Ten Resolutions to Trim Spending and Reduce Financial Stress
Jan Garkey
Take a well-deserved deep breath--you survived another stressful holiday season with in-laws and ex-laws. Your indomitable holiday spirit pulled you through five gift exchanges, four fruit cakes, three school plays, two office parties, and an entire box of creamy turtle Dove bars.
Now shift gears. Put yourself in damage control mode. Are you financially--and emotionally--prepared for the onslaught of postholiday bills bound for your mailbox? Are your credit cards frayed around the edges? Is your savings account feeling the pinch? Is your budget totally out of whack? And are you more determined than ever to cut back next year?
With the holidays behind you, now is the perfect time to give yourself a gift. Make a resolution to save more money this year. These 10 tips will help you trim spending, beef up savings, and reduce stress--just in time for the New Year, long before the next holiday season.
1. Pay it off.
Paying off a credit card actually can save you money. How? Let's say you have a $2,000 balance at 18% interest. If your minimum payment is 2% of the balance due each month, it will take you 19 years to pay it off and you'll incur $3,862 in interest. But if you increase your monthly payments to 8% of the balance due--much more than the minimum--you'll reduce the payback time from 19 years to three years and nine months, and your interest costs now are only $433. You've just saved $3,429. Paying more in the short term saves money over time.
Last year a handful of credit card issuers raised minimum payments from 2% to 4% of the balance due, and more are expected to follow this year. Those higher monthly payments may pinch your pocketbook in the short term if you carry a balance from month to month, but in the end you'll be much further ahead. If you're having trouble making payments, cut back or quit charging for a while as you pay off the balance.
Torn between paying off debt and saving? Think of it this way�you get an instant return of 18%, or whatever your interest rate, for any credit card payment. No savings vehicle offers similar payback.
2. Conserve.
Heating and cooling your home throughout the year uses more energy and drains more energy dollars than any other system in your home. On average, about 44% of your utility bill goes for heating and cooling. Save money by properly maintaining and upgrading your equipment. Small changes yield big savings on your utility bill:
A home energy audit can identify ways to save hundreds of dollars a year on home heating and air conditioning.
Insulate all ducts.
Change or clean filters regularly.
Use programmable thermostats. Turn your thermostat back a few degrees for eight hours each day during the winter to save as much as 10% a year on your energy bill.
Use ceiling fans to reduce both cooling and heat bills.
A home energy audit can identify ways to save hundreds of dollars a year on home heating and air conditioning. Ask your utility company if the audit is available for free or for a reasonable charge. The Energy Department has more energy-saving tips.
3. So what's 65 cents?
Grab a calculator. Add up what you spend on so-called little things that end up being budget-busters:
If you spend 65 cents a day--seven days a week--on soda, that adds up to $237 a year.
If you spend $1.75 a day--every weekday--on coffee, that's $455 a year.
If you spend $3.75 a day--every weekday--on fast food, that's $975 a year.
If you spend $4 each day on cigarettes, that's $1,460 a year.
To save money, find a less expensive alternative or simply cut back. Better yet, redirect that money toward a family vacation or some other savings goal.
4. Tune it up.
Regular automobile maintenance--including low-cost oil changes, filter changes, and tire rotation--can save big bucks by preventing costly repairs. Keep your engine tuned and your tires inflated to their proper pressure. On the road, stay within posted speed limits because gas mileage decreases rapidly at speeds higher than 60 miles per hour. Avoid jackrabbit starts and unnecessary idling, combine errands, and remove excess weight from the trunk.
Also, use the right octane level; regular octane is recommended for most cars. Unless your engine is knocking, buying higher-octane gasoline is a waste of money. Studies indicate that--collectively--drivers may be spending hundreds of millions of dollars each year for higher-octane gas than they need. Pay yourself first--set up automatic transfers to your share or money market account.
5. Do an auto insurance audit.
Are you paying too much? Contact three automobile insurance companies and compare costs for similar coverage. Drop collision and/or comprehensive coverage on older cars. Ask about discounts. Consider increasing your deductible from $200 to $500 (self-insure by keeping that cushion in your share savings account); you could reduce collision and comprehensive costs by 15% to 30%.
6. Examine your phone bill.
Look for unfamiliar or recurring monthly charges you don't need or use. Each option you drop could save you $40 or more each year. The Federal Trade Commission warns that these hidden charges may be so small, or described in such general terms, that you overlook them month after month. Be on the lookout for fees described as "Minimum Use Fee," "Activation," "Membership Fee," "Voice Mail," or similar phrases. Follow instructions on your statement to dispute the charges, and follow up any phone conversations with a letter sent by certified mail. Keep a copy for your files.
7. Get it together.
Have you missed out on rebates because you couldn't find the required receipts or rebate forms? Have you forfeited unused funds from your flex-spending account because you forgot to keep receipts throughout the year for eligible expenses? Could loved ones pick up the financial pieces if something happened to you?
Organizing your financial records saves time, energy, and space, and offers peace of mind. Organize files, touch incoming papers only once, keep all tax records in one place, shred documents you don't need that carry identifying information, and compile a personal property inventory using lists, photographs, or video. Develop a financial notebook that contains account and family information, insurance and health records, property records, retirement and estate planning documents, and important contacts. Also identify a single location for crucial papers if you must evacuate your home quickly in the event of a natural disaster. Could loved ones pick up the financial pieces if something happened to you?
8. Get it transferred.
Pay yourself first--set up automatic transfers to your share or money market account. Also, have your paycheck automatically deposited to your credit union account. Consider using direct bill payment from your share draft account; it's ideal for recurring payments like household bills, insurance premiums, automatic investment and savings plans, mortgage payments, auto loan payments, and charitable donations.
While you're at it, open a Holiday Club Account at the credit union. Sign up and save regularly through your employer's tax-advantaged retirement plan. Set these up as painless, automatic deductions from each paycheck.
9. Go online.
Online banking not only saves times and allows you to conduct your financial affairs any time of the day or night, it reduces the likelihood of costly late payment charges. Make sure you have adequate protections on your computer. Install and keep updated a personal firewall and antivirus software. Change passwords frequently; never use common information such as birthdays, addresses, or your mother's maiden name. And never respond to an e-mail purporting to be from any financial institution that requests account or password information.
10. Put more on the principal.
If you're already debt-free except for a mortgage, add a little extra to your mortgage principal each month. According to Marc Shafroth of Credit Union National Association's economics and statistics department, paying an extra $50 a month on the remaining 28 years of a 30-year mortgage with a balance of $121,500 and interest rate of 5.5%, you'll shave almost four years off the life of the loan and you'll save almost $19,000 in interest payments.
Call the credit union today. We can provide products and services that help take the stress off your finances--all year long.
Published January 2, 2006
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