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Tips On Reducing Daily Expenses

Steve's Market Commentary

I like to constantly remind my listeners – new and old – of the advantages of cutting down wasteful discretionary spending, then plowing those savings into investments and letting the magic of compounding do its trick. Often times, people routinely spend money on small things but don’t realize that those dollars can literally add up to hundreds of thousands if invested in plain and simple index funds over time.

People routinely spend money on small things but don’t realize that those dollars can literally add up to hundreds of thousands if invested in simple index funds over time.

  Everyday Savings – There for the Taking

Coffee is a prime example. There used to be a time, not so long ago, when people would wake up to the smell of coffee brewing in the kitchen and start their days with a cuppa-joe poured out of a glass carafe into a nice little mug at home… and stop by cafes only once in a while for a leisurely social tete-a-tete. That home-brewed cup of coffee was pretty cheap too and cost no more than a few pennies… But with the proliferation of cafes such as Starbucks, what used to be a pleasant morning routine has morphed into something much more… millions of working Americans now leave home without breakfast and drive straight to a nearby Starbucks or equivalent coffee shop, wait in a fairly long line and spend anywhere from $2 to $5, or more, for a beverage and often a bagel or some other breakfast snack. But if they took that money, say $4 on average, four days a week, and stuck it into an index fund with about a 6.5% average return starting at age 25… that $4 per day would grow to slightly over $155,000 in 40 years – by the time you’re ready for retirement at age 65… just by cutting back on your coffee! And that’s without factoring-in the bit of extra money spent on gas to drive those few miles to the café and the value of your time spent getting your skinny caramel macchiato.

And, as the article I read on WealthSoup.com pointed out… one of the most common questions on the popular game-show Family Feud is “Name something people wish they had more of.” No guesses – I think we all know that the #1 answer always is… money. But with everyone wanting more money, it’s amazing how people waste the money they do have on things they don’t need.

Another thing I always tell my friends and listeners to do is… pay back credit card debt… simply because credit card interest rates are extremely high and compounding makes your debt loan balloon very quickly. So, everyone’s first priority should be to get rid of credit card debt. If you have money sitting around in the bank or in bond investments or even in stocks, pull it out and use it to pay down your credit cards. Another thing that’s worth looking into is debt consolidation, which can save you hundreds of dollars in interest fees each year.

With the advent of innovative online payment platforms, you should also explore online “crowd-funded” loans. For example, sites such as LendingClub.com and Prosper.com let you get a free quote and potentially borrow anywhere from a few hundreds to tens of thousands towards debt consolidation or other personal expenses, for interest rates as low as 5%, with payback terms of 3 to 5 years. The interest rate, of course, depends heavily on your credit score. Getting your interest rate down from the high teens to the high single digits could make a huge difference in your savings… so look into online borrowing options.

Cut Back On What You Spend On Essentials

Here’s another one: Overpayment for services

We all need insurance – for our health, homes and cars… and typically renew our coverage with the same provider every year… but checking for better rates, just once a year, could save hundreds in annual insurance expenses. It’s easy to do through sites such as eSurance.com.

And as one of my on-air guests recently pointed out, health plans change every year and it pays to research your options. Assess your health… if you’re young and healthy, there’s a low probability that you might suffer a heart-attack or serious illness anytime soon – so you could save thousands by opting for high out-of-pocket “Bronze” plans with lower premiums.

And with Open Enrollment ending February 15, you still have time to easily look for better rates at online exchanges such as HealthCare.gov that let you shop and compare plans offered in your zip code. If you need regular medication, shop around – you may be able to save substantially by directly purchasing prescription drugs online or at places like Costco and opting for generics in place of branded drugs. In addition, see if your credit union, employer or discount club (such as Costco or Sam’s Club) can get you preferred rates on home or car insurance – the savings alone may be worth the annual membership fee.

Many of us also routinely overpay for services such as Internet, cable, TV, landline and mobile phones, home security, etc. – but rarely use all we are paying for. So look into alternatives such as Netflix, Hulu, Google Chrome and others to see if you really need that $100 monthly cable subscription. Consider disconnecting your landline telephone and getting together with friends and family for discounts on mobile calling plans. Look at no-fee home security plans that bypass call centers and directly alert your smartphone – all you need to do is buy the equipment and D-I-Y the setup which is really easy… and you pay no monthly monitoring fees – so this change alone can add up to about $35 or more in monthly savings. What’s more, your new home security system comes with innovations such as security cameras that send live video to your smartphone and crash-proof cellular equipment with no wires that thieves can cut to bypass the alarm… so look into these things.

Many home owners carry higher-than-market rates on their mortgages… but take advantage of the bounce-back in home prices over the past few years and see if you qualify for refinancing at a lower rate. Sites such as LendingTree.com let you compare home and automobile refinancing rates from multiple lenders.

Last I checked, interest on a 30-year mortgage hovered at about 3.66% and I’m willing to bet that most of my listeners carry a higher rate than that.

The list goes on and on… eating at expensive restaurants, doing take out frequently, etc.

My point is this… most of us typically overpay for goods and services… and should do all we can to cut back on discretionary items or services we don’t really need – such as the full-featured cable TV plan and the Venti Soy Latte… and look for better rates on required services such as car and health insurance. Plow these monthly savings into low-fee passive investment plans… and you’ll have more money for your leisurely café outings when you retire to sunny Florida!

I've been an investment strategist and adviser for over 35 years, leading with a mission of unbiased advice to educate and protect listeners on my weekly radio show on NPR affiliates nationwide. I have been named a “Top 100 Wealth Advisor” by Worth Magazine and “Top Advisor” by Reuters.