Everyone loves to talk about earning more money!
Everyone loves to talk about investing money for growth and income!
But when it comes to saving, people are less excited.
I get it. Saving is not the most exciting thing in the world. Worse yet, it’s HARD! Most people want to become wealthy without any difficulties! Haha!
That said, saving is vital to financial success. As I said on one of this site’s first posts, saving is just as important as earning (and you could make an argument that it’s more important.)
Many ESI Money readers probably have a decent level of saving already cooked into their budgets. But you could always do better, right? If that’s your attitude, I may have something for you.
Today we have a sponsored post from Squeeze a site that allows you to compare rates and (if all works out as planned) save money on things you’re already buying.
The post is written by one of my favorite money bloggers, Amanda from Why We Money. She knows a lot about saving and I thought would offer some great words on both the topic and on the sponsor.
With that said, I’ll turn it over to Amanda…
On the ESI scale to wealth, save is the one step people get least excited about. For many people, just the word “saving” conjures up feelings of deprivation and voluntary hardship.
Even with a high income, if you spend most of what you earn, there won’t be enough money left over to invest and grow your wealth. That’s why saving is just as important as income to building wealth.
One of the misconceptions about saving money is that it has to take a ton of time and energy.
We’ve all seen the lists of savings tips, like “101 Ways to Save $100” or “80 Simple Tips for Cutting Your Expenses”. These lists are often tedious and conjure up images of coupon clipping and making your own laundry detergent. [Editor’s note: I once saw a post on how to make your own toothpaste!]
We all value our time and don’t want to spend hours trying to save a dollar here and a dollar there. But when we’re able to save on expenses we have every month, such as internet service or car insurance, even small savings can really add up.
Saving on recurring expenses can take some upfront effort, but the savings literally pay off month after month.
The Impact of Saving
On the surface, saving just $20 on a monthly bill doesn’t seem like much, but in a year, that’s $240 saved with a single effort. That might still sound like a drop in the bucket, but if you can save $100, $200, or more each month, you will save thousands of dollars each year.
Once you find the savings, the key is to use the extra money to your advantage and set it aside for the future. On the ESI scale, that means investing the additional savings so it can grow for the future.
When it’s allowed to grow and grow for years, the “extra” money saved on all those monthly expenses provides a noticeable boost to your net worth.
One of the best things about saving on monthly expenses is that you don’t have to give up anything. Though you can change plans or service to save more money, you don’t necessarily have to give up the level of service you’re currently receiving.
Many times you can get the same level of service and benefits at a lower cost by making some price comparisons. Whether you change service providers, switch plans, or just ask for a reduction on your bill, you don’t have to feel any deprivation with this type of savings.
Monthly Expenses To Save Money On
You can search for savings on any bill you pay every month. Look through your bank and credit card statements to find monthly bills where you might be able to save.
Here’s a list of common recurring expenses to look at:
- Cell phone
- Gym membership
- Auto insurance
- Renter’s/Homeowner’s insurance
- Loan payments
If you don’t want to spend time looking at each and every bill, focus on a select few. Some bills can yield more savings than others. Focus on the ones that will make the most impact and give you the most reward. The following often provide the most savings:
- Insurance — Whether it’s renter’s insurance, homeowner’s insurance, or auto insurance, no matter what type of coverage we’re talking about, you can bet it’s one of your largest monthly (or annual) expenses. And since insurance is such a large budget item for most people, it’s worthwhile to start here when reducing monthly costs.
- Interest — You might not typically think of interest as a monthly expense, but it is. The effect of reducing the interest rate on any type of loan can be considerable – monthly, annually, and over the life of the loan. Refinancing student loan, consumer debt, and your mortgage to a lower interest rate can save a ton of money over time. For example, a $10,000 consumer loan with a 10% interest rate (5-year term) has a monthly payment of $212, with interest totaling $2720 over the life of the loan. If you finance the same loan with a 7% interest rate, you’ll not only save $14 each month but $840 over the life of the loan. The impact is more significant when you have larger loans with longer terms (such as mortgages).
- Cell Phone, Internet, and Cable — These recurring bills are easy to ignore. You get accustomed to the service you receive from your regular provider, and you probably have them automatically paid each month. Most of the time, you probably don’t even have to think about them. But complacency can lead to paying too much. Regularly reviewing these expenses can help keep them in check.
Finding the Best Rates On Recurring Bills
Comparing rates, pricing, and plans for expenses can be time-consuming and confusing. Just the thought of spending 30 minutes on a call with your cell phone provider is painful. But it’s faster and easier if you gather some information beforehand.
- Make a list of what you pay for now — The first thing you need to do is figure out exactly what services or coverage you currently pay for. Make a list of your current monthly bills, how much you spend, and what level of service/coverage you receive.
- Visit company websites — Get an idea of the various coverage levels and pricing of plans from company sites. But remember, just because the prices and plans are on the site, doesn’t necessarily mean that that’s all they offer. For example, our internet provider and insurance company offer discounts not found on their website. Sometimes you just have to ask.
- Use a price comparison website — A price comparison website can save you the time and effort of visiting different websites and making extra phone calls. Squeeze.com is a price comparison website that allows you to shop local providers, along with their rates and prices, all in one spot. You can compare prices and rates on insurance, loans, and services, such as cell phone and internet. This can help you easily and quickly find the best deal on many expenses – and save you more money.
