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Eight Big Financial Moves That People New to Frugality Often Overlook
When people first start digging into frugality, they often look at the simplest moves, the low hanging fruit that can save a little bit of money with little effort. Simple things like turning off the lights or keeping the thermostat a little higher or lower do save you money, but they don’t really provide a transformative effect to your finances.
Even big one-off moves like selling off a bunch of unused stuff from your closet can be useful, but they don’t make a lasting difference.
What really makes a difference are the changes that permanently and significantly reduce your monthly bills. If you have smaller bills coming in each month, then you have more breathing room to make better financial moves and start building some financial momentum in your life rather than just treading water.
Each one of these big moves can save you hundreds, if not thousands, a year. If you can take action on just a few of these, you’re going to see a rapid transformative effect on your finances. You’ll have hundreds more a month to work with, and then you can take that money and use it to pay off debts or start saving for retirement or other life goals.
Some of these are surprisingly easy – they just take some time. Some of them are hard. Some of them are going to make you say, “Nope, no way!” as an instinctive response. Don’t fall into that trap. Consider each one with care and ask yourself whether it’s something you could actually do in your life. Could you move? Could you bike to work? Could you make your food at home?
Pick a couple of these and put them to work in your life. The effect will be pretty powerful indeed.
Moving to a Smaller Home or Apartment
This move saves you money on housing expenses each and every month. If you’re a renter, you’re going to reduce your monthly rent significantly. If you’re a homeowner, selling your current home and buying a less expensive one will chop away a significant amount of your mortgage in one action.
Let’s say, for example, that your rent is $1,000 a month. You shop around and find an apartment you can live with for $750 a month. With the single action of moving to that new apartment, you’re saving $250 a month for as long as you’re in the area. That’s a car payment.
Or, let’s say you live in a $250,000 home and you identify a home on the market for $170,000 that you can live with. Simply get a bridge loan from your local credit union, make that move, then sell your current home, using the proceeds to pay off that bridge loan and a large portion of your current mortgage with one move. This will likely leave you with a much smaller mortgage payment (if you get a 30-year loan) or a somewhat smaller mortgage payment with a much smaller portion going to interest (if you get a 15-year loan).
Moving Closer to Work
Moving closer to work can significantly reduce the length of your commute, which saves a lot on gas and wear and tear on your car.
Let’s say, for example, that you drive a typical sedan for your commute. It gets 30 miles per gallon of gas and you’re going to replace it every 150,000 miles with a car that you put another $15,000 into after trade-in. Outside of commuting, you drive it 5,000 miles per year.
Your normal commute is 15 miles each way and you drive that distance back and forth five days a week, 50 weeks a year. That adds up to 15,000 miles. That means three scheduled maintenance visits just because of your commute (let’s say they’re $100 each, on average, given that you’re following the maintenance schedule, so $300), plus 500 extra gallons of gas at $4 a pop ($2,000). You’re putting 20,000 miles a year total on the car, so you’ll replace it in 7.5 years, meaning you’re losing $2,000 a year in total depreciation and $1,500 just due to your work commute. That’s a total cost of $3,800, and we’re not even including things like tires and batteries.
Let’s say you moved so that you now live five miles from work. That adds up to 5,000 miles of driving a year. You’re only doing one scheduled maintenance visit for work a year ($100) and 166 gallons of gas at $4 a pop ($664). You’re only putting 10,000 miles a year on the car, which means you’ll replace it in 15 years, meaning you’re only losing $1,000 a year in depreciation and only $500 to your work commute. That’s a total cost of $1,264, not including savings from less wear on your tires, fewer tolls, and so on.
In that example, that move saves you about $200 a month or $2,500 a year. Over the course of six years, that move alone pays for that $15,000 car replacement.
Obviously, your exact situation may vary, but if you can move and cut 50% to 75% off of your commute, the savings will be in the thousands per year. Plus, your commute is much shorter, so you have more time than ever at home.
Commuting via Bike or Mass Transit
Another advantage of living close to work is that you can potentially get to work entirely without the use of a car, thanks to trains, subways, bicycles, and your own humble feet. This allows you to not only avoid all of the expenses of driving – fuel, depreciation, maintenance, parking – but it can actually open the door to eliminating a car and then eliminating a bunch of additional expenses, like registration and car insurance. Even eliminating the mileage can potentially save thousands – getting rid of a car entirely can definitely save thousands.
If it’s at all possible for you to do so, consider switching to a means to get to work that doesn’t involve your car. Perhaps this means taking the subway or the train to and from work. Maybe it means biking there, or even walking there if you’re close enough. One good approach is to make this into a 30-day or a 60-day challenge – challenge yourself to do this for 30 or 60 days in a row.
If this process leads you to completely downsizing one of your cars, then you’ll easily save thousands of dollars a year. Even if it doesn’t, you’ll easily save hundreds a year in saved fuel and maintenance. As noted above, if you can eliminate a 10-mile round trip commute in your car, you’ll save around $1,200 a year in fuel, maintenance, and depreciation.
Eliminating Cable or Satellite TV
The average American cable or satellite bill is a little over $100 a month. Many people hang onto their service primarily to watch one or two channels, with occasional rare dips into other channels.
In other words, if you can simply cut out those one or two channels from your life and find something else to watch, you’re quickly saving $1,200 a year.
We cut the cord last year, sticking with just our already-existing streaming services, and it was much less painful than we expected. We either found other sources for the programming we missed or accepted that paying more than $100 a month for just a program or two just wasn’t worth it.
Again, a good way to see if this works for you is with a 30-day or a 60-day challenge. Simply choose to not watch your cable or satellite service for 30 or 60 days and see whether it really has a negative impact on your life. If it doesn’t, call and cancel the service.
