Friday, December 31, 2010

Save Big by Saving Small

With the New Year upon us, the number of media stories on financial planning is exceeded only by the number on weight-loss. Most of us don't need sweeping changes to our finances. However, identifying and avoiding small-dollar losses can add up over the course of a year. Here are some small ways to save big.

Compare weight not size. For food items, large containers often cost more than small ones. But, frequently the actual amount of food in the big container is the same or only slightly more than the smaller one-usually not enough more to justify the higher price. Compare the price per pound-in small print-when you shop, not the large-print price per container.

Buy only the amount of food that you need. Bulk purchases to "save money" can actually cost more when items are thrown out after spoiling. When you shop, ignore the suggested number of items to purchase. Signs created by retailers, such as "2 for $5," or "4 for $10," are for their convenience, not yours. In most instances a purchase of a lesser number of items will be automatically pro-rated at the register. If that doesn't happen, buy from a different store.

Consider the total cost of a purchase rather than just the price. Long distance drives to chase sale prices can cost more for gas than you save on the purchase. Visit ComputeGasSavings to determine how far you should drive for a lower price. Even chasing down low-price gas can get expensive. At $3 per gallon and climbing, driving long distances, or idling your car in long lines to save a few cents per gallon on gas, can cost more than the savings.

Start a savings fund for home and vehicle repairs. Because few people budget for these recurring expenses, most are forced to pay with credit. Paying cash for needed repairs is much cheaper than accumulating credit card interest. Look over your repair receipts for the past couple of years to get a feel for how much you spend. It could easily be $1200 to $1800, over the course of year. That averages to $100 to $150 per month. Start setting aside $100 per month now for repairs so that you are financially prepared for these "emergencies."

Ask your insurance agent how much you would save by increasing your deductibles. Over the long run it might be cheaper to pay out-of-pocket for life's little mishaps than to pay extra year-after-year for a low deductible. Would you pay for a small repair (less than $500) on your own rather than report it to your insurance company and risk a rate increase? If the answer to that question is yes, your deductible should be $500, not the standard $250 that comes with most policies.

Avoid Extended Warranties. Almost all electronic devices and appliances become obsolete before they break down. Lots of people have stories to tell about an extended warranty on a new purchase that proved valuable. But, these same people forget about the dozens of problem-free devices that they have bought through the years. A 10 to 20% extra surcharge on each item for an extended warranty added up to far more than the cost of that one repair. If you make it a rule to always decline extended warranties, you will save more than enough money in the long run to pay for the few repairs that you actually need.

Increase your retirement contribution the next time you receive a raise. Put half of the additional income into your retirement account. You will save on taxes, increase your future retirement income, and still see more money in your paycheck.

In fact, if you examine some of the small ways to save money that I've mentioned, it's possible that you could find $100 per month of unnecessary expenses. That is the equivalent of a raise that could be set aside and invested for the future.

Joseph Ganem is a physicist and author of the award-winning The Two Headed Quarter: How to See Through Deceptive Numbers and Save Money on Everything You Buy