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All the Financial Tips You’ll Ever Need

October 10th, 2010

Every few days some financial site runs a story with a catchy title like “10 Ways to Save $1000 by Christmas” or “Cut you spending in half”, or a really ambitious “10 Money Saving Tips to Help You Stash $10,000.” I normally take a quick glance at them, but over time have noticed that there’s almost nothing new on them any more.  About half of it is repeated in the majority of the lists, and the other half I’ve seen before.  A lot of it is common sense (such as not leaving the A/C at 65 all day long if you’re not home), and a lot of it is only applicable to a small portion of readers (such as information about self-employement retirement plans).

On that note, I’ll give this disclaimer – if you’ve read more than three of these types of lists, there’s not going to be much new for you.  Feel free to stop reading now.  I’ve tried to combine as many of the biggest tips as I can into one list.

Here’s the most important tip - budget, or at the very least track, where you money goes.  This is probably the most important.  If you don’t keep track of what you spend, you’re going to have trouble making changes for the better.  There’s several programs (such as Quicken or Moneydance) and a ton of smartphone apps to help with this.  If you aren’t tracking how much you spend, you’ll probably be surprised after you do for a few months.  And if your “Other Cash Expenses” is more than $100 a month, you’re not detailed enough – you’re spending at least $1,200 a year on things you can’t identify.

I’m actually setting up a budget for the first time in 2011.  In the past my “budgets” simply comprised of “do I really need this?” or “will I regret buying this?”.  I have, however, tracked my purchases.  I can go back to 2002 and get a pretty good snapshot of what I purchased in any given month.  Simply tracking my purchases lets me see how I’m doing month to month and year to year.

Money

  • Don’t spend more than you make – it’s not sustainable and will catch up with you eventually.  Its commonsense, but its lost on a lot of people.
  • Take advantage of tax-defered retirement plans – if your company offers a 401k, participate, especially if they have a match.  If your company doesn’t offer a 401k, you can open an IRA at many banks and brokerages.
    • If you’re concerned about risk, most 401k plans have a low risk “stable value” fund or open an IRA at a bank with a certificate of deposit.  The key is to get money INTO the retirement fund and early – you can make changes to your investments later on if your risk level changes.
  • Raise your deductibles on your insurance (if you can afford it).  Raising the deductible from $500 to $1,000 can save hundreds of dollars a year.  Since chances are you’ll never be in an accident or have your house burn down, its a risk you might want to take, but only if you have the money to pay the deductible should something happen.
  • Have a cash fund, emergency fund, some sort of safety net in case you lose your job or some other emergency happens, such as a serious injury or a car repair.  Figure out what you would have to spend each month if you lost your job (mortgage/rent, car payment, food, utilities, insurance, etc).  General wisdom is to have 3-6 months of living expenses in a savings account or certificate of deposit in case something does happen.  Don’t use this money to pay for a vacation, new TV, or anything that’s not a true emergency.
  • Save for your kid’s college education – this one can get a little controversial.  Some people want their kids to pay their own way through so their kids truly value their education, others want to pay the whole thing, many are in the middle.  There’s a bunch of tax advantaged college savings plans available (google Coverdells and 529 plans). However, keep in mind that you may want to focus on making sure you’ve saved enough for retirement before you start saving for you kids education.  Your kids can always get loans to go to school, but no one is going to be loaning you money when you’re 85 and broke, and who knows if your kids are going to be able to help you.
  • Use a rewards credit card - be sure to pay off each month.  While rewards aren’t currently has good as in years past, many cards still offer some sort of cash benefit.  My wife and I switched to an American Express Blue Cash card.  It’s a two-tiered reward program, but the top tier starts after you hit $6,500 in annual purchases, and gets you 1.25% on all purchases, with 5% on “everyday” purchases, such as groceries, gas and pharmacies.  There’s no limit on how much you can get back, and there’s no annual fee.  You get paid once a year (on the anniversary of when you got the card).  We’re hoping to get about $400 back next fall.

