Fixing your fixed expenses can save you thousands a year.
Saving money on the things you thought you couldn’t save money on
I call them the repeatable expenses or the repeatable offenses … and they add up over the years. I’ve tackled my own over the years and [the savings] really do add up to thousands a year if you stay on top of it. — Kerry Taylor, author, 397 Ways to Save Money
Personal finance guru David Bach coined the term “the Latte Factor” as a metaphor for how money is wasted here and there on small things that have a big financial impact over time.
But rather than targeting the occasional mocha frappuccino to save money, you might want to start by fixing your “fixed expenses” — the monthly costs to live your life: your insurance costs, your cable bills, your bank fees, for example. You tend to set them and forget them; but even these supposed set fees can be trimmed.
“I call them the repeatable expenses or the repeatable offenses … and they add up over the years,” says Kerry Taylor, creator of the personal finance blog Squawkfox.com and author of 397 Ways to Save Money. “I’ve tackled my own repeatable expenses over the years and [the savings] really do add up to thousands a year if you stay on top of it.”
To help you reduce your personal overhead, here are ways to save money:
Car and home insurance
Has there been a change in your circumstances and you will be driving less? Did you get a new job closer to home? Are you retiring? Are you going on maternity leave for a year? When I let my auto insurance company know that I would no longer be commuting to work every day, my premiums dropped by $150 a year.
Namedrop your alma mater. Your alumni status could get you big savings with insurance companies; compare the home, auto, life and health insurance plans associated with your alumni status to other plans. You stand to save at least 15%, Ms. Taylor says.
Bundle your car and home insurance with the same company and you’ll get an average of 15% in savings. You and your spouse will get further savings if you both use the same insurer.
Increase your deductible. “If you raise your deductible from $500 to $1000, you can save about 15% immediately,” Ms. Taylor says. “You have to sit down with your home and auto insurance provider and see what makes sense for you.”
Pay in a lump sum. If you pay your premiums monthly, you might be facing some extra administrative fees. If the one-time fee is too much to stomach, set money aside every month to cover the premium when it comes time to renew.
Consider getting an alarm system for your home; a system connected to a central monitoring station could get you a 10% to 15% discount on your premiums. An anti-theft system in your vehicle might also get you a cheaper rate; in Quebec, for example, it could lower your premium by up to 25%.
Ask f or any discounts available: seniors discount, a claim-free discount (for homeowners who have been without claims for several years), etc. You don’t ask, you don’t get.
Bank fees
Check if you have the right bank account for your everyday needs. Maybe you pay for the super plan but you don’t need unlimited transactions every month. Or maybe you don’t get enough transactions and are paying excessive a la carte fees. Meanwhile, some banks will waive your monthly fee if you keep a minimum balance.
Switch to a free bank account. Financial institutions such as President’s Choice Financial or Tangerine or some credit unions offer no-fee banking. “The biggest obstacle to switching banks is the amount of time it takes because your life gets locked into that chequing account,” Ms. Taylor says. “Make a list of all the things that get deposited in that chequing account and slowly move those amounts. You don’t have to do it all in one day.”
Go digital. TD, BMO, Scotiabank and CIBC charge customers up to $2 per month to receive statements by mail. Opt to receive your statements or bills online or by email. (This applies to your cable, cellphone and wireless bills as well; some companies charge between $2 and $3 for paper bills.)
Debt payments
If you have monthly interest payments to service your debts, consider talking to your financial institution about your loan. Ask for reduced interest rates for a period so you can catch up and tackle that principal which will result in you paying less interest over time.
Transfer your debt from a high interest account into one with a lower interest rate, or consolidate your debts into one low payment. But watch out for transfer fees and caveats. If you transfer your debt, check what these low rates apply to — some don’t cover new charges. Also, how long does this low-interest period last? Make sure you pay down the debt within the low-interest period; sometimes rates can rise higher than what you were paying before.
Did you miss a payment and got dinged with interest charges and a $20 to $35 late payment penalty? If you’re a good client with normally good behaviour, it might be worth calling the company and explaining your honest mistake. Sometimes you’ll get some money back.
