12/29/2011 5:53 PM ET|
How to save $5,000 in 2012
Take a look at where your money goes now; some strategies that can add up to major cash are painless -- or nearly so.
Saving $5,000 may seem like a tall order. But when you review your finances piece by piece, you may be surprised by how fast things add up. This year, why not make a New Year's resolution to meet that goal?
Where are you now?
Before you can begin to save, you need to understand what you're really spending. "People who don't know where their money is going aren't really able to start saving it effectively," says Tracy East, the director of outreach with the nonprofit Consumer Education Services.
People tend to underestimate their spending, so East recommends keeping track of where your dollars are flowing for at least 30 days. Last year, the average family spent slightly more than $48,000, according to the Bureau of Labor Statistics. Of the largest categories, about one-third went to housing, 15% to transportation and 12% to food.
And while those major areas are great places to start evaluating, it helps to examine every aspect of your finances if you're serious about saving $5,000. The categories below are all fine areas to begin trimming your costs.
Hang up your phone
One easy place to start hunting for savings is your phone service. Leah Ingram, the author of "Suddenly Frugal, How to Live Happier and Healthier for Less," says for years she had separate home, business and fax land lines. "It's really unnecessary for this day and age," she says.
She eventually switched to one land line, and eliminating the two other saved her $1,600 annually. That means that even if you have only one line to eliminate -- and many people are able to do this by relying solely on a cellphone -- you could still pocket $800 over the year.
East also suggests examining your television habits. If you don't make use of most channels, look for a smaller cable package. It's also possible to negotiate prices, particularly in markets with stiff competition. Her husband spent two hours on the phone with their cable provider and got their bill cut by $45 per month -- a savings of $540 per year.
Trim your utilities
There are countless ways to save on utilities. Not everyone feels confident enough to tackle a big project like installing an energy-efficient furnace, but even small upgrades, such as installing a programmable thermostat, can promptly earn savings, says Bob Harris, the CEO of WhiteFence. According to Energy Star, a programmable thermostat can save a homeowner up to $180 on utility bills each year.
Even if your new thermostat costs $100 -- and there are many available for much less than that -- you can make back that investment and save $80 the first year.
Eat well, save well
Food is a major expenditure -- whether you prefer dining out or eating in -- which means it's also a great place to find savings. June Walbert, a certified financial planner with USAA, notes that going out to lunch can easily cost $10 a day. But eating out only once and bringing a lunch to work or eating at home the rest of the week -- even if it costs $5 per day -- can produce a staggering savings of $1,560 a year.
Walbert also suggests buying generic and store-brand products, which often cost 30% less than name-brand items. If you spend the household average of $5,760 each year on premium brands, switching to store brands on only half of your items could save you $864 annually.
Finally, you can help your waistline as well as your wallet by substituting tap water for soda. If you normally spend $1.50 a day on soda, dropping that expense can shed $550 per year from your budget.
Revisit your insurance
Ingram says you shouldn't be afraid to switch insurance companies, even if your current company offered you a great deal a few years ago. The company that offered the best rates five years ago may not be the best choice today.
Insurance.com reports that the difference between the highest and lowest quotes for car insurance amounts to $750 annually -- and that difference can increase if you earn a discount by keeping all of your insurance policies with one company.
If you add up the potential savings above, you'll find they equal $5,134. And these savings hardly represent the total realm of possibilities. Once you begin looking, you'll find there's virtually no end to the potential savings in your budget.
Once you've started saving cash, you need to figure out where to sock it away. Walbert says your strategy should align with your goals. If you're building up emergency savings or aiming for a short-term goal, such as paying for a vacation, keep it in a savings account or short-term certificate of deposit.
If your goal is five or 10 years away, she recommends short- and intermediate-term bond funds, which are relatively low risk and typically earn more than savings accounts.
And if you're planning to save for 10 years or more, stocks and mutual funds are an option, she says, but with today's market volatility, "it depends on your tolerance for risk." After all, saving $5,000 may be less painful than it first seems, but it will hurt to see it diminished through poor investments.
VIDEO ON MSN MONEY
The biggest benefit is we are not bombarded with temptation from advertisements telling us about all the stuff we are missing, and trying to get us to buy.
We have basic cell phone service. $33.00/month. We have not convinced ourselves that we need phone with data capability. We don't need GPS. Google maps is free.
We eliminated our HOA and community fees by moving out of controlled neighborhoods. We no longer have country club fees or golf memberships or health club memberships that we rarely used anyway because we were spending all of our time working to pay for them.
We drive well maintained 10 year old cars. This allows us to drop expensive collision and comprehensive coverage and pay only liability. If we have an accident the car will likely be totaled anyway, so we'll just buy another clean 10 year old car. We've saved enough in insurance premiums to buy any car we want, but we'll continue to drive older vehicles rather than waste the money on a new car.
Doing all of the above, and a few other things, has allowed us to save enough for me to retire at 48. That was seven years ago.
And we're living really well without all that stuff we originally thought we needed.
