Everyone wants to save money these days. The economy is struggling, energy costs are still high, retirement accounts have been decimated, so finding ways to stretch your dollar have become more popular than ever. But what are the best ways to save money?
I stumbled across this article by CNN Money that lists the 7 best ways to save $2,000 a year. Sounds intriguing. I’d like to save an extra two grand a year, so I had to check it out. Besides, these are the best ideas, right? Let’s see how they stack up.
I’m going to go ahead and agree with them and say that transportation is probably one of the top ways to save big money. Transportation is expensive regardless of what you use. If you own a vehicle, you have to buy it, pay for insurance, keep it maintained, and fill it with gas. If you don’t have a car and rely on other modes of transportation, those costs add up too. Whether it’s a taxi, the subway, bus, train, or whatever, you will have a regular expenses there too.
But they recommend getting a scooter instead of a car. Really? A scooter? Aside from those who happen to live in a large city or relatively close to their job, this is a fairly impractical tip. Obviously if you could get rid of a car, cut out a monthly payment and cut your gas consumption by 80% it would result in saving a few thousand as they suggest. But for most people, this simply isn’t an option, especially in cities that aren’t designed with slow and small vehicles like these in mind.
Here’s a better idea. Since transportation is costly and does make up a large part of many people’s budgets, start by avoiding some of the major car buying mistakes. If owning a vehicle is a necessity, simply making a few good decisions at the time of purchase will easily save thousands of dollars over the life of the vehicle.
Next, they say you can save about $1,000 each year by using cash instead of plastic. There is a study that says people do spend more with plastic compared to cash, so if you switch to carrying cash you can keep your spending under control. I know that some people do find this is true, whereas others actually seem to burn through cash even faster than when using plastic. So, I think your mileage will vary.
In addition, there are drawbacks to using cash. You don’t have as much purchase protection, security, and you have to actually keep the money on you which could get lost or stolen. And let’s not forget the possible rewards or cash back that might be eliminated by switching to cash. So while using cash may be able to save money for some people, the benefits are minimal given the drawbacks. Using cash is the second best way to save $2,000 a year? I don’t think so.
Buying alcohol at a restaurant is expensive. There is no mistaking that. In fact, everything you buy at a restaurant is usually more expensive than if you were to buy it on your own. But what I find amusing is their solution to saving money on wine.
Strategy: Bring your own wine to your biweekly restaurant dinner.
Based on: $18 store-bought bottle plus $10 corkage fee vs. comparable $45 bottle bought at restaurant.
I just had to laugh. Bring your own wine to the restaurant? Maybe this is allowed in some establishments or states, but around here this is unheard of and would be strictly forbidden. Not only that, but this addresses just one tiny aspect of the whole eating out experience. It’s the eating out itself that’s costing you money, not just the wine. That $40 steak you ordered could be had for less than $10 if you went down to the butcher and bought your own. What are you going to do, start bringing your own food to the restaurant along with your wine and just tell them to cook it for you?
Here’s an idea. Just stop eating out as much. Period. A married couple that cuts just one $50 meal for two out of their weekly budget can save over $2,000 a year alone. Pack a few lunches or make use of leftovers better and you’re easily into the $3,000-$4,000 in savings a year territory. It isn’t just the wine that can save you money.
4. and 5. Homeowners Insurance and Auto Insurance
I’m combining these two since they are both just types of insurance with basically the same advice. They say you should shop around and raise your deductible. Good advice here, because it is possible to save decent money if you can find a company offering a better rate, and if you raise your deductibles you’ll lower your premiums.
Raising your deductible on your homeowners insurance is probably one of the best ways to save some money. Homeowners claims are pretty infrequent, and generally when you do have a claim, it’s going to be for a relatively major repair. If you have a low deductible you could easily be spending a couple hundred dollars a year away.
While this is a good strategy for your home, you have to be careful when thinking about your auto insurance. Again, higher deductibles mean lower premiums, but keep in mind that your car has a far greater chance of getting damaged. You want to strike a balance between deductible and premiums. Having a low deductible will mean relatively small claims can be covered by insurance while high deductibles can mean you’ll be paying for more out-of-pocket if you have claims that don’t exceed your deductible.
6. Energy-Efficient Appliances
This is a good tip that’s lacking in detail. They recommend updating your washing machine for a savings of $145 a year. It’s true that an energy-efficient washer or dryer will use less energy, but you have to look at the total cost and benefit. Keep in mind the cost of buying a new appliance. If a new energy-efficient washer will set you back $500, meaning it will take three and a half years to break even.
Again, it’s a good idea to save money on energy, but their advice misses the boat. First, the savings is minimal with their washer example, and second, it isn’t even one of the common appliances that qualify for a tax credit. If you really want to make a dent in your energy bill, look no further than the water heater. Water heaters alone account for between 10-20% of a home’s energy use, so updating to a new efficient model can amount to pretty substantial savings. But to top it off, you get a tax credit for an energy-efficient water heater. That’s certainly where I’d look before considering a new washing machine.
But don’t stop there. There are a lot of ways to save money with new energy efficient items in your home. As light bulbs start burning out consider switching to CFL bulbs. Be mindful of your energy use and turn off the TV, computer, and other items when not in use. A programmable thermostat or shaving a few degrees off of your heating or cooling can have a significant impact as well.
7. Interest Checking
Their last tip almost feels as if they ran out of ideas and just threw this in. They recommend saving over $100 a year by switching to the Schwab interest checking because they reimburse ATM fees. First of all, you’re doing things wrong if you go to an out-of-network ATM every single week and pay the fee. You either need to plan your cash withdrawals better so you can use your own bank’s ATM, use the ATM less frequently, or find a new bank that has more ATMs in your area.
Of course you can avoid this completely if you use a debit or credit card. But even if you want to use cash, you can usually get cash back when making a debit purchase. Go to the store and buy a bag of chips with your debit card and ask for $40 cash back. No need to use an ATM and no fees. Either way, they are talking about saving $2 each week. Obviously, cut the ATM fees out, but there are a million other ways you can save just $2 a week.
What Are Your Top Ways to Save?
While this list they provided was a good starting point, I think there are far better ideas out there, or at least more practical high-impact ideas. So I wanted to open this up to the readers to find out what your best ways to save money are. Do you have anything that results in decent savings with little sacrifice? I’m sure we can put together a far better list than just these seven ideas, so let’s hear your tips.
Author: Jeremy Vohwinkle
My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.