Saving on a Shoestring

You’re looking at a coat. The price is marked down and you’re debating whether to buy it. How about that color TV? It’s 25% off the regular price today. A Porsche sure would be nice, too. Your credit card company says go for it.

We’ve all been there, hundreds of times: the consumer spending crossroads. All too often, when we decide to buy something, we get a nagging feeling that we could spend the money in a better way. It’s usually vague and subconscious, but it can spoil the pleasure we might otherwise get from a product or service. Worse yet, the purchase leaves us without the money we had, money that could have been used for wiser purchases or for savings and investments.

So how do we avoid the habit — and it is a habit — of wasteful spending? One solution is to approach spending positively rather than taking the negative and often futile approach of trying to break a bad habit (just ask any smoker or dieter who has tried to reform). The National Center for Financial Education (NCFE) in San Diego calls this concept “spending by choice” and it works something like this: instead of saying to yourself, “Should I buy this?” you say “This is the amount of money I am going to earmark this month (or this paycheck) for spending. Am I sure this is how I want to spend it?” In other words, you ask yourself how you want to spend your money instead of telling yourself that you shouldn’t spend it.

“I shouldn’t spend this money” is what the NCFE calls “negative input.” Because it’s negative, it’s easy to ignore. That’s how the human mind works. Negative input forces us to rationalize our purchases. “The color is good,” “It’s on sale” and “I really want it” are common examples. With spending by choice, your instinct to spend is still satisfied. It’s like a dieter who cuts back on calories as long as he or she gets some ice cream every day. You’re not trying to completely change your lifestyle and you don’t have to overcome psychological resistance.

Don’t make the mistake of thinking that spending by choice is simple. It’s not. It requires a great deal of practice. Start by giving yourself some options, prioritizing them, and making a shopping list (we make a list when we go to the supermarket; why not for our other purchases?). Ask yourself what else could be purchased, with the same amount of money, that you have needed or wanted for a long time. Compare at least three different merchants for price, service, and quality. Do you see what’s happened? You’re in control. You’ll buy what you really want, regardless of habit or impulse or guilt or advertising. If you form this habit, spend wisely and save the difference, you could be worth a fortune.

Common Spending Errors

Before you can develop the habit of spending by choice, you must understand how you handle money. People usually don’t start saving without changing their spending habits. To save more, you’ll need to spend less, unless you can increase your income. Start by examining the following seven spending errors.

1. Buying on Impulse: Are you an impulse buyer? If so, add up the cost of this habit. Purchasing $15 worth of impulse items each week costs $780 a year. Treat yourself every once in a while, of course, but try not to get carried away. If other people encourage you to spend more than you planned, try shopping alone.
2. Buying on Revolving Credit: With interest rates on most credit cards ranging from 14 to 21%, credit is expensive! A $400 television financed at 15% over three years will cost $490, or almost 25% more than if purchased with cash. If you must shop with credit cards, pay off the outstanding balance as quickly as possible.
3. Buying at the Wrong Time: Buying clothing and seasonal merchandise (e.g., snow blowers and gas grills) at full price when they first arrive in a store is expensive. Before long, the price will be reduced, particularly in years when sales are slow. You also can save money by waiting for newly introduced products (e.g., computers and electronic equipment) to come down in price, by making phone calls at night and on weekends, and by using store coupons.
4. Buying Love or Power: Some people make the mistake of equating love with spending money. Whenever they feel neglected or guilty about neglecting others, they make a major purchase to show that someone cares. Other people use money as a weapon or to cope with stress or depression. When they’re angry at, say, a spouse, they head for the nearest mall to run up bills as punishment.
5. Buying the “Wrong” Product: You can save money by comparison shopping. If you’re planning to buy an appliance, consult back issues of Consumer Report for descriptions of available brands, models, and performance ratings. Many department store brands are actually identical to name brands because they’re made by the same manufacturer. Other money-saving items include store and generic food and household products, generic prescription drugs, and energy-efficient appliances that will more than pay for themselves by reducing future utility costs.
6. Buying Convenience: Time-saving convenience foods are expensive. Single-serving packages of frozen name-brand lasagna, for example, can cost from 250–500% more than a similar-sized serving made from scratch. To save both time and money, bake or cook in batches and freeze the excess. Also, remember that convenience stores are expensive because their markups are higher than supermarkets’ markups. The price differential between the two can total as much as $100 a year if convenience stores are used frequently. Another high-cost convenience item is the alternative operator service phone found in many hotel rooms. Bypass it completely by requesting to be connected to a major long-distance carrier.
7. Buying Status: Easy access to credit has made it easy to purchase goods and services on the spot. Some people get in over their heads when they develop a pattern of materialistic competition with friends or relatives. Money and possessions become equated, in their minds, with success. Status seekers try to buy bigger and better possessions than anyone else because they think that they can prove by the size of their home or the labels on their clothes that they’re more successful.

