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By Vincent Achesa
How to Save Money while Living Well
These are hard times, economically. Unemployment is rampant, stock-based retirement funds have lost value, and in some areas a home may be almost un-sellable. How to cope? One way to live well in these challenging times is to focus on the aspects of a good life that are beyond economics. I have written many articles about living joyfully through gratitude, forgiveness, positive thinking, and prayer. Another way to cope is to make the money you do have go farther.
Here are some tips for saving money and living well on less...
1. Budget. Few people like the idea of budgeting. It sounds like a lot of work, and it can be a reminder of the gap between our income and our need, or at least our desire, to spend. Nonetheless, budgeting is an important weapon in the battle to live better on less money.
You are likely to be most successful, and happiest with the process, if you make a game of budgeting. Think of budgeting as a process of balancing numbers, something like a game of Sudoku, as well as a process of balancing life priorities.
The more flexibility you bring to the budgeting process, the greater the likelihood that you will be satisfied with the result. If you begin by listing your "fixed" expenses and then find that they exceed your income - even before you add-in anything for "discretionary" spending - you will consider the budgeting exercise, and yourself, to be a failure. However, if you begin by throwing out all your preconceived assumptions, you can build a workable - even comfortable - budget from the ground up. This kind of budget that is developed without regard for past spending patterns is called a "zero-based budget."
What about expenses for which you have already made a commitment, such as mortgage payment or rent (if you have a lease), car loan payment, credit card payments? There are actually solutions to all of these, which I address below, but for now, create two budgets - a transitional budget which allocates income to the full amount of these pre-committed expenses, and another zero-based budget which divides your income in a more thoughtful way. If your transitional budget exceeds your income, you do have a problem, but you also have a lot of leverage to renegotiate with your creditors.
In your zero-based budget, allocate your income across all your needs and desires. It is important, no matter how little you have, to include something for fun activities - even if it is just bus fare to the zoo on "Free Tuesday." Begin by setting up categories of spending. Allocate a percentage of your income to each category. For example, allocate 30% to housing. It is less scary to write down 30% than to see a number of dollars that isn't supported by your current income. After you translate the percentages to dollars, you can tweak the numbers a little, but remember that for every dollar you add to one category you have to subtract a dollar from another category. The objective is achieving balance, regardless of your comfort with the absolute numbers. The next step is finding ways to live comfortably within the allocation in each budget category.
2. Reduce interest costs. Interest charges may be eating up a significant part of your income, but you can minimize the bite. First look at ways to reduce your debt, or at least keep your debt load from increasing. Then examine each debt to see if you can reduce the interest cost by refinancing, or even renegotiating.
Mortgage rates may now be lower than when you took out your mortgage. Check mortgage rates and compare. After you understand how your current mortgage rate compares with current rates, approach your current lender and ask them to lower your rate to match the current market rate. If they do lower your rate, you may save on fees you would otherwise pay to refinance with another lender, reduce the hassle, and show greater continuity in your credit history.
While most interest rates are generally low now, credit card interest rates can be astronomical. You are throwing away lots of money if you pay 20% interest to a credit card company when you have better alternatives. Try to avoid increasing your credit card debt and work at paying off the debt you have now. Consider other kinds of loans to pay off your credit card debt - perhaps a home equity line of credit - perhaps refinancing your mortgage for a larger amount as well as a lower rate.
Another approach to reducing credit card interest costs is to find a credit card that offers a "0% balance transfer" option. If you have reasonably good credit, you may find a card that lets you borrow perhaps $20,000 at 0% interest for up to a year. The one-time "transfer fee" of about 3% is your only cost. That's a really good deal - a total cost of 3% to borrow money for a year. The catch? After the 0% teaser interest rate runs out, the interest skyrockets to over 20%, so plan ahead to refinance your borrowing in some way, perhaps yet another free balance transfer credit card.
3. Reduce energy use at home. Keep the thermostat up in summer, down in winter. Open the windows rather than using the A/C on moderately hot days. Keep the blinds drawn on hot days to keep out the heat of the sun. Wear shorts in the house in summer and sweats in winter to keep comfortable after you have readjusted your thermostat settings. Turn off the TV and lights when you are not using them. This reduces A/C usage as well.
