What if you could save an additional $1,500 each year? After 30 years you would have $119,000, assuming the money was invested and you got a 6% return. That $1,500 each year — just $125 a month — can add up to quite a bit of money.
Of course, to save more money each month you likely need to cut your spending. But if you are like most people, you probably don’t want to drastically change your lifestyle. Fortunately, there are smart and simple steps you can take to trim spending without a major overhaul.
How many purchases have you made on Amazon or at the store that you later regretted? Limit your impulse purchases using what personal financial author Carl Richards has called the 72-hour rule. Instead of buying an item you want immediately, wait 72 hours to see whether you still want it. You’ll be surprised at how much less you end up deciding to buy. I find this works all the time with my kids. They think they can’t live without a certain toy, and then after 72 hours they forget it even existed.
Major purchases may have the biggest impact on your spending and ability to save. I’m often amazed that the same person who will drive across town to save money on gas will buy a new expensive car without analyzing the implications. The same goes for housing costs or big-ticket vacations. Here are some tips on how to analyze and save on each of these purchases:
Most people look only at their monthly payments and often are shocked by how much they spend annually on cell phone and cable bills. When shopping for a phone plan, try MyRatePlan.com to compare plans based on the minutes, texts and data you need. Another option is to consider no-contract cell phones. The monthly cost is much lower, but you do have to buy the cell phone upfront.
With cable, the average monthly bill is $100, or $1,200 a year. “Cutting the cord” has become more popular recently as many people decide they don’t need the 100+ channels on cable. If you can do with a limited number of channels, then a streaming device and a good HDTV antenna for local channels may be all you need — and it can save you a lot of money.
Many people are paying too much for property and casualty insurance. Every few years you should shop around your auto insurance and home insurance policies to confirm you are getting a good price. You also can see how your auto and home insurance providers rank based on consumer satisfaction by checking out the yearly report from market research firm J.D. Power.
Additionally, one way to lower premiums for home or auto policies is to raise your deductible if you have cash in the bank and you rarely make any claims. Larger deductibles typically range from $1,000 to $2,500, depending on the type of insurance you have. However, note that this does create risks if you don’t have money available or in an emergency fund if a large claim does occur.
Sometimes it makes sense to spend a little more money for items you will use for a long time. A good example is men’s shoes. A high-quality pair of shoes will last almost forever and, though more expensive in the short term, will be a lot cheaper over the long run than repeatedly buying the cheapest pair. Think about the items in your life that you will use for a very long time and are worth the extra expense upfront.
First, automate your savings. It’s hard to spend what you don’t see, so automatically transferring money out of your checking account will help you keep spending down. Determine how much you should be contributing to or withdrawing from your accounts, and set up automatic monthly transfers. I like to call this forced scarcity, in that you can spend only what is in your bank account.
If this is not working and you start running up debt, try using online budgeting tools to help you create and monitor your budget. It may be more time-consuming, but you’ll know where every dollar is being spent. And if you are still having issues, consider working with a fee-only financial planner to help you develop and stick to a budget so you can reach your goals.
Sometimes spending money can save you money. This can be true for home repairs, taxes, college planning and many other areas. For instance, I see many people miss important deductions or credits they could have claimed when they complete their own tax returns instead of working with a professional. And for me, it makes sense to pay someone to help when it comes to house repairs. I can try to fix the problem, but I only make it worse.
So how do you decide whether to hire a professional or go it alone? If the risk of mistake is greater than the cost to hire someone, it is worth the investment. Of course, if you don’t have the time or knowledge to take care of the task at hand, it makes sense to get help, too. If you’re not sure where to look, ask for referrals from friends or co-workers, or check Angie’s List for service providers and the National Association of Personal Financial Advisors for fee-only financial planners.
Ultimately, the goal is not to disrupt your lifestyle dramatically, but to make sure you spend your money wisely and efficiently. In short, it’s important to think about what you are spending your money on and what you really get out of it.
Perhaps even more important than drastically cutting your spending is thinking about the non-monetary value of your money. In a longitudinal study following 268 men for over 70 years, researchers for the Grant Study found that good relationships are key to leading a long and happy life — not how much money you have, the newest tech gadget or a certain high-profile job, but the people in your life.
Instead of spending money on more stuff, why not spend it on personal experiences with your friends and family?