Food

  • Go shopping with a list.  Mainly grocery shopping, but any time you head out to a store, going with a list helps keep impulse purchases down.  Make a grocery list planning out the next few day’s or the week’s meals, and only buy what you need, and ideally what’s on sale that week.
    • On a related note, buy non-perishable groceries and household goods when they are on sale.  If you eat a lot of something, and it’s on sale, buy more than you’ll need for the next few weeks, and in the future, rather than buying it at full price, pull it out of a cabinet.  My wife and I spent $4.31 per person per day on groceries in 2010, although not eating red meat helps with this.  Match them with a coupon to lower the price even more.
    • Get a chest freezer to store bulk meats and other frozen foods (this works best with two or more people, as a single person probably won’t need more space than in the regular freezer).
    • Continuing food related savings – eat out less.  For what a restaurant charges $10 for you can make for less than $2, probably healthier.
    • Bring lunch to work - plan your meals so that each dinner you’ll have leftovers for lunch the next day.  Five dollars a day adds up to over $1,300 a year.
    • Grow your own food, but be careful about spending a ton of money on gardening supplies. Last year I spent too much on pots and soil and stakes trying to grow too many different types of vegetables.  This year I bought a tomato plant and a pepper plant, and was able to use a lot of the supplies I had from last year.  My guess is that this year I’ll break even money wise, but an added benefit is that I have fresh, homegrown tomatoes almost whenever I want them during the summer months.  This summer I got 55 ounces of homegrown tomatoes from a $15 plant, with no supply costs.  Next year I’m hoping to do even better.

Further Reading:
http://boards.fool.com/reducing-the-grocery-bill-29033490.aspx

Energy savings

  • Replace regular bulbs with CFLs. While CFL’s cost more up front, they use more than 75% less power than a regular bulb, and last years longer.  Some CFL’s do take 30-60 seconds to fully warm up, and some people don’t like the color of the light they put out, but since incandescent bulbs aren’t going to be around too much longer, you might as get used to them.  Starting in 2011, light bulbs will have a new label showing the color temperature, which should help you make decisions.  LED bulb technology is getting much better and don’t use mercury, although the bulbs are much more expensive than even CFLs ($50+ per bulb).  Every 60 watt bulb you replace with a CFL equates to savings of over $5 per year, assuming you’re using the bulb 4 hours per day.
  • Put your central air on a programable thermostat - cheap to buy, easy to install.  Set it to turn off right after you leave for work and come back on right before you come home.  Using fans also lets you turn the thermostat up a few degrees in the summer – ceiling fans use 30-75 watts compared to 900 watts for a window A/C unit or thousands of watts for central air.  Make sure your filter for the central air isn’t clogged – they should be replaced twice a year at a minimum, more depending on the air quality and your health needs.
    • Conversely, during the winter turn the heat down and wear a sweater or sweatshirt.  If you have central air, turn the heat way down and use a space heater for the room you are in.  (Be careful about leaving them on for long periods of time or overnight, and if you’re trying to heat a larger room with a space heater, you may be spending more on electricity than you would on gas or oil).

Save money on entertainment

  • Remember, like everything, these are all personal choices – if you enjoy going to the movies every weekend and can afford it, go for it.  If you’re running out of money each month, this is probably one of the first places to look for things to cut.
  • Think Netflix ($8+ a month) for movies, family game night, making use of video game consoles (if you own one, or buy one if that works for you, you can even use them to stream many titles from Netflix).
  • Your local library may have DVDs (or VHS if you’re still into that) available.
  • Try museums – many have free or discounted admission on certain days, or visit a state or national park.  Buy used DVDs or books rather than new.  Check with your employer or library to see if they have museum passes.
  • Cut back on cable if you aren’t using it.  Perhaps your free new customer promo has ended and your cable bill’s doubled.  Call the company and ask for a break, or cut the extra packages if you aren’t using it.  If you have a digital TV, you can get over the air channels with an indoor antenna for free (often with better picture and sound quality than some cable packages)
  • Check to see if you can get discounted movie tickets through work or AAA.  Movies near me run $11 a ticket, but through work or AAA I can get them for $7.75.
  • Same thing with your cell phone – take a look at your bill and make sure you’re using all the features you’re paying for, and that your plan isn’t too small (resulting in overage charges) or too high (resulting in wasted money).  Try to combine multiple household members into a family plan if there is a cost savings.
  • Get rid of your land line. Almost all cell plans include free long distance and free nights and weekends.  Try Skype or some other VOIP provider for long distance (could be free calling if the person you are calling is using Skype as well)
  • Here’s something that I’ve seen many times that my tests show isn’t true – unplugging things like cell phone or laptop chargers from the wall went not in use.  I’m not going to go into detail, but modern wall-warts don’t pull a measurable amount of power.  If you have to reach behind a desk or a bookcase to unplug a charger each day, its simply not worth the effort.  Remember, turn OFF electronics when not in use however.

