7 Ways to Save More Money
Stick to Cash
"If you're trying to limit spending, cash is the way to go," says Farnoosh Torabi, author of the personal-finance guide You're So Money: Live Rich, Even When You're Not (Three Rivers Press). Because whipping out a credit card is lot less painful than shelling out those crisp green bills, it's all too easy to rack up bigger charges. Paying cash also means you won't get socked by the higher rates — such as punishing late-payment charges and inactivity fees — that banks and credit card companies are now tacking on to your monthly statements. Of course there are times when plastic is the hassle-free way to go, such as for fixed monthly expenses like phone, cable, utilities, or when you're traveling. And by charging big-ticket items like a new laptop or TV, you're often covered in case the item is damaged or stolen. "But whenever you're headed to the mall," says Torabi, "bring cash and cash only."
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Switch to a Roth IRA
The traditional individual retirement account (IRA) is a popular savings vehicle for many Americans, and no wonder. You're building a nest egg and your contributions are tax deductible. But it's got one big drawback. "When you reach retirement and start withdrawing, you're going to be paying taxes every year," says Jean Chatzky, author of Money 911: Your Most Pressing Money Questions Answered, Your Money Emergencies Solved (Harper Collins) and financial editor for NBC's Today show. "With a Roth IRA, your money grows tax free, forever." Why? You're not getting a deduction on the front end, which means the IRS can't claim a penny down the line — no matter how much your account grows in stocks, bonds or money-market funds — when you start taking the funds out.
This year there's a special window to convert your traditional IRA to a Roth. Anyone, regardless of income, qualifies. You'll have to pay taxes (for a $20,000 IRA, someone in the 15% tax bracket would fork over $3,000). But those who convert this year can spread out that payment over the next two years. The short-term hit, says Chatzky, is worth the benefits over the long haul.
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Wheel and Deal
It's not just families who are in the hole right now. Banks and businesses are too — which is why they'll bend over backward to keep your business, says David Bach, author of Start Over, Finish Rich: 10 Steps to Get You Back on Track in 2010 (Broadway). "Everybody is demanding better prices, and most places are giving in," he says. "But if you don't ask, you don't receive." So now's the time to go over every bill sitting on your desk and start haggling. For cable, Internet, and phone, companies will slash fees when you combine all three services. Sites like BillShrink.com can analyze your cell phone usage and direct you to the cheapest plan available. Shop around for bargains on auto coverage at NetQuote.com, or bundle it with your existing home or life insurer to save up to 15 percent. Ask credit card issuers to lower your interest rates, and request service providers to extend new-customer promotions to you. If they balk, threaten to switch to someone else, a tactic that often works.
By making a few calls, you can save at least 10 percent this year. Need proof? Bach has done it himself many times, bargaining over everything from his insurance (down by 20 percent) to bookkeeping charges (saving $200 a month). "There's never been a better time to renegotiate," he says. "You're in the driver's seat."
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Refinance Your Mortgage
For many Americans the biggest expense is paying off the mortgage, and that's where you can save big time if you're not planning to move anytime soon. "Interest rates are still at historic lows," says Gary Schatsky, a Manhattan-based, fee-only financial planner and founder of ObjectiveAdvice.com, who notes that 30-year fixed mortgages are now hovering at around 5.13 percent, and 15-year loans at roughly 4.5 percent. "If you can save 1 percent or more by refinancing, then it's a slam dunk." On a $200,000 mortgage, for instance, reducing your rate from 6.5 to 5 percent would save you $250 every month. You'll take a one-time hit on the closing costs, but the long-term savings will likely far outweigh that. Time is of the essence, though. Some money experts, including those at Morgan Stanley and Freddie Mac, are predicting rate rises of up to 8 percent within a year.
Follow the Money
A lot of people get into trouble because they don't keep track of spending. One solution: new sites like Wesabe.com and Geezeo.com that allow you to securely upload bills and credit card and savings accounts; slot them into categories; and view everything in colorful, easy-to-read graphics. "Seeing it all at a glance helps you focus on the big picture and motivates you to move your money around to where it should be," says Carmen Wong Ulrich, CNBC's personal finance expert and author of Generation Debt: Take Control of Your Money — A How-To Guide (Business Plus). In addition to cutting out nonessentials, Ulrich also recommends spending no more than 35 percent of your budget on housing expenses and 18 percent on automobile payments, gas, and insurance.
As for nonessentials, it's going to be work keeping tabs every time you spend your hard-earned cash. Make a game of it by seeing how long that $20 in your pocket will last. Take advantage of financial networking sites, where you'll instantly acquire a support team of like-minded people. "Everyone will offer tips and encouragement," says Ulrich. "You'll get inspiration from hundreds of fellow savers for free."
Find the Cash in Your Crib
There's good reason houses are called money pits. Property taxes, energy bills, and repairs can really suck you dry. It doesn't have to be that way. "Root around your home. There's a lot of cash to be saved — but you have to know where to look," says Ilyce Glink, author of 100 Questions Every First-Time Home Buyer Should Ask (Three Rivers Press). Start by unplugging energy vampires like the TV, chargers, and computers at night, and by switching to compact fluorescent bulbs. Chop back your home insurance by raising your deductible; boosting it to $1,000, for instance, could save you 25 percent on your premiums. Appeal your property taxes with your township or county, since they were probably set during the high-value boom years. The odds of a successful appeal are as high as 40 percent, potentially saving you hundreds or even thousands of dollars a year, according to the National Taxpayers Union. (Go to homeownertaxcut.com for a starter kit.) And don't be afraid to take on DIY home projects. "By tackling basic fixer-upper jobs like repairing leaky pipes or installing a new faucet, my husband and I save about $5,000 a year," says Glink, who also does her own yard work. "You don't have to be Bob Vila to do it."
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Tame Those Student Loans
For people still saddled with federal student loans (the average debt these days is a hefty $23,200, a 24 percent increase since 2004), there's a new program that could save you a huge chunk of money. The Income-Based Repayment (IBR) plan, which became available last July, offers payment caps based on income and family size. For most borrowers, that amounts to less than 10 percent of their income. "It's a sliding scale based not on how much you owe but on what you can afford," says Beth Kobliner, author of Get a Financial Life: Personal Finance in Your Twenties and Thirties (Fireside).
Right now IBR is best for couples who file their taxes individually: A husband and wife each making $30,000 a year and owing $30,000 in student loans would have to shell out only $170 a month per person. That's about half of what they'd be paying under a standard repayment plan, freeing up more than $4,000 a year for the family. But the plan gets even sweeter come July, when the same provisions will be extended to married couples who file jointly. To learn more, check out ibrinfo.org or finaid.org. They also offer a program where you could qualify to not have to pay off any remaining debt after 25 years — or just 10 years for teachers, government employees, and nonprofit workers.