There are thousands of ways to save money, but there are only a few ways to save a lot of money. Here, we’ll cover the three biggest ways to save money. Logically, they are by reducing your three biggest expenses – your home, your car, and your insurance.
First, look at your home expenses. Whether you rent or own these expenses can usually be reduced. The easiest way to save a lot is to refinance your mortgage at a lower interest rate. Check current rates and if your mortgage is 3/4% or higher than the going rate, you should refinance. If refinancing doesn’t work out and you really need to save money, don’t worry, there is plenty of money to be saved elsewhere. If you are not a homeowner but rather a renter, you have more options. If the housing markets are poor, you can go directly to your landlord and ask for a discount. In most cases they would rather give you a discount than to have a vacancy and have to find another renter. Also, as a renter, you have the option of lowering your monthly expenses by moving to a lower cost apartment, sharing a larger house or apartment rental, or even buying your own condo or home. If you are a long term renter, there are big savings to be made by buying a low priced condo. For example, in our market the average rent is around $1200 for a 2 bedroom apartment. However, you can purchase a 2 bedroom condo in the same neighborhood for just over $100,000. A $100,000 loan at 5% is around $500 per month, and real estate taxes at 2% would add another $150-200 per month. In other words, you could save around $300 per month, and be able to deduct the interest expense from your taxes. Maybe none of these options work for you, but if you are determined to lower your home expenses there is always a way.
The second biggest way to save money is on your car. People love their cars and without knowing, spend a much larger percentage of their budget than they should. You can easily remedy this in a few ways. First, don’t buy your dream car, buy a car that lets you save for your dreams. The enjoyment of a new car wears off over a few months, but the loan payments last for years. Try to settle for something more economical than you’d like and you will thank yourself in five years. Second, buy a newer model used car – certified pre-owned if possible. Driving a new car off the lot decreases the value by about 20%. In 2 years, your car is only worth about 60% of new value. Buy a car that is 1-2 years old and save 30-40%. Also, a car this new will still have low maintenance and if you can get a certified preowned vehicle you will get an extended warranty to help negate any problems down the road. The third way to save on your car is to keep it after it is paid for. For example, keeping a car for 10 years usually means that maintenance remains low and that your payment is gone for about 5-6 of those years. That is money that you are saving and can be investing in something else. Now that we’ve covered your home and car, lets turn to insurance.
Insurance is the third biggest way to save money. I know you’re sick of hearing those car commercials, but shopping around for insurance really can save you hundreds of dollars a year or even a month. If you only have car insurance, the online providers that you see on commercials are probably the most inexpensive. However, the more insurance you have the better the savings you get with a traditional nationwide insurer because they bundle the prices, but more importantly the offer all the insurance plans themselves. Progressive and Geico offer homeowners insurance, but it is through a different provider and you cannot talk to the same agent when purchasing. For us, we have six insurance policies (2 homes, 2 autos, umbrella and boat) and we could not replicate all of our policies with Progressive or Geico unless we called 4 different departments to try to get prices. We did and some were better than our local agent and some were worse. We chose to stay with our local agent, but shopped other local agents to make sure we were still saving each month on insurance. Another way to save on insurance is to modify your policies. For example, it doesn’t make sense to have low deductible on auto or home because you typically pay more in premiums, and if you file a claim for a small amount, your insurance will likely go up. It makes more sense to raise your deductibles and keep a fund for any small repairs or damage.