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All of us are saving for something in one way or another. Unless you no longer need to work, have a hard time spending all the money you have, or are part of the 1%(too soon?), we all monitor our spending and look for ways to cut costs and save in certain areas.
I find it funny when I see someone clipping coupons to save $0.10 when they have a car payment they cannot afford, or they wait to fill up their tank to save a few cents per gallon to the point of inconvenience but they are house poor, meaning their mortgage is more than half of their income each month.
I am all for clipping coupons and saving on gas, but this article is to redirect your efforts towards a large to small approach to saving money. Follow these steps, in order, to work on saving the most initially, then saving on smaller items, this takes a law of diminishing returns approach.
First, let me get this out of the way, as I know some will think this. Keep in mind that saving is a choice each of us make and apply it in the areas of our lives we see fit for whatever reasons we see fit. Yes, you could save money driving a used Toyota, but if you are willing to pay more for a Lexus because that is what you want to drive, then that is your choice and by all means, you earn your money and can choose to do with it as you please. My point is my tips below offer ways to save in many areas, but your desire to implement them in any or all of these areas is your choice. If you do not choose to save money in one area I recommend I am not saying you’re frivolous or wasteful, you are simply making a choice to spend your money how you choose. There are many areas in my life that I choose to spend more money on because I enjoy them, I have an interest or hobby or brand preference to. I know I could save money, but I choose not to. Ok, enough of my disclaimer, on with the savings!
- The first place to look for savings is where you choose to live.
The general rule of thumb is to keep your rent payment or mortgage less than 33% of your income, 25% is ideal. This ensures enough funds for the rest of the areas of your life, including retirement savings. Studies show that when your mortgage is more than the suggested 33%, other areas will sacrifice, and if the payment is over 50% you are considered house poor, meaning yes you can afford your house, but that is pretty much it.
To quickly find your budget, take your total income and divide by 3, that gives you a comfortable number to keep in mind when you are looking for a place to live.
Ask yourself how much house you really need. How many bathrooms, bedrooms, square feet do you really need to be comfortable. Is a garage a deal breaker, his and her sinks, central air, and other amenities a must have?
If you already own your house, your options to save are limited but not nonexistent. Is it worth it to refinance your loan? Can you rent out a room or floor? You could look into your utilities and bills, repairs and other expenses to find savings.
- Next is your vehicle
Are you making a car payment? Is it worth it? Your vehicle is much more liquid than your house. If you really want to save with your car, sell it, pay off the loan, buy a used car for what is left over. That is the best way to completely eliminate your car payment, saving you hundreds a month. Now your used car will not last forever, so put half of your car payment in a savings account ready to use for repairs, or your next car, to pay for in full. Another way to save with your car is insurance. Do you need full coverage, or will liability do? Have you had your policy for a while? Call your agent and ask if any savings are available. Lastly, perform regular maintenance. Pay attention to your oil and fluids, and consider closely the recommendations of your trusted mechanic, and yes, find a good and trusted mechanic.
- One of the next biggest areas to look for savings are your bills
Examine your utilities. Can you bundle to save? Call your cable, internet provider and see if any promotions are currently running, or threaten to leave, see if that provokes some savings. Do you really need cable in the first place? Would you be comfortable having your heat a few degrees colder or A/C a few degrees warmer? Instead of renting a few movies a month, consider a Netflix subscription. Take a close look at your cell phone bill, could you change carriers or are you paying for a plan you do not fully use? Do you have credit card bills? Consider working hard to pay them off, and even earn money and rewards with the credit card float. Student loans? Maybe consolidation could yield savings.
How often do you go out to eat? Check out restaurant.com for savings to many places in your area. Try using ebates.com to find savings when shopping. Do you go to a lot of movies? Again, consider Netflix. Simply cutting down on the times you go out is a quick way to save.
Look for deals and clearance when you shop. Grocery shop a couple of times a month, and create a list before you go and stick to it, no impulse buys. Get a whole sale membership to Sam’s Club or Costco, buy in bulk with items that do not expire, such as tissues, toilet paper, cleaning supplies and canned goods. Stop shopping when you’re bored, go shopping when you need something, do your research to get the best price before you buy.
As you can see, there are many areas of your life you can begin to save, and I know I did not hit on all of them. The point is, start with the areas that can have the most savings first, then work your way to smaller savings. You will notice with this method that your excitement of saving so much on your car will provoke you to want to look for savings on your internet bill.
Do you have any good tips to save money?
For other information about personal finance, visit my blog, http://www.stewardology.com/blog