Utility bills
Install a programmable thermostat. “It’s a one-time cost of $30 and automatically turns down the heat when you’re asleep or away at work,” Ms. Taylor says. B.C. Hydro says that if you set your temperature at 21 C during the day and then turn it down to 16 C at night, you could save $99 a year.
Cut energy vampires. Switch off your computer when you’re not using it ($16 in savings a year, says B.C. Hydro), unplug chargers ($3), turn off a single light ($4).
Fix up the house. Install a high-efficiency shower head (save $22 a year in electricity). Stop drafts with weather stripping ($8). Switch to compact fluorescent light bulbs and save $5 a year per bulb. Do your laundry outside of peak hours. Hang half of your laundry to dry (save $50 annually) and wash in cold water ($48).
Mortgage payments
Your mortgage is going to be one of your biggest fixed expenses. If it’s up for renewal, absolutely shop around. Visit your branch. Consider getting a mortgage broker. Dig your heels in for a negotiation.
Consider refinancing your existing mortgage. In the past year, of the 2.2 million people who renewed or refinanced their mortgages, 1.2 million saw their rates fall, says the Canadian Association of Accredited Mortgage Professionals (CAAMP). Not only does that mean lower monthly payments, but it allows homeowners to apply more of their money to principal as opposed to interest.
For example, a $250,000 mortgage at 4%, amortized over 25 years, has a monthly mortgage payment of $1,315.06, but if you lower the rate to 3% — the going rate on a five-year mortgage — your monthly payment drops to $1,183.12. (Keep the payment the same and that extra $131.94 can be applied to principal, which will ultimately mean your loan is paid off more quickly.)
However, this won’t be beneficial for everyone. Talk to your lender or a mortgage broker about your options and what penalties you’ll face if you break your mortgage early (it could be three months interest or the interest rate differential, for example). Also, the closer you are to maturity, the better. “If you’re in the last year, definitely shop around and ask lots of questions,” says Jim Murphy, president and CEO of CAAMP.
Groceries
Shop at discount retailers. The quality of produce is the same or even higher at a discount retailer as compared to its premium store, Ms. Taylor says. “The only difference was cost. You’re going to save 40% easily on your fruits and vegetables by just shopping at a discount retailer.” Switch to no name and generic brands. “A lot of them have a satisfaction guarantee on the box. If you don’t like the product, bring it back. You’re going to easily save 30%.” Shop at your local dollarstore, even for food. If you’re concerned about items being beyond their best before dates, visit bigger locations with higher turnover, Ms. Taylor says.
Telecom
If you’re unhappy with your plan, call your provider and ask to be transferred to the customer service department. Also, shop around and be armed with information. “It’s an extremely competitive market,” says Mark Goldberg, a telecommunications consultant based in Thornhill, Ont. “There are lots of different deals to be had, lots of places to buy both your devices as well as your monthly services. It’s worth ... negotiating the same way you’d expect to negotiate for a car.”
If you call to cancel your service or switch providers, most companies will transfer you to a customer retention department power to offer you better deals. “If you’re sincere, it’s a really good tactic because they’ll always offer you a deal,” Ms. Taylor says. “Or call them up and say I want a better deal.”
Or just dump cable for real. Ms. Taylor bought a $3 HD TV antennae from a dollar store and cancelled her cable. “It works like a charm. I get about four channels. The person in the house next to me gets 12 channels,” she says.
Understand your cellphone usage to get the right plan. Also, be careful with apps that eat up data such as YouTube, Netflix, etc.
Bundle your services with one company. “The more services, the better the deal,” Mr. Goldberg says.
If you don’t use it, ditch the landline.
Do you need a long-distance plan? Or can you call within Canada and the U.S. for free using Google Talk? Why not set up a Skype account?
If you don’t need the latest and greatest digital toy, consider buying your own phone and getting a cheaper plan. Ms. Taylor compared a contract plan that includes a cellphone with a prepaid plan in which you buy your own phone and calculated she’d save almost $500 over three years with the latter.
Plan as a household. If you add another line to your cellphone plan, both you and the additional user can save, typically 10%. Are you paying for extra things when you don’t use them? Are you paying for specialty channels, the pet channel or the golf channel, that you don’t watch? Call your telecommunications company and downgrade your plan.