Spend smarter

Believe that if you ever want to get out of the hole and start building wealth, you have to face this truth: you just can’t out-earn dumb spending. On average, most four-person families spend more than $62,000 a year on expenses. If you can cut that by just 10 percent, you’ll be saving more than $6,000 a year. To do that first concentrate on three major areas: food, insurance and telecommunication.These are three areas of tremendous spending where that average American family of four spends about $14,000 a year — in just these three areas. They’re also areas of repeat spending, so you’ll be spending on these areas again and again your whole life.

SMARTER FOOD SPENDING
The average American family of four spends about $8,600 a year on food. So it’s a large expenditure for most families. And just little cuts can make a big difference. The biggest principle for grocery shopping can cover almost all your shopping: don’t buy what you need. Instead, go buy what’s on sale and stock up. That way, when you need something, you go to your own freezer, you go to your own pantry and you get the discounted item.” There’s a rhythm to store sales, Generally, sales go in 12-week cycles, so you need about a three-month supply. So, if you see a really good sale, stock up for three months, because three months from now, it’s going to be on sale again. Remember: don’t buy what you need; buy what’s on sale. When it comes to coupons, the smartest way to use them is in combination with those store sales. You can cut prices in half and sometimes even gets items for free and you don’t have to cut out every coupon in every flyer or packet. I also recommend that you write the date on the entire packet and set it aside. Then you can go online to this database at couponmom.com and just look up there when you need a coupon. It’ll tell you which circular to go to and then you clip the coupon at that point. Also, look for stores that will double (or even triple) your coupons’ value — that’s double the savings.


As for the weekly store flyers concentrate on the front and back because that’s where stores place “loss leaders,” items they’re willing to lose money on just to get you in the door. And definitely go for those less expensive store brands over the big brand-names. We used to call them ‘generics’ derisively, but they’re really good quality now-a-days. So you want to try the store brands. In fact, many of the store brands are made by the name brand manufacturers.I also recommend eating out only for special occasions, not because you’re
tired. And when you do eat out, don’t buy drinks or appetizers which add huge extra costs.

SMARTER INSURANCE SPENDING
When it comes to insurance, There is another big principle: “You don’t protect against the little things, you protect against financial disaster.” This means you may want to raise your deductibles; on your home insurance to something like $2,500 and on your car insurance to maybe $1,500. Why? That’s because you don’t want to be tempted to make small claims. If you make small claims on your auto insurance, what are they going to do? They’re going to drop you. So don’t be tempted. But if you’re concerned about being able to pay that deductible should you have an accident, (or a flying rock splinters your windshield), I advise that you start an emergency fund now for future, unexpected, but needed expenses, that’s when you tap the emergency fund. These changes should seriously lower your premium payments. Another area to save big: get term life insurance to cover your possible death. It’s simple and cheap, and if you die, they pay your survivors some amount of money. When you have whole life and variable life, these all have an investment component to it. And the problem is these investments are very costly. You can do better on your own. How much term life insurance should you have? Generally you want about eight to ten times your gross annual salary in life insurance. And if you bought term life insurance years ago, you want to get a new policy in place and cancel your old one. That’s because prices today — premiums for term insurance — are so much lower than they were even a decade ago. They’re about half.


SMARTER TELECOMMUNICATIONS SPENDING
Right-size your telecommunications: don’t pay for service you don’t actually use. Like with your cell...I myself, I use the cell phone frequently, but I don’t use a lot of minutes. So I went to a prepaid cell phone. And that means I’m going to save $700 just this year by going to this
because I pay as I go. Research shows that many people are abandoning landlines altogether and just using cell phones. If you use a cell phone mostly for work, maybe your work will pay for it. In some cases, people are saving big money by using their computer as their phone.
As of this writing there is a $20 device called a “Magic Jack” that lets you use your high-speed Internet connection as a phone line for $20 a year. And this is free voice mail, free long-distance, everything, caller ID, the works … If your phone bill’s going to be $30 a month ... this is $20 a year.” Here's an acrostic to help you remember these three areas of tremendous spending: FIT. The first letter of each critical area combines to form the word FIT: F-food, I-insurance, T-telecommunications. If you can cut the “flab” — excess, dumb spending — in these three areas, it can start you on the path to being financially FIT.

ADDITIONAL IDEAS FOR SMARTER SPENDING
Two other areas of huge spending include your car and your home. When it comes to your mortgage, 29 percent of your gross income is probably about the mortgage payment you can afford, and that includes your mortgage principle, interest and insurance. But it’s the cost of transportation that sinks many a family’s budget: We get used to spending $30,000 on a car, but about seven percent of your gross income — that’s what you want to shoot for when you’re talking about a car payment. Used cars are so much more reliable than they used to be, that everyone should consider them because the biggest problem with buying a new car is the depreciation. The owner loses 30 percent of the car’s value in the first year. So that’s a tremendous hit to take.If you can swoop in at year two or three, man, the savings that you can have!

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