50 Ways To Live on Less

Now that you’ve reviewed the seven major errors that cause people to waste their hard-earned money, let’s talk specifics. Is it really possible to live on less and save the difference? Definitely. Many people do it every day. Sometimes cutbacks are planned and sometimes they are unexpected. Divorce, disability, a career change, and unemployment are some common situations that may require a reduction in living expenses. Below are 50 relatively painless ways to cut living costs.

Food

1. Eliminate expensive convenience foods and prepared snacks from your shopping list by making them yourself from scratch. Batch cook casseroles and main dishes for use at a later date.
2. Use nonfat dry milk in baking or combined (and chilled) with whole milk for drinking. Nonfat dry milk is cheaper than fresh milk, and having it on hand will reduce emergency trips to the supermarket. (Buy and freeze an extra loaf of bread for this same reason.)
3. Make a shopping list with prices itemized in advance and stick to it. Avoid impulse buying. Don’t go to the supermarket unless absolutely necessary, and try not to shop when you’re hungry or with young children.
4. Search for bargains in the day-old bakery and dented-package bins. As long as cans are not bulging and leaking and other packages are unopened, it’s safe to buy these foods if you use them immediately. Also, shop above or below eye level, where the less costly products on a shelf will be found.
5. Use cents-off coupons and refund forms, but only on products you plan to buy anyway and only when the after-coupon cost is cheaper than alternative products. Send for free samples. Return containers that require a deposit.
6. When values are exceptional, buy another newspaper and revisit a supermarket, if it’s convenient, with a second set of coupons. Another option is to give the second set of coupons to an older child and split up when you go shopping.
7. Use lower cost store-brand or generic-brand products to save money at the supermarket. Store-brand products are often identical to nationally advertised brands and packed at the same processing plant.
8. Stock up on fresh fruits and vegetables when they’re in season and can, freeze, or dry them for use at a later date.
9. Read food advertisements weekly and stock up on products that are on sale. If a store is out of a particular advertised item, ask for a rain check.
10. Cut up your own meat. The more preparation the butcher does, the higher the cost of a package of meat. Removing the skin and bones from chicken yourself, or cutting up stewing beef, could save more than $1 per pound — and perhaps $200 a year.
11. If there are several nearby supermarkets, choose the one that has the best prices each week. Blind loyalty to anyone store can be expensive.
12. Join a co-op that buys food in bulk. By trading off some time and labor, you may be able to purchase food less expensively than at a supermarket. Co-ops can also be found for babysitting and carpooling. They provide low-cost services to help members save money.
13. Read unit price labels and buy the least expensive size of a product based on cost per unit of weight. An exception, of course, are smaller households that don’t need or want the large economy size.
14. Instead of going out to dinner with friends, plan a cooperative dinner party where each guest brings one course. You’ll enjoy a fun evening with a minimum of preparation time and expense.
15. If you’re often stuck paying more than your share when you eat out with friends or co-workers, act quickly: before the other parties offer to split the bill, figure out what you owe, including taxes and tip, and place the cash for your share on the table.
16. If you usually buy breakfast, snack foods, or lunch at work, try to “brown bag it” several days a week — especially if your employer provides a microwave oven.
17. Cook just the right amount of food for the size of your family. This will reduce waste and the possibility of leftovers ending up in the garbage because they remain in the refrigerator for too long. Recipes should be multiplied or divided according to the needs of your household. Wrap food carefully and store it promptly to avoid spoilage.
18. Don’t eat meat every day. It’s expensive, and most Americans consume more than enough protein. Instead, plan a variety of casseroles, soups, stews, and pasta (some all vegetarian); as well as egg (e.g., quiche), poultry, and seafood dishes. In addition to cutting costs, you’ll probably also reduce the fat and cholesterol content of your diet.

