10 Ways to Save Money

Think about why you are saving money.  If your reason for saving is so you can buy a lot of "stuff", this information will not speak to you.  If your goal is a financially secure future, these 10 steps are for you.  The key to being able to retire without financial worries is building a nest egg that is big enough to pay for expenses during retirement.  Either the nest egg needs to be big enough to handle large annual expenses or the expense side needs to be reduced to require a smaller nest egg.  The earlier expenses are reduced before retirement, the more a saver has funds to invest.  Both sides of the equation improve at the same time by not delaying plans to save.  In addition, reducing fixed expenses creates a more manageable situation in the event of an unforeseen loss of income happens prior to planned retirement age.

Here are 10 simple ways to save money, reduce fixed expenses and allocate more income to investments.

1. Pay off credit cards - The biggest waste of money for many people is credit card debt.  The interest rates on credit cards are often high and serve no benefit to the user.  This is not to say that credit cards are not good to use.  On the contrary, paying for as much as possible with a credit card and earning rewards points of some sort is a great 1% (or more) discount on expenses.  The requirement is to pay off these credit cards before any interest expenses are incurred.  If the debt is already there, make it a priority to pay it off in full.
2. Pay off car loans - Car loans can be a nagging expense for a lot of drivers.  They never seem to go away and take too large a percentage of take-home pay for many households.  Savvy savers change that.  They pay off car loans early, save on interest and reduce fixed expenses quickly.  The trick is to avoid buying another new car after the loan is paid off.  After a car loan is paid off, some savers continue to make the same payment amount to a savings account.  This creates an opportunity to maintain a steady budget, have cash available for repairs and have a large down payment ready for the next new car.
3. Pay off House Mortgage - At a minimum, homeowners should plan to have their home mortgage paid off by the time they retire.  By overpaying throughout the scheduled loan period, borrowers can avoid thousands of dollars in interest paid.  If paid off before leaving the workforce, retirees reduce the largest fixed expense they have at a time when income drops.  If paid off well before retiring, workers can devote more of their after-tax paycheck to investments and retire earlier than those who have not been as proactive.
4. Eat healthy foods and exercise - A poor diet and lack of exercise can lead to costly debilitating chronic diseases such as diabetes, arthritis, obesity and heart disease.  Start young and eat healthy, well-balanced organic meals with limited processed foods as possible.  While the expense up front might be slightly more, the long-term savings in medical bills can be massive.
5. Buy quality goods - Buying goods that last sounds like common sense, but too few people actually put this logic into practice.  By spending a little more up front, the cost difference over decades turns in the favor of the quality shopper over the quantity shopper.
6. Insulate your house - Simply having the proper amount of insulation in your home can save thousands of dollars over the course of a lifetime.  Windows should be caulked to maximize the efficiency of heating and cooling systems.  Automatic thermostats allow for scheduled temperature changes that cut back on usage when no one is home.
7. Maintain your house - Simple home maintenance must be a part of any homeowner's budget.  From annual cleaning of air conditioner coils and gutters to painting and removing rotted wood, small maintenance projects made on a regular basis can save from larger unexpected expenses later.  In addition, maintaining one's home will help it keep its value for when it's time to sell.
8. Plan your purchases - Impulse buying can zap anyone's discretionary spending before they realize what happened.  The cure is to plan your purchase and avoid frivolous spending on items you don't need.  Savvy shoppers wait for sales and negotiate better prices on bigger purchases.
9. Don't overpay for investments - While the industry has improved overall, some mutual funds' expense ratios are higher than they need to be still.  Exchange Traded Funds (ETFs) can often be substituted for similar mutual funds, but at a lower cost.  Over long time spans, actively managed funds rarely outperform index funds.  Look to index ETFs or at least low cost, no-load index mutual funds to diversify your portfolio.  Investors can access virtually any sector through ETFs to diversify as broadly as desired.  If you are paying someone else to manage your money, look for a fee-only advisor who will not charge you twice by taking payments from the mutual funds they work with in addition to a percentage of assets they manage.  If they do not charge a percentage of assets for their payment, understand why they chose the funds you are invested in and ask if there are cheaper funds that could perform similarly or better.  (Hint, there are.)
10. Check 401(k) expense ratios - As a 401(k) participant, you have the right to complain about high fees.  Thanks to regulations enacted in mid-2012, participants receive fee disclosure statements from their plans on a regular basis.  The total fee for the advisor and the funds expenses combined should never be over 2% and should be under 1.5% for most companies.  For companies with more than $1 million in their plans, fees should be under 1.0% on average.  This means that if a mutual fund's expense ratio is more than 1%, you are paying too much in almost every case, especially if the advisor is charging a fee on top of that.  The 401(k) industry has a growing number of independent advisors (such as AF Capital Management) who use no load funds with expense ratios closer to 0.15 - 0.3% and only charge 0.5 - 0.8% in advisor fees.  A 1% difference over the life of a 401(k) can equal tens of thousands of dollars missed by contributors.