4. Drive less. Save on gasoline and maintenance as well as saving your time, your stress and the environment by planning your driving carefully. Combine trips. Share the ride with neighbors and friends.
5. Consider cooperative shopping. Membership stores like Costco and Sam's Club offer good deals on bulk items, but you can lose the savings in driving to a distant store and buying more than you need. Try pooling your shopping list with friends or neighbors so only one of you spends the time and gas on a shopping trip and you can divide the case lots. Or have one person drive to the country to make a group buy direct from a farm.
6. Barter and cooperate. How can you and your friends and neighbors help each other? Maybe you need an edger for your lawn. Your neighbor has an edger but needs to borrow a trimmer. It's a good deal for both of you. Or maybe you are good with a computer but hate lawn work while your friend is happy to work outdoors but can't stand doing his tax return. Trade tax prep for yard work.
7. Buy second hand - clothes to cars. Lose your ego. Give up the idea that you have to keep up with your neighbors. It's okay to drive a second hand car or shop at a thrift store, even if you have never done it before - even if it "just isn't done" in your neighborhood. You will find really nice people shopping at Goodwill, quite likely including that neighbor or friend you thought might look down on you for shopping there.
8. Comparison shop. When was the last time you compared the rate you pay for car insurance with the rates offered by other auto insurance companies? Or maybe you can get a better rate from your current insurance company just by asking. Also, comparison shop on all major purchases - whenever you are shopping for a car, a television, new appliances, new carpet, home repairs, whatever.
9. Ask for a discount or a special deal. You won't know if you don't ask. Homes may sell for only two thirds of the asking price. I got a big discount on propane delivery just for asking, and without changing companies. Make a practice of asking for discounts and specials - you aren't going to offend anyone.
10. Shop on-line. Often the best prices are available to on-line shoppers. You are even likely to get a better price by shopping for a car online. Better yet, you also save on gas, wear and tear, your time and your stress level when you shop online. Comparison shop. Check the vendor's reputation and the guarantees they offer. Do they pay postage both ways on returns? How long do you have to return an item? Is there a "restocking fee" on returns?
How to Save Money while Living Well
These are hard times, economically. Unemployment is rampant, stock-based retirement funds have lost value, and in some areas a home may be almost un-sellable. How to cope? One way to live well in these challenging times is to focus on the aspects of a good life that are beyond economics. I have written many articles about living joyfully through gratitude, forgiveness, positive thinking, and prayer. Another way to cope is to make the money you do have go farther.
Here are some tips for saving money and living well on less...
1. Budget. Few people like the idea of budgeting. It sounds like a lot of work, and it can be a reminder of the gap between our income and our need, or at least our desire, to spend. Nonetheless, budgeting is an important weapon in the battle to live better on less money.
You are likely to be most successful, and happiest with the process, if you make a game of budgeting. Think of budgeting as a process of balancing numbers, something like a game of Sudoku, as well as a process of balancing life priorities.
The more flexibility you bring to the budgeting process, the greater the likelihood that you will be satisfied with the result. If you begin by listing your "fixed" expenses and then find that they exceed your income - even before you add-in anything for "discretionary" spending - you will consider the budgeting exercise, and yourself, to be a failure. However, if you begin by throwing out all your preconceived assumptions, you can build a workable - even comfortable - budget from the ground up. This kind of budget that is developed without regard for past spending patterns is called a "zero-based budget."
What about expenses for which you have already made a commitment, such as mortgage payment or rent (if you have a lease), car loan payment, credit card payments? There are actually solutions to all of these, which I address below, but for now, create two budgets - a transitional budget which allocates income to the full amount of these pre-committed expenses, and another zero-based budget which divides your income in a more thoughtful way. If your transitional budget exceeds your income, you do have a problem, but you also have a lot of leverage to renegotiate with your creditors.
In your zero-based budget, allocate your income across all your needs and desires. It is important, no matter how little you have, to include something for fun activities - even if it is just bus fare to the zoo on "Free Tuesday." Begin by setting up categories of spending. Allocate a percentage of your income to each category. For example, allocate 30% to housing. It is less scary to write down 30% than to see a number of dollars that isn't supported by your current income. After you translate the percentages to dollars, you can tweak the numbers a little, but remember that for every dollar you add to one category you have to subtract a dollar from another category. The objective is achieving balance, regardless of your comfort with the absolute numbers. The next step is finding ways to live comfortably within the allocation in each budget category.
