I’m sure you are familiar with the “latte-factor”, which was popularized by David Bach in his Automatic Millionaire book series. For those of you who are unaware of this, it is the idea that cutting out small expenses from your budget, like buying coffee, adds up over time. If you can find a few things to cut from your budget, over time, you will have saved a nice sum of money.
Personally, I have nothing against the latte-factor. I think it is a good idea. However, I think you shouldn’t just focus on the small things that you spend money on. I think you should also focus on a few big things that can also have a dramatic impact on your finances.
For most of us, cars, houses and insurance are our largest expenditures. Over the years, we pay very large sums of money to our mortgage company and our insurance company. Why not look to save money there?
Car & Home Insurance
For many, this expense rises over the years and we just accept it. This is a big mistake. You need to review your insurance coverage and shop around for better prices on an annual basis. Case in point, this past weekend a friend and I were talking. She told me how much her car insurance was. She showed me her policy and I was surprised at how much she was paying. I encouraged her to get a few free quotes just to see if she was paying an inflated amount. She jumped online and spent 10 minutes getting free insurance quotes from Geico and Esurance. In both cases, her premium would be close to $300 lower with these companies than her current one.
I told her that she shouldn’t just pick to the cheapest insurer. She should check out some reviews first just to see how they stack up when it comes time to submit a claim. I also told her to check out a few insurance providers that offer both home and auto insurance because by combining them with one insurer, she will qualify for multi-line discounts, which should save her even more money.
Personally, I was with one insurance company for over 10 years. My policy kept rising even though I never made a claim, nor had a speeding ticket or accident. I shopped around and found I could save over $150 per year with another insurer that was rated even better than the one at that time. I jumped ship and didn’t look back. Now I get a free quote each year just to see if what I pay is reasonable. I encourage you to do the same. Again, it takes no time at all and you might realize you are over spending unnecessarily.
One other point with car and home insurance is your deductible. This is the amount of money you are responsible for paying out of pocket should you file a claim. When first driving or owning a home, money might be tight. As a result, the deductible you choose will be low. But now that it has been a few years and you have an emergency fund established and you are stronger financial ground, you need to raise your deductible. Choosing to pay $1,000 out of pocket as opposed to $500 will lower your premium.
Going back to my friend, her quotes were “apples-to-apples” meaning we kept everything the same when comparing policies. Then we raised her deductibles from $500 to $1,000 and her savings were even greater. If you choose to not get a free quote, at least review your deductible and raise it if you can afford to do so.
With the drop in housing prices, many homeowners are still underwater. If you are one of the few who is not, I encourage you to look into refinancing. Rates are at historic lows right now. As of this writing, you can get a 15 year fixed mortgage for under 3%. When you factor inflation into the picture, that is essentially a 0% interest rate!
This was another topic I discussed with my friend. She refinanced a few years ago to 5.375% 30 year mortgage. She can now refinance into a 15 year fixed mortgage and her monthly payment will increase by $200 per month. She will pay off the loan 15 years faster and save over $130,000 in interest.
Your first step in the process is to see what your current lender can do. From there, get a quote from one or two other banks just to make sure you are getting the best rate possible.
For the most part, avoid buying a new car. When you factor depreciation into the mix, it’s a losing battle. The only scenario where you could justify buying a new car is if you keep the car until the wheels fall off, it has been a reliable vehicle in the past (meaning you could get 200-300,000 miles out of it) and you either pay cash or can get an interest rate under 3%. Otherwise, your best bet is to buy a car that is two or three years old that is in great shape. Doing so will save you thousands of dollars.
Also, try to stay away from sports cars or other types of cars that carry high insurance premiums with them. This will also save you money over the life of the car. Lastly, make sure you follow the maintenance schedule for the car as well. It may be a pain to take it to a mechanic (not the dealership) and have the routine maintenance completed, but doing so will greatly improve the chances of the vehicle lasting for as long as possible.
(Note to readers: if you click on the link for the insurance quotes and get a free quote from any of the insurers listed on the page, I do get compensated. Thank you in advance to anyone who completes a free quote.)
Readers, what are other areas that you can save a lot of money?