Ignoring regular monthly expenses is easy. But it’s not difficult to find ways to lower them – without any sacrifices at all. And once you find savings month in and month out, you can put that money to work for you by investing it to supercharge your net worth.
Even though it is not as glamorous as increasing your earnings, savings is actually a more powerful tool.
In football they say defense wins championships, and in the financial world savings is similar to defense.
Savings is more powerful than earning because for every dollar you save, that directly increases your net worth by 1 dollar.
An extra dollar earned, for example, does not have that 1:1 correlation with net worth. This is because that extra dollar is the least valuable dollar as it comes in at your highest marginal tax rate. So if you are in the top bracket, that $1 essentially becomes $0.63 in a blink of an eye (and is reduced even further if you live in a state with income tax).
Savings also is more powerful because for every $1 you save, that is essentially $25 less you have to build your net worth by. As you get used to saving more you learn to adapt to the less expensive lifestyle and thus your nest egg does not have to be as large to support. Saving $1,000 a year means your nest egg can be $25,000 less (using the 4% withdrawal rule).
Saving on monthly expenses is even more powerful than 25:1. Since it occurs 12 times every year, it actually shaves $300 from your required nest egg to support in retirement.
I learned this in a post on the blog Can I Retire Yet?
Great point! These after tax dollars (or ATDs) are more powerful than dollars that are taxed. Many people don’t get this distinction. I’d rather save $1 that is an ATD than earn an extra $1 that will be taxed.
The only issue is most of us reading ESI have already reviewed our expenses and cut everything down quite a bit. And there is only so much spending you can cut before you’re eating canned beans under the overpass in your town. But I still enjoy finding was to save money each month, even it’s a small amount.
Kenneth F LaVoie says
I try to look at it like this: Your entire financial life is “one thing”. In other words, instead of looking at your financial budget as one thing, and your investment porfolio as another, look at it like one big thing. So by saving $20 on yoru cellphone bill monthly, you’re moving money into an investment that’s paying you $20 extra interest per month. We always have a choice of paying medical bills off either with small monthly payments, or they’ll contact us and offer X% off for payment in full. We take advantage of this if it’s at least 7%. That’s the same as putting a chunk of money into an account earning 7% risk free interest. NOT SPENDING X$ is the same as EARNING X$ just on the “other side of the number line” — This end = “not losing” this end = gaining or earning. The effect is the same.
Bernie Johnson says
You definitely have to look at both sides of the equation. Car & home ownership, two of our larger purchases during our lifetime, contain many opportunities for saving. From the initial purchase, to the other associated costs associated with them, these items cost a lot over a lifetime.
Looking back, one of the biggest reoccurring expenses that we underestimated involved home ownership. We are on our 6th home. We kept trading up each time we bought, until this last purchase. Some of your reoccurring home expenses are usually based on your original purchase price. Your designated home value dictates your taxes and insurance. Your taxes will almost always go up, but they really inflate during housing bubbles. It’s all about timing. Two home owners with the same floor plan and similar lot within a neighborhood can have vastly different tax bills. Other details to consider involve energy efficiency and HOA fees. I have known people paying $500, $750 & even $900 a month in HOA fees. Imagine the long-term impact to potential savings. Selecting the right home is an important decision and the long-term impact to your cost of living and consequently your ability to save, can really add up.
Mr. r2e says
Saving money on expenses should be a part of everyone’s plan to achieve financial independence.
One of my first posts was about how I saved 37% on our home/auto/umbrella insurance.
Great post–I just checked my YTY expenses and it’s moving all the right ways!
Auto ($725), Credit (paid off monthly-$2000), Life insurance ($370), Utilities ($475)–All down for the year.
Giving ($850), Savings ($6000)-both up
Increased 403(b) and 529 amounts as well.
If you are not tracking expenses and budgeting you are missing out on opportunities to save and simplify.
Thanks for the opportunity to brag a little bit relative to the post topic!
GenX FIRE says
I think saving helps to a point. When I was a young LT making $18,000 a year, saving a lot of money wasn’t possible. I saved money so that I had enough to spend on things that I needed. Now that I earn a good salary, 20 years later, this does make more sense. One thing I would add to the list, is that since I cut the cord, saving me about $100 a month, I found the lack of advertising has me not wanting to spend as much money. That has been a huge win.
Razorback 14 says
To me, there’s a reason SAVE is positioned in the middle, and between Earn and Invest ——
All my life, I’ve focused on saving all I could from each monthly paycheck. Simple and deliberate!! Intentional Savings Plan —-
Of the three (earn, SAVE , invest) important areas, it was the only area of focus I could control comfortably——
Living below your means —- it’s all about putting some back each and every month so your Net-Worth grows to a point where you’re seeing real magic.
Great post —— it’s all about Savings
James Hahn says
I save a ton of money at the grocery store by not paying for labor. I don’t buy processed food. I buy fresh meats and produce and that is about it. No coupons. I also am not brand loyal, the item with the sale price is always the right one. Will change dinner plans to take advantage of sales as well. Have saved as much as 59%. That savings really adds up.
I’ve always felt that a $1 saved is better than a $1 earned since the saved $1 is after tax. That’s my warped psychology for getting excited about saving. And this translate to consumption too. When I buy something for less than I’m willing to pay for it due to a good sale or a good find on a substitute product, I feel the same way.