The 4 biggest ways to stretch your income

This post comes from Len Penzo at partner blog Len Penzo dot Com.

The other day I was talking to somebody (who, um, shall remain nameless) who was lamenting the fact that he couldn't find enough discretionary income for an annual family vacation.

I found that fascinating considering that Eddie (oops!) drives a brand-new BMW and lives with his family of four in a modest Southern California neighborhood.

Of course, life is all about choices.

Eddie -- oops, I did it again -- may be upset that he can't afford to take the wife and kids to Hawaii or Yellowstone, but that's his opportunity cost of tootling around town in a brand-new luxury car.

Guys like, ahem, you-know-who are always looking to stretch their income. Heck, to be honest, I think we all are to some degree.

If you're looking to stretch yours to its maximum potential, here are four of the biggest ways:

1. Buy a used car

There are plenty of luxury-car owners who struggle to pay their bills -- or constantly complain they're short of cash.

Why is that?

Well, Experian found that the average monthly car payment last year was $452. According to this handy paycheck calculator, a family of four living in California with an annual household income of $40,000 receives $2,706 a month after withholding of state and federal taxes. That means two car payments would consume one-third of the household's monthly income -- leaving just $1,802 for groceries, utilities, rent and other bills.

Good luck with that.

Nobody understood the financial benefits of used cars better than my dad, who brought home a very modest salary when I was growing up. He saw the folly of driving a new Mercedes to the grocery store each week only to be left with just enough cash in his wallet to buy store-label pork and beans for dinner. As a result, he always did his due diligence and bought only affordable, well-maintained, used cars that he kept for many years.

2. Eat at home

Speaking of pork and beans, almost everyone knows that dining out is horrendously expensive. After running the numbers for my household, I found that we spend an average of five times more money per meal when dining out compared with eating at home.

Eating breakfast at home, brown-bagging your lunches whenever possible, and reducing restaurant trips can free up lots of spare income, folks.

Last year we saved more than $3,500 by simply choosing to eat dinner at a restaurant every other week instead of twice per week. And if you want to stretch your food budget even more, don't toss those leftovers. We save an additional $1,400 annually by eating leftovers at least once a week.

Add it all up and that's enough for a modest family vacation.

3. Refinance your home loan

I've refinanced my home loan five times since 1997, dropping my monthly mortgage payment each time. The last time I refinanced I was interested in ensuring I had the lowest payments possible, so I not only refinanced to a lower interest rate, but I also extended the loan term from 15 to 30 years.

What are the results of all that refinance activity? Well, my initial mortgage payment in 1997 was roughly $1,450. Today it's a less than $650. Over time, I've freed up roughly $800 in additional monthly income.

4. Downsize to a smaller house

Let's face it: A lot of people out there end up buying more house than they realistically need or can afford, putting undue strain on the pocketbook. For those times when refinancing isn't a viable option, you can always consider downsizing to a smaller home.

True, that may seem a bit drastic. But if you've already cut your expenses to the bone everywhere else and you still find it difficult to make ends meet, then drastic times call for drastic measures.

Besides, people downsize all the time. In fact, the other night the Honeybee and I were watching an episode of "House Hunters." In it, a middle-aged couple said they were looking to trade their very large old house for a smaller "green" home that was easy on the environment.

That's not my cup of tea, but to each his own. Still, the couple on TV seemed to have their stuff together.

"I like these two. They're practical!" I said to the Honeybee.

"Really? In what way?" she asked.

"Well, now that their kids are off to college," I said, "they're selling their big old house so they can downsize into something more appropriate. It's a win-win; they exchange their old oversized home for a brand-new smaller house -- and they get to pocket the difference too!"

Not three seconds later, I found myself choking on the cupcake I was munching on after the narrator announced that the couple were in the market for a 3,500-square-foot McMansion (with solar panels, of course).

"So much for being green," the Honeybee snickered, not sure if she was laughing at me or the couple on the screen.

"Or practical," I answered, before regaining my composure. Then, almost as an afterthought, I mumbled, "I wonder if they know Eddie."

"Who?" the Honeybee asked.

"Never mind," I said.

And with that, I grabbed myself another cupcake.

More on Len Penzo dot Com and MSN Money:

• Dirty Harry teaches us a lesson on opportunity cost
• Why watching 'House Hunters' will never be quite the same
• How eating leftovers saves me $1,400 annually
• 13 tips to keep food from going bad
• How to save 50% on groceries this year
• Should you buy a fixer-upper?