2. Reduce interest costs. Interest charges may be eating up a significant part of your income, but you can minimize the bite. First look at ways to reduce your debt, or at least keep your debt load from increasing. Then examine each debt to see if you can reduce the interest cost by refinancing, or even renegotiating.
Mortgage rates may now be lower than when you took out your mortgage. Check mortgage rates and compare. After you understand how your current mortgage rate compares with current rates, approach your current lender and ask them to lower your rate to match the current market rate. If they do lower your rate, you may save on fees you would otherwise pay to refinance with another lender, reduce the hassle, and show greater continuity in your credit history.
While most interest rates are generally low now, credit card interest rates can be astronomical. You are throwing away lots of money if you pay 20% interest to a credit card company when you have better alternatives. Try to avoid increasing your credit card debt and work at paying off the debt you have now. Consider other kinds of loans to pay off your credit card debt - perhaps a home equity line of credit - perhaps refinancing your mortgage for a larger amount as well as a lower rate.
Another approach to reducing credit card interest costs is to find a credit card that offers a "0% balance transfer" option. If you have reasonably good credit, you may find a card that lets you borrow perhaps $20,000 at 0% interest for up to a year. The one-time "transfer fee" of about 3% is your only cost. That's a really good deal - a total cost of 3% to borrow money for a year. The catch? After the 0% teaser interest rate runs out, the interest skyrockets to over 20%, so plan ahead to refinance your borrowing in some way, perhaps yet another free balance transfer credit card.
3. Reduce energy use at home. Keep the thermostat up in summer, down in winter. Open the windows rather than using the A/C on moderately hot days. Keep the blinds drawn on hot days to keep out the heat of the sun. Wear shorts in the house in summer and sweats in winter to keep comfortable after you have readjusted your thermostat settings. Turn off the TV and lights when you are not using them. This reduces A/C usage as well.
4. Drive less. Save on gasoline and maintenance as well as saving your time, your stress and the environment by planning your driving carefully. Combine trips. Share the ride with neighbors and friends.
5. Consider cooperative shopping. Membership stores like Costco and Sam's Club offer good deals on bulk items, but you can lose the savings in driving to a distant store and buying more than you need. Try pooling your shopping list with friends or neighbors so only one of you spends the time and gas on a shopping trip and you can divide the case lots. Or have one person drive to the country to make a group buy direct from a farm.
6. Barter and cooperate. How can you and your friends and neighbors help each other? Maybe you need an edger for your lawn. Your neighbor has an edger but needs to borrow a trimmer. It's a good deal for both of you. Or maybe you are good with a computer but hate lawn work while your friend is happy to work outdoors but can't stand doing his tax return. Trade tax prep for yard work.
7. Buy second hand - clothes to cars. Lose your ego. Give up the idea that you have to keep up with your neighbors. It's okay to drive a second hand car or shop at a thrift store, even if you have never done it before - even if it "just isn't done" in your neighborhood. You will find really nice people shopping at Goodwill, quite likely including that neighbor or friend you thought might look down on you for shopping there.
8. Comparison shop. When was the last time you compared the rate you pay for car insurance with the rates offered by other auto insurance companies? Or maybe you can get a better rate from your current insurance company just by asking. Also, comparison shop on all major purchases - whenever you are shopping for a car, a television, new appliances, new carpet, home repairs, whatever.
9. Ask for a discount or a special deal. You won't know if you don't ask. Homes may sell for only two thirds of the asking price. I got a big discount on propane delivery just for asking, and without changing companies. Make a practice of asking for discounts and specials - you aren't going to offend anyone.
10. Shop on-line. Often the best prices are available to on-line shoppers. You are even likely to get a better price by shopping for a car online. Better yet, you also save on gas, wear and tear, your time and your stress level when you shop online. Comparison shop. Check the vendor's reputation and the guarantees they offer. Do they pay postage both ways on returns? How long do you have to return an item? Is there a "restocking fee" on returns?
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