Could you save $10,000 in a year? Many households could, and they could become millionaires as a result. In this article, I'll show you how you can start trimming your household budget by $10,000 a year, or even more.
The average four-person American household spends a total of $64,000 a year, according to the federal government’s most recent Consumer Expenditure Survey. Cutting $10,000 would mean scaling back a mere 15 percent or so. Or expressed another way, if you could find ways to cut a buck from every $6 or $7 you spend, you could save $10,000 in one year.
Many personal finance writers who dole out such advice get their biggest savings from suggesting you refinance your home mortgage from a high rate to a low rate. I’m not going to do that. I’ll assume you’ve already refinanced if it was in your best interest. After all, we've had low interest rates for quite a few years now.
Instead, let’s look at your regular spending. It might reveal easy, painless cuts you might not even be aware of. Below are just five examples of spending areas that combined reap a cool $10,395. These ideas won’t all apply to your household, but they should give you some ideas.
- Food You can easily save 20 percent on your grocery bill by matching coupons with store sales and stockpiling what you buy. So, you buy the exact same products, just at ideal times. For eating out, could you get by with $150 per month if you planned more home-cooked meals? Here’s the accounting, using figures from the Consumer Expenditure Survey:
Food at home: $4,833 to $3,866. Savings: $967
Food out: $3,700 to $1,800. Savings: $1,900
Total food savings: $2,867
- Insurance Most people can knock off 20 percent from home and auto insurance premiums just by raising deductibles, comparing prices and getting the discounts you’re entitled to. Also, term life insurance premiums have plummeted over the past decade. A man who got a policy in 1994 for $1,300 a year could "refinance" to a new policy and be paying nearly half that.
Home and auto insurance: $1,600 to $1,280. Savings: $320
Refinancing term life insurance: $1,300 to $700. Savings: $600
Total insurance savings: $920
- Phone Having all the bells and whistles, including free long distance, on both your wireless and home phone is overkill for many people. In fact, some people might be able to ditch their landline phone altogether and use an Internet-based phone service. One of the cheapest ways to go is using MagicJack, http://www.magicjack.com, which costs just $40. The price includes a simple device that hooks to your computer and a year’s worth of service. If you’re a light user of wireless, say less than 300 minutes per month, try prepaid service, especially if you have dozens or hundreds of minutes left over every month. You might be able to reduce your cost to $30 per month, taxes and junk fees included, instead of the average $85 per month.
Landline: $600 to $40. Savings: $560
Wireless: $1020 to $360. Savings: $660
Total phone savings: $1,220
- Monthly memberships Go through your check register or credit card statement and examine all the recurring monthly charges. Then be ruthless about cutting them, especially if you rarely use the service. In the future, opt for pay-as-you-go, unless you’re an avid user.
$70-per-month gym membership: $840
$20-per-month movie rental membership: $240
Total membership savings: $1,080
- Daily habits Daily habits are the most insidious because the expense is so small but compounds so quickly. Cut an $18 case of beer a week, a $7 case of bottled water a week, a $4 latte every work day and a $5.50 pack of cigarettes a day.
Bottled water: $364
Total daily habit savings: $4,308
The grand total of savings comes to a little more than $10,000. Of course, you’ll have to customize spending cuts to your own household. Most people will find plenty, just by taking the time to look.
Now, for the magic: If you can find $10,000 in spending cuts and invested the money for 30 years, earning a modest 8 percent return, you would amass $1.2 million.
That's how you'll be Living Rich by Spending Smart.