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By Ryan Pedro
- In Money Goals
We’ve listed 85 ways to save money, but let’s begin with the best and most effective. Implementing these strategies will likely save you more money than the other 75+ combined.
Some of these are quite radical and you might not be ready for the plunge. However, if you want to save money and join the F.I.R.E. movement, you should seriously consider all of them. All of these options should be seriously considered.
We will include the long-term impact on your investment of money saved after we have covered the top 11 ways you can save money. You’ll be motivated to make these changes if you can see how big they can be.
You may find that these strategies are enough to make you feel like you don’t have to use the remaining 75+ strategies.
1. Do not delay to get retired and downsizing your living space
This strategy works well for both now and in the future. It is the most expensive expense people have, and housing is usually the biggest. You can reduce it by as much as reducing or eliminating 15 to 20 other expenses.
Let’s see why.
Let’s suppose you are currently living in a 5,000-square-foot home you bought for $500,000 with $400,000 financing. Both numbers will still be valid, for simplicity’s sake.
A 30-year mortgage will cost you $1,796 per month at an interest rate of 3.5% The total monthly cost of your mortgage payment would be $2,796 if property taxes were $800 and homeowner’s insurance was $200.
Let’s suppose that your family of four could live in a home with 3,000 feet, which you can purchase for $300,000.
You can get a $240,000 mortgage with a 20% downpayment ($60,000). The monthly payment for a 30-year loan will be $1,077 at 3.50%. If you assume that $500 per month is for property taxes, and $100 for homeowner’s coverage, your monthly payment will total $1,677
The monthly cost for the $300,000.00 home will be $1,119 lower than that of the $500,000 home.
How it will boost your net worth: That is $13,428 annually. The effect that the $40,000 less you paid for the $300,000 house won’t have on your cash flow or future savings is not considered. Living in a smaller house will also result in lower maintenance and utility costs.
Now, let’s get crazy. If you follow this strategy and put $13,428 in annual savings into an investment account earning an average annual return of 7%, you will have $1316,024 after thirty years.
What should you do next? Get an online value assessment tool that will help you determine the value and start the process of selling or downsizing.
2. Refinance current mortgage
The first strategy was to reduce your living arrangement in order to save the most money. You can save a lot of cash by refinancing your existing mortgage if you aren’t ready to make such a drastic move.
Another passive strategy that can save you thousands of dollars is to take a small step now and save money for many years.
What it will do for your net worth. Let’s suppose that two years ago, you obtained a 30-year loan for $300,000. At a 4.5% interest rate. The monthly principal and interest payments for your house are $2,026.
You can reduce your monthly payment by refinancing the same loan at the current rate (which is currently trending around 3.50%).
You will be able to save $230 per month or $2760 per year. This will not only reduce your monthly costs, but it also offers long-term investment opportunities.
After 30 years, you will have $270,503 more saved if you save $2,760 each year, with an average return of 7.7%
You can also apply the extra interest savings to your monthly payment and reduce your mortgage term for six years and ten months.
3. You can quit smoking and save thousands of dollars on life and health insurance.
You can save money by not buying cigarettes. The average cost of cigarettes is $7.65 per pack in the US. According to the CDC a single pack per day will cost you $2792 annually.
That’s not all. Smoking can have a significant impact on both life and health insurance costs.
Did you know that smoking has a 50% effect on your health insurance premium under the AffordableCare Act? The cost of your employer-sponsored plan would be $600 per month if your portion is $400. It’s an additional cost of $200 per month or $2,400 each year.
This is especially true for life insurance. For a 30-year-old male, a 20-year policy of term life insurance costs $500,000. The cost for a non-smoker is $20.88 per month, while the price for a smoker is $77. This is an increase of $56 per month or $672 per year.
It is easy to quit smoking and eliminate the cost of cigarettes. A smoking cessation program can help you lower your insurance premiums and improve your quality of life. You should make sure that the insurance companies have approved you to join a smoking cessation program. You will typically have to be a member of the program and a non-smoker for at least 2 years before you get a reduction in your premiums.
However, you will see the benefits in the long-term investment potential and annual savings.
What it will do for your net worth. If you add these three numbers together – $2792 for cigarettes plus $2,400 to cover the higher premium for health insurance and $672 to cover the life insurance premium – the total cost for a smoker’s habit is $5864.
It’s almost enough to pay 30 years of IRA contributions. If the money were invested in an IRA instead of a cigarette addiction, it would grow to $574,700 over 30 years.
4. Create an HSA
We are definitely focusing on healthcare costs and with good reason. Healthcare, which includes health insurance, is the second most expensive expense in most households after housing.
You can’t do much to lower your premiums. However, with the rise in out-of-pocket costs for many health insurance plans, these are becoming important secondary healthcare expenses.
A Health Savings Account (HSA) is the best way to manage high out-of-pocket expenses. If you are single, you can contribute $3,550, while a family can contribute $7,100.
There are four main advantages to HSAs:
- Contributions to this plan are tax-deductible in the same way as an IRA donation.
- You can use the account to pay medical expenses out-of-pocket. This allows you to avoid having to list those expenses on your taxes (which most people won’t be eligible for).