Clothing

1. Insist that family members not wear their good clothes for play or for working around the house, especially if the clothing must be dry-cleaned. Use an apron when cooking.
2. Recycle clothing that can no longer be worn or take it to a consignment shop, which will sell it for you and split the profit. A third option is to have a garage sale or sell used clothing at a flea market.
3. Choose basic styles that can be dressed up or down and build your wardrobe around a few colors that compliment you.
4. Select new garments to go with clothing you already own. You should be able to get at least three outfits from each new item (five or more is even better).
5. Look for versatile garments that can be worn most of the year or year-round. Avoid novelty, high-fashion, and faddish clothing, which will soon be out of style.
6. Buy quality, not quantity. Quality clothing lasts longer and looks better. The longer the expected life of a garment, the better the quality should be.
7. Shop at discount outlets and second-hand (consignment) stores. Discount stores sell quality and designer clothing at discounted prices by adding a smaller markup to wholesale prices than do department stores. Consignment stores sell unwanted clothing that is usually carefully screened for stains and flaws, with prices ranging from a quarter to half of the original price.
8. Follow fabric care labels and treat stains immediately. Failure to do so can permanently damage a garment. Fix rips and tears right away. Protect leather items from water and salt. Launder delicates by hand if possible.

Utilities

1. Dry clothes in the house on clotheslines to save on charges at the laundromat or on your utility bill. In the summer, dry clothing outdoors.
2. Whenever possible, write letters or e-mail instead of making long-distance telephone calls. Use a timer to monitor the length of necessary telephone calls.
3. If long-distance telephone calls average $20 or more per month, sign up for a long-distance package.
4. Fill in cracks around windows and doors. Caulk and weather-strip doors and windows to save up to 10% on your energy bill. Place at least six to nine inches of insulation in the attic. Pull-down shades or draw draperies on cold winter nights to prevent heat loss or on hot days when the air-conditioning is on. Use fans instead of air conditioners to cool your home whenever possible.
5. Lower your thermostat by one degree and you’ll save 1–2% on heating bills. Put on a sweater, keep your feet warm, and buy an inexpensive humidifier, which will make your rooms feel warmer when the thermostat is turned down. Turn down the thermostat even more at night and when no one is home.
6. Contact your local utility company for an energy audit or to arrange for the installation of energy conservation measures. Some companies will send a contractor to your home and you’ll be charged only for the materials used. Others provide rebates to encourage the purchase of energy-efficient appliances. Zero-interest loans may also be available for larger energy conservation projects.
7. Invest in no-cost or low-cost energy-saving activities such as an annual furnace tune-up, an insulation wrap on a water heater, and a cleaning of the outside coils on a refrigerator once or twice a year. The biggest consumers of energy in a home are its heating system, hot-water heater, and refrigeration equipment. Anything that enhances the efficiency of these appliances, even a little, can provide significant savings.
8. If your utility offers a discount for electricity usage during off-peak hours (generally nights and weekends), sign up for it. Buy a timer for your electric water heater so that it cycles on only during off-peak hours.

Miscellaneous Expenses

1. Don’t buy the insurance you don’t need (e.g., life insurance on a child). If you have an adequate emergency fund, consider increasing deductibles, such as the collision deductible on car insurance. Also, take advantage of available discounts such as those given to nonsmokers or multi-car households.
2. Don’t buy products sold door-to-door and avoid in-home parties (e.g., kitchenware, etc.) where the temptation to spend is high. Set a cost limit or lid on gifts or make gifts from inexpensive materials. If you receive an expensive gift, don’t feel that you must reciprocate with an item of equal monetary value.
3. Learn to cut your children’s hair and trim your own between professional cuttings.
4. Wash your own car and change your car’s oil, oil filter, and antifreeze. Take an auto repair course and learn how to do your own tune-ups and minor repairs.
5. Avoid incurring needless expenses on your car by performing proper maintenance. Check oil levels frequently, add antifreeze when needed. If you live or will be driving in an area where the temperature drops below 32¡ F (0¡C) in the winter, keep the gasoline tank filled to prevent your fuel line from freezing.
6. Share a ride with others or take turns carpooling to work, school, or community activities. If you routinely drive someone to work or school or if you take someone on a long trip, agree in advance on a reasonable reimbursement and collect it. Consolidate errands that require driving.
7. Shop around for repairs and remodeling and home improvement work. Get several written estimates, references, and a contract before hiring anyone to make major improvements to your home.
8. Cut purchase, rental, and subscription costs on books, records, videotapes, and magazines by borrowing them at the public library. Subscribe to only those magazines and newspapers you have time to read and buy longer-term subscriptions to reduce the cost per issue.
9. If you enjoy going to the theater or movies, attend lower-cost matinees. Also, seek out free recreational/educational activities. Use community resources such as state parks and inexpensive adult-education programs.
10. Teach children to care for clothing, toys, and furniture so that they don’t have to be replaced as often. Keep all of your possessions in good condition and rent or share equipment that is seldom needed.
11. Reupholster or refinish furniture, particularly if you can obtain it at low- or no cost from a family attic or flea market. Learn how to sew so that you’ll be able to make or mend your own clothing or drapes.
12. Reduce commission costs wherever possible. Use discount brokers when you don’t need investment advice; negotiate real-estate commissions, especially in a slow housing market; get a free checking account; and completely organize your documentation to reduce the time a tax-preparer must spend on your return.
13. Fix leaky faucets. A leak of one drop of water per second adds up to a loss of 2,000 gallons of water per year. A low-flow showerhead will also reduce water consumption by restricting the amount of water used during showers.
14. If you’re planning to take an airline trip, investigate reduced fare options. Many airlines require that you stay over a Saturday night or fly on specific days or at specific times. If you play by their rules, the savings can be substantial. Also, it’s often cheaper to purchase travel packages instead of individual services (airfare, hotel, car rental, etc.) and to stay at bed-and-breakfast inns instead of hotels.
15. Swap services — such as childcare, house sitting, and pet feeding — with a neighbor or friend to avoid having to pay for these services.
16. Consider carefully answers to the questions “What do I really need?” and “What can I do without?” Is it really important to buy new clothes, have cable TV, and belong to record and book clubs and a fitness center? Only you can decide what’s nice and what’s necessary.

