10 easy ways to stretch your budget
You can’t do anything about the U.S. consumer price index, the official inflation measurement that is on the rise, giving headaches to people who worry about the consumer-driven economy.
But believe it or not, you are totally in charge of your “personal price index,” and tweaking it to save hundreds or even thousands of dollars a year doesn’t have to hurt -- too much.
Just follow these 10 easy steps:
1. Fix mortgage rate
If you have an adjustable-rate mortgage, refinance with a 30-year fixed-rate loan. Your biggest monthly expense will flat-line -- and eventually drop off a cliff.
Last week, the lowest rate for a conforming 30-year fixed rate was 5.375%, translating into a monthly payment of $2,240 on a $400,000 mortgage. If the best rate is more than what you’re paying on your ARM, and you’re not threatened with an imminent rate hike, don’t call your broker right away. Be patient -- and pay attention, because rates could drop in the near future. Make www.bankrate.com a favorite in your Web browser and check rates at least once a week. Daily, if you’re that kind of person.
Knocking even half a percentage point off will save about $32 a month on each $100,000 borrowed. On a $400,000 loan the 30-year savings would be $46,080.
2. Appeal property tax
If you purchased your home in the last few years, there’s a very good chance you’re paying too much property tax, which statewide is 1% of assessed value but can be more -- as much as 1.25% to 1.5%, depending on additional local assessments.
Property values in most parts of the state have been plunging. In January, for instance, the median home price in Los Angeles was $458,000, down 11.9% from a year ago, according to DataQuick Information Systems.
The silver lining in this black cloud is that the county will reassess your property to reflect the lower value, but you may have to fill out a form to get the ball rolling. That can save you hundreds -- maybe thousands -- of dollars. Consider: The median Orange County house is worth $520,000 today, versus $600,000 last year, and at a tax rate of 1.25% a reassessment would shave $1,000 off the annual tax bill. The caveat: The law says these reductions in value are temporary. If property values jump back up, the assessor’s office can boost yours to the pre-appeal level. Of course, if you think the county is wrong, you can just appeal again.
How do you do it? You’ll find instructions and forms on the websites of your county’s assessor’s office.
3. Plan a weekly menu
Arguably the most expensive items in your refrigerator are the ones that spoiled before you ate them -- all cost, no return. They were probably in the fridge to begin with because they were passion purchases -- all mad-rush, no planning.
To avoid having your vegetable bin turn into a petri dish, never set foot inside a grocery store without a list in your hand. And take a trip back in time. Sit down with your family, your housemates or yourself once a week and make up a menu for each day, like the stay-at-home spouses of yesteryear. Post it somewhere that you’ll see in the morning so you’ll remember to take the pot roast out of the freezer or that today is the day you promised yourself to bring tuna on rye to work for lunch.
Your trips to the market will be reduced, as will be the need for emergency take-out. You’ll be better able to mix up the menu, alternating meat dishes with less-expensive vegetarian selections. You’ll save maybe one gallon of gasoline, at $3.50 a gallon, and $10 on spontaneous food purchases each week -- a total of $702 a year.
4. Be smart about snacks
As the parent of a constantly ravenous teenage son, I’d guess that a good portion of the average family’s eating-out bill -- which exceeds $2,700 annually -- stems from swinging through a fast-food joint to pick up an after-school bite. Personal experience says that anything I get at Burger King is going to cost a minimum of $5. Meanwhile, my 15-year-old will just as happily heat up frozen Costco burritos, which cost 37 cents each (in the handy 24-pack). In other words, one meal at Burger King costs the same as almost a week’s worth of burritos, assuming he has two a day, and my guess is that the burritos are marginally more healthful. If you always keep sliced carrots and celery in the fridge, that helps with lunches and snacks too.
5. Telecommute
Long gone are the days when we paid for long-distance calls on a one-off basis, racking up hundreds of dollars in charges for yakking with Grandma in Michigan. Now that most phone companies have flat-rate plans, working from home isn’t likely to generate a huge phone bill. But driving to work every day can bankrupt you.
If your office is 20 miles way and your car gets 20 miles to the gallon, you’re spending about $7 a day. If you telecommute two days a week, you’ll save $14 a week, or $728 a year. And since no one will be interrupting you for meetings or lunches, you might get your work done more efficiently too.