- An HSA can help you budget for medical expenses that could cost you thousands of dollars and disrupt your budget.
- An HSA account can be kept in a brokerage account and used for growth, much like an IRA.
- These earnings are also tax-free.
How it will boost your net worth: Just the tax deduction of an HSA donation can be significant. If you make $7,100 per annum for a family policy and are in the 22% federal tax bracket, you can save $1562 annually on income taxes.
For $153,096 you can save your tax dollars each year by investing at 7% per annum for 30 years.
You can invest the remaining half of your annual contribution if you don’t spend all of your out-of-pocket costs. That’s $3,550 per calendar year for a family policy. The account will grow by 7% per annum over 30 years to $347923, or 7% per annum.
If you add the $347.923 in your account to the $153,096 tax savings you can earn by investing your contributions, you’ll get $501,019 after 30 years.
5. Trade down on the car
AAA reports that it costs on average $9282 per year for a car. The average household has two cars, so the cost doubles to $18,564 per annum.
It is a huge expense and it begs to be reduced!
You have many options. Finance is more expensive for late-model vehicles. The annual cost of a vehicle you own may be cut in half if you trade it for a newer model. You will save $4641 annually.
One is to pay off the car loan, but only one car.
How it will boost your net worth: You’ll get $454,851 if you invest an extra $4641 per year at 7.7% for 30+ years.
What next? Use a website like Kelly Blue Book to find out the value of your current vehicle. Next, create a plan to determine how much car you are able to afford.
6. Your credit card debts can be transferred to a card with a 0% introductory APR
Interest rates for credit cards range from 13.99% to 26.99% annually. If you fall somewhere in the middle, you will pay around 20% on any outstanding balances.
Interest will be charged on credit card debts that exceed $10,000 per year.
But what if you could get rid of that curiosity for at least a little while?
Credit cards that offer 0% interest-free balance transfers can help you do this. Many credit cards offer interest-free periods that range from 12 to 18 months.
The theory is that you can get a new 0% card every time the introductory offer on the previous card expires. This will allow you to continue paying no interest on your credit cards for many years.
If you do, the best strategy would be to use the interest savings as a way to pay down and eventually eliminate your credit card debt.
It will increase your net wealth: You can save $2,000 each year in interest and invest it at 7.7% per year for $196,022 per year after 30 years. However, we recommend paying off your entire credit card balance first before investing in the savings.
7. Save your money to a high-interest savings account
If you’re like most people, your savings are probably in a bank. Your interest rate, if so, is likely to be surprisingly low. You can see the national rate which won’t result in much growth. The banks understand that people open accounts because they have a nearby bank branch.
You can make a difference by choosing to go against the grain and looking for a bank with a higher interest rate. Online banks are insured by FDIC and can offer interest rates as high as 2.00%. These are the best places to save your money.
What it will do for your net worth. Let’s say that you have $20,000 of liquid savings earning 0.07% each at your local bank. In 30 years you will have $20,423.
If you instead invest in a high-yield online savings account at say 1.75% your account can grow to $33,657.
It’s $13,234 more just to change banks. It is easy as pie.
8. Cashback credit cards are available
You probably spend a large portion of your monthly expenses with credit cards because they are so easy to use. You can use that advantage to your advantage by applying for a cash-back credit card.
How it can increase your net worth. Let us say that you charge $2,000 a month on your credit cards, which amounts to $24,000 a year. Earning 2% cash back on your card (which isn’t unusual among cash-back credit cards) will give you $480 in cashback benefits per year.
You’ll get $47,050 if you put $480 annually in savings at a 7% annual rate of return, after 30 years.
For the best cashback rewards and avoidance of interest charges, be sure to fully pay your credit card debt each month.
9. Refinance your student loan
The median student loan debt stands at nearly $33,000. A lot of people owe less than others and some owe even more.
This makes refinancing student debt one of the most cost-effective ways to save.
If you’re an average graduate, you might owe $33,000. Your average interest rate on debt is 7% for loans with a term of 15 years. Monthly payments are $296
Your new monthly payment will equal $235 if you refinance your student loan to a new one at 3.5% interest for the same term and amount.
How it will boost your net worth: By applying a $61 reduction to your monthly payment, which is all interest, to the new loan amount you can reduce the term from 15 to 11 years and three months. You’ll save $10,575 on your loan’s back end
10. You can shop around to find the best auto- and homeowners insurance rates
It is easy to just renew your auto insurance every year, without really comparing rates. Auto insurance rates are constantly changing, so you might be missing major savings if rates have not been compared in the last couple of years. Do not rush to renew your auto insurance policy. Take the time to compare rates and coverage.
The same goes for homeowners insurance. It is possible to walk away with higher coverage and lower premiums if you take the time necessary to shop around.
How it will boost your net worth: Your coverage needs and the priorities you set for yourself based on your individual situation could mean that you could save hundreds upon hundreds of dollars per year in premium costs. That money can add up to a large chunk of your monthly savings.
What next? We have lists of the top car insurance companies and best homeowners insurance providers in the country. It is important to compare rates. We recommend that you use the tools in these articles to do this.