Household

  • Repair things vs throwing them out. America used to be the land of where things were built to last, and it made sense to repair something rather than replace it.  Now with $20 DVD players and $200 laptops everything is disposable.  I’m not suggesting you spend a weekend trying to repair a $20 DVD player (replace it with a more expensive but more reliable player), but if something breaks, tinker with it a bit.  Look up online to see if anyone else has the same problem.  Maybe you’ll fix it, maybe not, but its worth a shot.
    • One of the benefits of assembly required furniture is that you learn how things are put together and it makes it easier to fix them if it breaks.  My condo is furnished with 80% IKEA products, and if any of it breaks, I have a pretty good chance of being able to fix it.  A lot of stuff at IKEA is actually pretty sturdy construction, but they also have a lot of stuff that’s cheap particleboard.
    • Get a household tool kit.  Even a cheap tool kit is better than nothing to start with (I started with $20 tool kit in college).  As the cheap tools broke or I needed a tool that wasn’t in the kit, I bought a tool bag and fill it with better quality items.
  • Keep your appliances clean. Make sure filters are cleaned or replaced, the dryer vent is clear of blockages and do general upkeep.  It’ll lower the operating cost of your appliances and help them last longer.
  • Do the same for your cars - its cheaper to do the factory (not dealer) recommended maintenance than to wait for something to break.
  • Take stock of your clothing.   Can anything be sold (don’t expect much for used clothing.  Even 2nd hand unworn clothing isn’t going to fetch much).  Donate what you can’t sell for a possible tax deduction (or at least getting the closet clean).  Knowing what clothing you have will help you from buying very similar things since you can’t remember if you already have it (it’s happened to me).
  • Use your warranties – even for small items.  Keep your receipts and manuals in a box in a closet.  If something breaks, reach out to the company to see if they can do anything.  It might not be cost effective to pay $15 to ship a $20 toaster back to the factory, but you might get lucky and they’ll work with you and simply send a new one.  Some credit cards will even extend warranties if you purchased the item on their card.  I recently had a CFL bulb stop working – it was $6 new, so not a lot of money, but about 3 minutes of work on the manufacture’s website got me a new bulb in the mail.  (This bulb was part of a bathroom remodel, and I had kept all my receipts from that project, which was good since the warranty required me to scan in the receipt.)  In less time than it would take to drive to buy a new bulb, I was able to get one mailed to my door.
  • Research before you buy. Don’t base your decisions for big ticket items on the box or other marketing material.  Read reviews online, both professional and consumer.  Look at the Amazon.com reviews, Consumer Reports, or Newegg.com.  Buying a slightly more expensive product that’s well reviewed might save you from having to buy a cheaper product that’s not what it was made out to be.

Further Reading

While I’ve noted that much of the articles are the same things rehashed, there are a couple of good books out there.  I’d recommend The Automatic Millionaire by David Boch.  I’m not a fan of most of the pseudo-celebrity financial experts, but this book is pretty good.  I’d also recommend The Millionaire Next Door, which highlights the lifestyles of the “average” millionaire.  You’d be surprised to find that the median millionaire spends $400 on a suit, $140 on shoes, $235 on a watch and drive cars that cost in the mid $20,000s (based on the original book from 1996, I’m sure they’ve changed since then, but I’m not going to shell out $11 bucks for the newest copy of the book.  You’ll understand why when you read it.)

DISCLAIMER: I own stock in Netflix.  Please seek professional advice if you have any questions or concerns prior to making any investments that are not guaranteed.

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  1. September 9th, 2010 at 18:38 | #1

    Libraries often have museum passes. You can borrow them just as you would anything else at the library. It’s not unusual for them to have family passes, too, so that they’re good for more than one person. They also have DVDs. You usually can only keep them for a couple of days and the fines are higher than for books, but if you can get yourself into the routine of visiting a local library regularly, you can make it work.

  2. Immay P
    September 12th, 2010 at 08:10 | #2

    I think your point on tracking where you spend your money, is something that people don’t put nearly enough emphasis on…I was surprised by the results in my life when I actually started paying attention!
    Something else that really helps with unnecessary spending is to have an organized home. I’m not talking neatness freak, but if you have a set place for things, you will know what you already have, be able to access it quickly and thus not spend on something you needn’t have!
    Recently I saw an article showing huge savings on switching to prepaid wireless. This means you don’t have the worry of overages or unplanned-for bills. It appears Straight Talk was one of the more popular options, offering an unlimited plan for $45, with many claiming they were spending half of what they had been on contract, with greater benefits. I’ve looked into it, and with what I’ll be saving, it’s certainly worth my while to cancel my contract.

  3. sarah o
    December 2nd, 2010 at 21:45 | #3

    Wow. Great advice! I had no idea you had such an awesome blog!

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