6. Shop for life insurance
If it’s been several years since you’ve checked out life insurance, you’re in for a nice surprise. Term life premiums have dropped dramatically.
A person who bought a $500,000, 20-year level-premium term policy a decade ago, at age 35, is paying about $700 to $800 a year, says Byron Udell, president of AccuQuote, a Wheeling, Ill.-based insurance brokerage. If that person is still in good health, he can replace the remaining 10 years on the policy at less than half the cost -- about $310 annually. And a 45-year-old would pay about $625 annually for a 20-year level premium term policy today.
7. Check health coverage
If you’re in a two-income family and both employers offer health insurance, make sure you spend some time evaluating the costs and benefits of each plan. In recent years, employers have moved toward subsidizing employee-only coverage far more heavily than family coverage. For a couple with no kids, that often means it’s far cheaper to cover each spouse at his and her own workplace.
The analysis gets more complex for families with children. In some cases, it’s most cost effective to buy family coverage with just one employer, though some families are reluctant to put all their health benefits in one basket. The worry is often misplaced because many plans allow employees to enroll mid-year if they’ve had a significant change in life circumstances, such as a job loss, which caused them to lose other coverage. In any event, if you’re otherwise tempted to do something un-economic, like doubling up on health plans, it’s worth a phone call to find out.
8. Quit smoking
The $4.50 to $5 per pack is just the start of what smoking costs. Those great term life insurance rates quoted earlier, for example, evaporate for anyone checking the box for “smoker.” Instead of paying $625 for a $500,000 policy, a 45-year-old smoker would pay about $2,500, Udell says.
Health insurance rates also are increasingly differentiating between smokers and nonsmokers, even in workplace plans.
So that pack-a-day habit adds up to $1,825 a year for cigarettes alone. Add the life insurance costs of about $1,875 and you get an annual bill of $3,700 -- before you account for the potential additional doctor’s visits, dry cleaning bills and other ancillary costs of smoking.
Smoking is relaxing, you say? For the cost, you could spend a lovely week in Hawaii.
9. Pay down debt
I don’t have to tell you how foolish it is to carry a balance on a credit card: If you buy something and leave the debt on an 18% card you’ll have paid for the item twice in less than five years. But some smart people will tell you that the same doesn’t hold true when you’re borrowing against your home because this debt is tax deductible, and many otherwise savvy advisors will even urge you to use a home equity loan to finance a car.
This is insane.
Yes, mortgage and some home equity debt is tax deductible, so that, in simple terms, each dollar you pay in mortgage interest will cost you only 60 to 70 cents. But listen, you’re still out 60 to 70 cents.
To that the mortgage debt advocates will counter that mortgage debt is cheap, that you could invest your money at a higher rate of interest and come out ahead. Maybe, but certainly not lately. The savings from paying off debt is a sure thing; the benefit from investing is a speculative thing.
If you manage to save some money out of your monthly budget by following the previous tips, use at least a portion of that to pay off -- in this order -- your credit cards, car loans, personal lines of credit, home equity lines and, finally, the mortgage.
10. Use rewards cards
True confession: I am a credit card junkie. I use plastic to buy clothes, books, groceries. I’d use plastic to pay my mortgage if I could. Understand, I never have a revolving balance. As soon as the bill comes, I pay it. So, all I get from using a credit card is “float” -- about 20 extra days to pay -- and “rewards” of cash or gift certificates.
In an average year, these rewards pay me between $400 and $600.
My criteria for a rewards card is simple: I want a no-fee card that pays cash or provides gift certificates for something I use frequently: books from Amazon and groceries from Costco, for instance. I don’t want miles that I might have trouble using to book a trip; or “points” that can be redeemed only for merchandise; or credit on hotel stays. And, incidentally, I couldn’t care less about the card’s interest rate because I never pay it.
Want to find a rewards card that meets your criteria? Point your web browser to www.cardtrack.com and click on “search cards.”
The one caveat: Make sure you have the discipline to pay your cards off every month and never purchase something that you wouldn’t otherwise buy just because you’re using plastic.