Beware: At-Home and Mail-Order Shopping

Impulsive shoppers who can’t trust themselves at a mall used to be able to avoid overspending by staying at home. Not anymore. Thanks to electronic-age computer wizardry, it’s now possible to shop by staying home and watching television. Shopping by television or via the Internet is big business, and consumers are spending millions of dollars annually on items offered through shopping networks or on-line auctions. You simply see an object on your screen, call a toll-free number (or click a button with your mouse), and give the operator your credit-card number. Within a few weeks, the item is delivered.

Home-shopping shows often operate amidst a frenzied atmosphere. If you don’t respond right away, you’re made to feel like you’re missing something. There’s also not much advance notice about which items are displayed. You can’t compare prices before you make a decision, nor can you try on an item or see it up close. What the camera shows and what the host says are about all you have to go on.

This can add up to large credit-card debts and a number of unneeded items purchased in the heat of the moment. Unless television shopping is done calmly and carefully, it may be just one more way to pile up debt. Mail-order catalogs, too, are being used by increasing numbers of North Americans. It used to be that only large department stores had a mail-order catalog. Today, thousands of specialty catalogs appeal to people who are too busy to shop in stores.

Before ordering anything by mail, look for an address and a telephone number. Less reputable companies often have a post office box and no telephone. Note the shipping times and costs, return policies (including any “restocking” or administrative charges), and never send cash through the mail. Most importantly, shop around. Compare prices in other catalogs and, if you have time, at local stores. You may find the item you’re looking for at a lower cost closer to home.

You Can Do It

Several years ago, about 70% of all adults were reported to have visited a regional shopping mall at least once a week. More recently, another study found one-third of adults shopping at malls less frequently than they used to. Lack of time and money were the major reasons.

Clearly, one way to reduce spending is to stay away from malls, home-shopping shows, Internet auctions, and mail-order catalogs. But changing behavior is never easy, as anyone who has ever broken a New Year’s resolution can attest to. The key to successful behavioral changes (and New Year’s resolutions) is a change in attitude. A change and its expected outcome must also be important to you personally. Instead of spending money haphazardly, spend it by choice. At times, it won’t be easy: whenever we change behavior, we cause a certain amount of discomfort in our lives. Reflect periodically on progress towards your financial goals to maintain, or even strengthen your resolve.

If your resolution to spend by choice lapses, don’t throw in the towel! Instead, try to determine what happened and how you can handle a similar situation in the future. You didn’t walk perfectly the first time you tried. You stumbled. But you picked yourself up, tried again, and eventually got the knack of it.

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This article has been edited and excerpted from Saving on a Shoestring: How to Cut Expenses, Reduce Debt, Stash More Cash by Barbara O’Neill, CFP. This book provides scores of tips on how to cut spending, reduce your debt, increase your net worth, lower your income taxes, and save more money. Easy-to-use worksheets help you identify your financial goals and track cash flow.