This article really could have been shortened down to one sentence: Be realistic - figure out what you NEED and what you WANT.
BOOM, problem solved. Its survival of the fittest in this economy, time to be smart.
@MydogTonto, I was so glad to see your post. I am not a spendthrift, but after working in hospice for many years, I saw that "saving" money is not the only goal. I watched as people saved for the future to the point of not enjoying the present, and they became terminally ill and never got to do those "future" things. A good balance allows for some enjoyment in life, and each person gets to choose what is enjoyable, be it eating out upon occasion, enjoying television, feeling safer with a landline telephone, etc. Everyone spends money; we just spend it on different things. If you are deep in debt, seek professional counseling...not depending on an internet article. Thanks.
Cooking lessons? $5.00 for a12-pack of cokes? Where do you live, New York? And saving $5000 dollars is just a small feat. I'd be more interested in saving 10K. Folks, they make coupons for a LOT of stuff these days, and it's not hard to find them. Groceries, fast food, dining out, clothing, appliances, activities, entertainment, almost whatever you want to do or have has a coupon, at your fingertips, to make it cheaper to do or get. Stop being lazy and use them; you will find money in your pockets like you never knew.
Also, being debt-free is such a wonderful feeling,,, having a 6 or even 12-month emergency fund on top of that is like walking on air. Remember that, it's true.
I have 15K saved and continuing to save. I hope it pays off because there is NO guarantee on anything. All one can do is hope. You never know which way things will go. The only thing that can save you these days is no debt. Savings means nothing when you are laid off (thankfully not my case) or have a severe illness with no coverage or not enough coverage (again thankful I dont have that issue). Life is delicate...overplanning means you miss out on it and underplanning means you suffer in it. Even a happy median can become "not enough".
I paid off one student loan this summer and working on the second and last. I save about $1300/mo. I have a nice home I can afford. No credit card debt, no car, no personal loans. I have cable and internet (bundle package) and a cell phone. I dont beleive in giving up luxuries if you dont have to. I have nothing to prove to anyone and I have no kids and am single with a good income. If you can afford it fine, if you cant, then dont. Just dont cut back to please others and play a hero and dont overspend to keep up with others.
Save some money but dont hoard otherwise the universe will provide a reason for you to spend it. you cant take it with you but make it last!
Look just live within your means. My wife and I have lived a good life....we traveled...lived in nice homes but we were fugal. Saved when and where we could..used coupons..didn't buy a new car off the lot but one that had between 2000 and 10000 miles on it. We paid for our daughter's college....she owns nothing and we own nothing....to a top private college. I started my daughter's IRA when she was 8 yrs old. it's well over 10000 dollars now. We try to save where ever we can.
U just have to look at what's important in life and send accordingly. Too many people see having a Ipad/blackberry/touchpad and all the many way people now want to communicate as important. We have a landline fone and 1 cell fone from our local fone ccompany with no big add ons......one desktop computer and that's it. If someone needs me they call or email. We don't need all that other crap.
Remember...it's what's important to u in life...not necessarily what the Jones' have that important.
I COULD go even further and cut out my car and go with mass transit, but right now, it's only costing me $45/mo. for insurance plus whatever repairs come up. Should those repairs start mounting, I may try the carless life (I live with someone who has a car) just to see how hard it would be. Simplify. Simplify.
"June Walbert, a certified financial planner with USAA, notes that going out to lunch can easily cost $10 a day."
Thanks June, I never would have figured that out on my own.
And what percentage of homes do you think have fax machines?
I have done all this and more. These are common-sense solutions and other ways to save money aren't even listed.
So how do I save $5,000?
Assuming that this is referring to $5000 cash to stick in the bank as an emergency fund, etc., the absolutely best way to save that money is to claim single, 0, and 0 on your tax filing forms....
Yes, I know MSN will say not to do that because you are giving the government an intrest free loan, but last time I checked about the best you are going to do in a bank with a traditional savings account (no minimum balance, assuming you are starting at 0) is about 1% or $25 averaging the $5000 for the full year. If you get a big refund back in the spring, it is easier to put that money into an account and forget about it, than it is to try to put ~$100 in the bank a week when it is going right into your account.
.... and db - No reason to be an a$$, maybe Yak has a different phone company than your friend works at. They all do things slightly differently.
Think about it. If I want to get my weight in order, and I want to get my spending fine tuned, then what I buy at the grocery store, how I spend on functional clothing should in the long run, be an investment in me, and as a side effect will put my finances in order because my life is more fine tuned. When focused on fixing, begin with the basics. If fixing me, getting healthier gets me long-term less medical costs, bravo. If I enjoy doing the food prep, swimming, and such at they rec center, bravo. If I find a 64 cent reward coffee for the month every day at Starbucks under the Christmas tree, bravo. At the end of the month, I might be able to save 10 dollars on my income, but the long term investment in myself, physically and mentally is actually more necessary than that 10 dollars. If I don't have my health, and well-being what amount of money in the bank will make me live a better life?
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