The first month of 2012 is history, and many folks still are trying to stick to their New Year’s resolutions (although maybe not as successfully as they wish!). The two on the top of most folks’ lists are pretty much the same year after year: lose weight and save money.
I’m not an expert on the first, but I do know a little bit about saving and investing. And right now, you can’t pick up a newspaper or turn on the TV without finding some money-saving tips.
The problem with most of those tips is they often require what people might consider “sacrifice,” and therefore become more difficult to sustain. For instance, I bet you’ve heard at least a hundred times to ditch your daily $4 Starbucks (NASDAQ:SBUX) coffee and make your morning pick-me-up at home, or to take your lunch to work instead of eating out every day. There’s nothing wrong with those behavioral changes, but because they often are associated with socializing with your friends, folks have a difficult time sticking to them.
And, truthfully, while the savings from them do add up, there are plenty of other — and easier — changes that will put a whole lot more money in your pocket.
Here’s my top 10 tips for saving money this year:
1. Get rid of your expensive bank. Bank fees can really eat into your nest egg, but opening an account with a local bank often can save you hundreds of dollars per year — just in fees. When I moved my business account from a super-regional bank in Florida to a community bank in Tennessee, my $42-per-month maintenance fees disappeared. That adds up to $504 in savings per year!
2. For any accounts in which you keep a balance, call your credit card company and ask them for a reduction in your interest rate. A $5,000 balance at 19.9%, reduced to 9.9%, can save you approximately $500 annually.
3. Realize that no matter what your insurance agent tells you, insurance is really not an investment. For example, let’s say you determine that $200,000 of life insurance would fit your family’s needs. On average, a 20-year term policy would cost you about $20 per month, or $240 per year. On the other hand, a $200,000 whole-life policy, that pays that amount in death insurance as well as a growing cash value, would set you back about $100 per month, or $1,200 per year.
And although your cash value does grow, it generally won’t make you rich or match the amount of money you could have made had you put that extra $80 per month in a real investment. Even if your investment earns no more than the average 10% per year that the S&P 500 historically has returned, that $80 per month could expand to almost $70,000 in 20 years. But if you bought whole-life, you will have spent about $24,000 during those 20 years, and your cash value is not going to make up the difference. Lesson learned: If you need insurance, buy insurance, but don’t think of it as an investment!
4. Wade into your phone and cable TV bills and eliminate services you aren’t using. You might find you don’t really need to spend $30 per month for texting (probably not, if you’re over 40!) or Internet data when you rarely use your smartphone to surf the Web, or the 14 movie channels that you don’t even watch, or that “bundled” package that’s costing you more than the selected individual services you really use.
And don’t forget to call your providers to find out what sweet deals they are offering this month. A friend of mine squawked loud enough that her cable provider just gave her the “all football” channel for free for a year! You will be surprised by how much you can shave off your phone and cable services if you really try (or maybe pick up an extra perk, like my friend).
5. Consolidate your student loans. With interest rates at all-time historical lows, you might be able to bundle your loans into a single package with considerably low rates. Even if you save just 2% per year, if your loans are $40,000, this strategy easily can save you $800 per year.
6. The same can be said for refinancing your mortgage. A reduction from 6% to 4% on a $350,000, 30-year mortgage can save you $427 per month, or $5,124 per year.
7. And while we are talking about mortgages, don’t forget to call your bank and request that your private mortgage insurance be eliminated when you’ve paid your mortgage down below 80% of your home’s value (and even higher percentages at some banks). I just saved myself $300 per month by doing that!
8. Contribute to your employer’s 401(k) plan. Most match your contributions, to some extent, and if you aren’t participating, you are leaving money on the table! First of all, you are investing, using pre-tax dollars, so your money already goes farther. Additionally, let’s say you invest $100 per month and your employer matches your contribution by 25%, that’s $25 per month or $300 per year in extra funds that you can invest. That’s free money!
9. Take part in your company’s flex-spending plan, where you save by using pre-tax dollars for certain health expenses. Just make sure you use all the money in the account by year’s end, or it disappears.
10. Trade your gas-burner in for a more fuel-efficient automobile. Let’s look at some numbers for someone like me, for example, who drives about 20,000 miles per year. A car that gets 25 miles per gallon, compared with one that only gets 17, with average gas prices at $3.44 per gallon, would save me about $1,300 a year in gasoline purchases.
Now, according to my math, if you just add up the specific numbers I’ve included in the above tips, you could be saving about $9,800 per year. That’s serious money!
And if you add in many of the other savings you read about daily, such as joining reward programs, using the library instead of buying books, purchasing store brands, canceling unused subscriptions and club memberships — and hundreds more — you can see how your nest egg can benefit almost painlessly!
Don’t delay. Every month you add more to your savings and investing plan, the faster your money goals will come true!