Ways to Save Money

by Brian Dolan

If you’ve done the math to calculate your Cash Flow or Create a Budget, and you find yourself coming up short (i.e. negative cash flow), hang in there, you’re not alone. Lots of people find it difficult to make ends meet and think they simply don’t have enough money to start saving.

There is light at the end of the tunnel. Some simple changes to your daily lifestyle and spending habits can result in potentially significant savings. And through the magic of compounding, those seemingly small savings can really add up over time.

Think you can’t find the extra money to start saving and investing? Here are more than a dozen ways you can start saving money today. For illustrative purposes, conservative estimates, excluding the compounding impact of returns and/or cost of money, are used to show cumulative savings over time. Use the hypothetical saving calculator to see how these examples could grow through the power of compounding. (Please note: All examples are hypothetical and for illustrative and informational purposes only and do not represent any actual results or your personal circumstances.) The following tips follow along the categories of income and spending listed on the Cash Flow.

Ready to start saving more?

Pay yourself first. Start by making an automatic savings deposit from each paycheck. Join your company’s employee saving plan (e.g. 401K) and contribute as much as you can afford. If your employer offers any matching funds, make sure you contribute enough to maximize the company match. It’s like getting free money and being paid to save. If the contributions are automatic, you won’t have to think about it and you probably won’t even miss it, and that money will be there for your future. You’ll also lower your pre-tax income and reduce your tax bill in the process. If a work-related saving plan isn’t available to you, try to arrange to have a portion of your paycheck automatically deposited into a savings account. From there you could take advantage of IRA’s or other tax advantaged savings accounts (e.g. 529’s) to get the most out of your savings. (Example based on $30,000 annual salary ($2,500/month); 10% contribution; no company match.)

Set a budget and stick to it. Consumer finance studies have shown that people who set a budget tend to have healthier finances than people who don’t. It stands to reason since people who have developed a budget are demonstrating a greater degree of financial awareness from the beginning. As a result, they’re likely to be more conscious of their spending and to stay within their means, which is critical. Without a budget, people are effectively winging-it, with likely worse results. Even if you miss your targets occasionally, you’re still better off trying to meet a budget and being aware of your spending than leaving it to chance. Learn how to Create a Budget (Example based on eliminating $50/month in expenses.)

Review your company sponsored health/dental insurance plan choices. You may be able to opt for a plan with a higher deductible and lower premium, which might make sense if you’re younger and healthy. Above all, make sure you have sufficient coverage for yourself and dependents—that lower-premium plan may end up costing more in a serious situation. Potential savings will depend on the plans available to you, but as an example, savings can range from around $20/month for individuals to around $60/month for a family. (Example based on $40/month saving.)

Join your employer’s Flexible Spending Account (FSA) or Health Savings Account (HSA). Another way to reduce your health related expenses is to contribute pre-tax dollars to a FSA/HSA, if your employer sponsors one. FSA/HSA’s can usually be used for all manner of health/medical related expenses, everything from doctor co-payments to sunscreen and vitamins. As such, many of your normal expenses will be covered, so keep that in mind when deciding how much to contribute. Your savings will depend on your tax bracket and how much you contribute. (Example based on contributing $1200/year in a 20% tax bracket can lower your tax bill by $240/year or $20/month.)

Save as much of any bonus, tax refund, cash gift, and other money ‘windfalls’ as you can. Try to look at such income as unexpected money that can boost your long-term savings. If you have high interest debt, such as credit cards, you might consider paying it off as much as you can with such windfalls. Maybe you can’t save it all, but every bit you can set aside will improve your financial outlook. (Example based on $2400 after-tax annual bonus (10% of annual $30K salary), or $200/month).

Consider changes to your housing. Housing costs are the largest monthly expense for most people, so it’s a good place to start looking to cut costs. If you’re a renter, you might consider moving to a place with a lower rent or getting a roommate. If you’re an owner with a mortgage, investigate the possibility of refinancing at a lower rate. (Be sure to factor in all the costs of refinancing such as lender fees, appraisals, etc., and not just focus on the monthly payment.) Depending on the variables involved, savings could be several hundred dollars per month. (Example based on $100/month lower housing cost.)

Review your auto insurance coverage. Just as with your health insurance, you might be able to lower your premiums by taking a higher deductible on your vehicle insurance. If you have an older vehicle with a low replacement value, for instance, you might consider dropping the extra coverage to be insured for the full replacement value. Most states have minimum coverage levels, which might be enough for you. Check with your insurer and make sure you’re getting every discount available to you (multiple policy, safe driver, anti-lock brakes, alarms, etc.) Also make sure they have up to date information on you. For instance, maybe you switched to mass transit for your commute and are driving much less, potentially lowering your premium. Maybe you moved and your vehicle is stored in a safer locale? (Example based on $800/year annual premium reduced by 15% or $10/month.)

Review your mobile plan. Double check your monthly usage. You may not need that unlimited talk/text/data plan after all and can switch to a lower priced plan that still meets your needs. Try negotiating with your mobile provider as they know you have plenty of alternatives. (Example based on savings of $10/month.)

Review your home phone/TV/internet service. Just as with mobile providers, you may be able to negotiate a lower rate and switch to a less expensive package. Maybe you can drop your home phone or cable/satellite provider completely if you can do without a landline or watch TV over the internet. (Example based on $30/month).

Cut energy usage. Do your part for the environment and save some money in the process. Lower your thermostat and put on a sweater when it’s cold. Lower the temperature on your water-heater to 115 degrees from the standard 120-125. Turn off lights when you’re not in the room. Power off computers completely when not using (they still use the energy equivalent of a lamp when in sleep mode). You get the idea. There’s no shortage of ways to cut your energy bills by adopting a few changes. (Example based on $20/month lower electric bill.)

Avoid impulse purchases. Resist the urge to spend money on items you haven’t consciously planned on getting. Set yourself a rule to wait a day before you make any unplanned purchases. After a day, you might decide you don’t really need that video game or new shirt. If you choose to go ahead, try to figure out how you can save somewhere else to stay within your overall budget. (Example based on eliminating $20/month on impulse purchases.)

Take your lunch to work. By making your own lunch, the average person can probably save at least $5 each day. Leftovers are also a great way to have a ready-made lunch that you’ve already paid for. Beyond saving money, you’ll likely eat healthier, too. (Example based on $7 store-bought lunch minus $2 for a homemade lunch, or $5/workday or $100/month.)

Bring your coffee and other drinks/snacks to work, too. Invest in a good travel mug and stop paying through the nose for your caffeine. Instead of spending $2-3/day (not including tipping that barista who takes forever), it will cost you less than $0.50 for your drink of choice. Also, buy your soft drinks or bottled water by the case at the supermarket and bring one or two each day. (Example based on saving $3/workday ($2.50/coffee and $0.50/ soft drink/water) or $60/month.)

And the list goes on… Below are the totals for all these sources of saving. As you can see, even minor adjustments can add up. To see how these savings could really add-up over time, plug the examples used into the Hypothetical Savings Calculator to see the power of compounding at work. Please note: All examples are hypothetical and for illustrative and informational purposes only and do not represent any actual results or your personal circumstances.

Important risk disclaimer: All investing carries risk. Past performance is not indicative of future returns, which may vary. Investments in stocks and ETFs may decline in value, potentially leading to a loss of principal. Online trading has inherent risk due to system response and access times that may be affected by various factors, including but not limited to market conditions and system performance. An investor should understand such facts before trading.

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