Shopping Around for All Bills
For every single monthly, quarterly, or annual bill you have, spend some time shopping around for a better rate, then either switch services or use that better rate to negotiate with your current service provider.
This strategy works for many things: credit cards, cell phones, internet service, insurance, and so on. You just pick a particular bill, identify what it’s actually providing for you, shop around for offers from other providers, see how much you’ll save, and then call your current provider and negotiate a lower rate. If you get a reduction and you’re happy with your provider, stay put; otherwise, switch providers.
A good way of doing this is to choose one bill a week and do the homework on it. Perhaps this week you’ll look into internet providers in your area. Next week, you might look at insurance packages. Whatever it is you’re evaluating, look for competitors in that field who offer the same service that you need and get quotes from them. How much will they charge you per month (or billing cycle)? Get a few quotes from top competitors, then go to your current service provider and negotiate. Simply tell them that you have offers to switch providers at a much better rate, but that you’d like to stay put if they can match it. Often, they’ll match it or come close; if they won’t, then switch providers.
If you negotiate with five providers over the course of five weeks and each one saves you $20 on your monthly bill, that adds up to $1,200 a year in pure savings.
Preparing Meals Exclusively at Home, Except for Special Occasions
On average, it is almost five times more expensive to eat restaurant food than eat similar food at home. The USDA estimates that a family of four on a moderate meal plan spends $239 a week on food, or $60 a person, or about $3 per meal. The average American household spends $3,008 a year eating out.
If you churn all of those numbers together, the average American family would save about $2,256 a year preparing all of their meals at home from basic ingredients.
In other words, if you want to start saving thousands a year, turn eating out into a special event that you do only occasionally for real social reasons, and prepare every other meal you can at home.
For many Americans, that requires some real changes to their meal preparation routines, but it’s a change that can save thousands of dollars. My biggest piece of advice for doing this is to make it into a series of easy routines:
- Make a meal plan, make a grocery list from the ingredients, and shop for them once a week.
- Do a lot of your meal prep work for the week on Sunday afternoons, including banking a few meals into the freezer; you’ll find that you recoup this time on weeknights when you have meals basically ready to go that are often even faster than eating out or getting delivery.
- Start assembling lunches the evening before when you’re picking up supper.
- Master a handful of meals that you and your family like so that you can cook them almost on autopilot; this makes a huge difference.
- Make those meals a little flexible, so that they taste and seem different, even though they’re basically following the same recipe. A pasta meal, for example, includes just some kind of pasta, some kind of sauce, and perhaps protein and vegetables, but you can vary all of those elements with ease and create very different meals. Spaghetti with olive oil and garlic and roasted vegetables is very different than fettuccine alfredo with chicken, but a lot of the prep work is identical.
Switching (Almost) Exclusively to Store Brands
This one’s super simple and almost falls into that low-hanging fruit category, but it’s such a big win that it’s worth noting. For every product you buy that has a store-brand version, buy the store-brand version unless it has shown you that it’s problematic in some way.
Does this really save hundreds a year? It absolutely does.
Let’s say you go to the grocery store once a week and this rule change causes you to buy 10 items in store-brand form rather than name-brand form. Each one of those shifts saves you an average of, say, $0.50 – I think it’ll be more than that, but we’ll go with $0.50. You’re buying store-brand flour, store-brand ketchup, store-brand trash bags, store-brand pasta, store-brand eggs, and so on. So, that store-brand shift is saving you $5 per store visit.
If you do that over 52 weeks, you’re saving $260 on your grocery bill. That’s a car payment.
I looked at our last grocery store receipt and we bought 37 store-brand items. I’m not exaggerating. We bought store-brand canned tomatoes. We bought store-brand frozen broccoli. We bought store-brand diet cola. We bought store-brand eggs. It added up to 37 individual purchases. If I assume that each of those actually saved $0.50 on average, that’s $18.50 on that weekly grocery bill. If I did that 52 weeks in a row, that’s $962 this year.
Restructure Your Debt
By this, I mean find ways to reduce the interest rate on your debts and, often along with that, reduce your monthly payments on your debt as well. The long-term benefit comes from reducing your interest rate, though it may not always be reflected in your monthly bill right away.
For each of your debts, simply figure out if there’s a way to reduce the interest rate.
For example, shop around for refinancing for your home mortgage, seeking out a lower interest rate with the same term you have or a shorter term mortgage with a much lower rate. The former will reduce your monthly bill; the latter might actually see a small bump in your bill, but you’ll pay off the house years earlier.
If you have student loans that you haven’t refinanced yet, shop around for student loan refinancing options and choose one that represents a significant interest rate reduction without a longer term.
For your credit cards, look for balance transfer offers from credit card companies that represent a reduction in interest rates. Many credit card companies offer zero interest balance transfer offers. If those aren’t available to you, you can often negotiate for a lower interest rate by calling the credit card company directly and speaking with a supervisor, though there is some risk of them cancelling your card if you have a poor history with them.
These moves can significantly reduce your monthly debt payments and can also reduce the total number of payments you have to make on these debts. If you’re in a sufficiently difficult debt situation, the savings easily adds up into the thousands of dollars per year.
- Read more: In What Order Should I Pay Off My Debts?
Small steps are wonderful because they’re easy to do and easy to incorporate into your daily life, but those small steps often don’t equate into big financial changes.
It’s those big changes that can bring about large financial changes in your life with speed. These eight strategies can save thousands of dollars per year for many Americans.
The best route is to apply some of these big changes to your life while still being mindful of the smaller things as well. Together, they can transform your financial picture.
Read more by Trent Hamm: