirement, tax-free.”
Of all the items you could possibly cut out altogether, “food” isn’t one of them. However, you’ll save a chunk of change if you dine out less.
Sure, we know it’s cheaper to cook our meals, but it’s easier to eat out. And for many, dinner with friends is a way to stay connected. So spend time with friends; just be smarter about it. Try eating at home and then meeting up for coffee or dessert, or get together to cook a meal you’ll share. Atkinson adds, “Challenge yourself and your friends to take one month and not spend more than $20 per weekend. It’s amazing what fun, creative things you can come up with when you put your imagination to it.”
If you’re eating out for lunch at work, that’s one case when haste really does make waste. If you’re honest, you’re probably eating out because you don’t take the time to plan better. So go to the grocery, buy stuff, and take food with you to the office. You’ll find your wallet growing fatter, and you’ll most likely find your waistline growing thinner.
All right, kids, we’ve heard the lesson before, but with the average household in the United States carrying credit card debt of about $9,000 a year, clearly some of us aren’t doing so well in the application area. So let’s go over the facts again.
A long time ago, someone paid a genius numbers dude to create a “minimum payment” system to benefit – guess who? – the creditors. Credit card debt is revolving debt. That means it’s a vicious cycle. Creditors charge, on average, 15 percent interest on your balance; then the next month they charge that 15 percent on your balance plus last month’s interest; then the next month they do the same. If you have a balance of, say, $2,000, and pay just the $50 monthly minimum, you’ll wind up paying $1,758 in interest at the end of 15 years.
Atkinson’s advice is simple: “Not only pay off the credit card – stop using it. It’s hard to go into bankruptcy if you don’t have any debt.” Whatever you have to do, pay off the plastic. If that means changing your lifestyle, do it. If it means a part-time job, start applying.
From DVRs to flatscreen TVs to iPods, there are some cool gadgets out there. But just because smart engineers and savvy marketers got together to produce the latest and greatest doesn’t mean you have to buy it. If you rush out to buy that megapixel digital camera Slider phone when your existing phone works just fine, you’re just throwing away money.
The thing about most techy tools is they’re big-ticket items. So practice delayed gratification and budget for them. The beauty of that plan is by the time you’re ready to buy, the price will most likely have already dropped significantly. Being the first guy (or gal) to own a new gadget doesn’t make you cooler; it just makes you broker.
And don’t forget to comparison shop at sites such as bizrate.com or nextag.com for the best deals and latest reviews.
Being slow on the upkeep
There are times in your monetary life when, for the sake of saving large sums of cash, you have to launch a preemptive strike. In the world of vehicles, that means budgeting for routine maintenance now so that you’ll avoid an extraordinary repair bill later.
And maintaining them properly would include? “Regular oil changes, tune-ups, and checking the tire pressure,” says Todd Burr, owner of Good Neighbor Shell and Auto Service in Nashville, Tenn. “If you don’t do those things on a regular basis, you may end up spending [repair] money two to four years before it was necessary to spend.”
The same principle applies to that home you bought. According to Eddie Schott, estimator for Classic Handyman home repair service, taking care of a home maintenance issue is good sense. If you ignore a leak, for example, it’ll cost you. “A toilet that runs can easily double your water bill in a month,” says Schott. “A little water leak around the base of the toilet or tub is usually a bad seal. It’s very inexpensive to fix. But, if you don’t take care of it, fixing the floor can be $1,000 and up.”
We all get caught up in the moment from time to time. And if it’s an occasional splurge, say, on a new CD, that’s no big deal. But seriously, most of us don’t have cash outflow problems because of occasional purchases. The goal is to have a good reason for every dollar you spend.
Plenty of married couples have “spending rules” – like if something costs more than $100, they discuss before buying. Part of the beauty of single living is you don’t have to ask permission, but you’re still responsible for how you spend. If you have trouble reigning yourself in, Francine Huff, author of “The 25-Day Financial Makeover,” suggests you find a friend to hold you accountable.
Huff points out that often it’s the mindless impulse purchases we make that can wreak havoc on our finances ($1.50 a day for a cup of coffee adds up). If you find yourself wondering, Where did my money go? she says to write it down every day for a month. “By writing down all of your spending habits for a month, you’ll get a comprehensive picture of where your money is going,” she says. “Keeping close tabs on daily purchasing habits will allow you to nip some of that spending in the bud and find more money for things such as paying down debt … or live music at your wedding.”
Once you get that big picture, create a plan for your financial outflow (and inflow). In other words, a budget.
From bills to Blockbuster returns, late fees add up. Besides poking holes in your credit report, you’re throwing away bucks.
If you still haven’t signed up for online bill pay, then do it. With most banks, it’s free and easy. You include the information for the companies you owe on a regular basis (utilities, rent, and so on), but it’s not an automatic debit from your account – you still control when you pay them. They send an e-mail to remind you, so payment is as simple – and quick – as the click of a mouse. Not only will you save on late fees, you’ll also save on postage. (Check with your bank or financial institution for more information on online bill pay.)
The best way to avoid the rabbit holes is to pay attention to the financial path you’re taking, according to Huff. To do that, she says, “set very specific financial goals so you have a roadmap for where you’re going.” Then watch your steps for those habits that are hindering you from where you want to be. “Examine your own spending behavior: Is it supporting your goals or working against them?”
Mike Fernandez is a freelance writer living in Nashville, Tennessee.
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