Monday, April 14, 2008

Finding Money Where You Least Expect It…

If I were to offer you $10, with no strings attached, would you turn it down? Of course you wouldn’t. That $10 would immediately apply to the asset side of your personal ledger and your net worth would immediately be $10 greater. Knowing this, however, does not stop you from burning, drinking, or driving this same $10 away from your assets each and every day, week, and, over a year, these decisions can amount to hundreds, perhaps thousands, of dollars.

For this Tip, I want to focus on things that you already pay for, where you can save some money for your future, without sacrificing your present…..Sounds like a win-win to me, so let’s begin.

Cell-phone service: How many minutes per month do you use your cell phone? If you’re paying for 2000 but only using 400, you might be able to change your plan and save some money. Be careful of early termination charges but I recently surveyed Sprint plans, as an example, and found that if one were to reduce their minutes from 1450 to 1350, they would save $10 per month, or $120 a year. Not a bad start.

Checking Account: Have you compared the charge on your checking account with other options, since you opened it? Have you ever looked at a credit union to see what interest you will receive and at what cost? How many checks do you write and would paying a small fee per check cost as much as the lost interest from the “free” account that requires you to keep a balance of $2,500 earning today’s low rates? Compare this to the 3% per year that you could earn at an alternative bank.

Auto Insurance: Don’t expect your insurance agent to ask you if you’re eligible for a discount, you should ask her. Are you a good student? Did you take driver’s education? Do you have a clean driving record for an extended period of time? If you can answer yes to these questions, you might save some money. GET YOUR EMERGENCY FUND ESTABLISHED and raise your deductibles to $1,000 from $250. This can save you 30% of your premium dollars, amounting to $500 per year, according to the Insurance Information Institute. If you have an old car, drop your collision insurance and cover the loss from your emergency fund. These savings can be saved each year to maintain your emergency fund or to add to your savings for your other financial goals.

Clothing: Reduce your clothing expenditures by shopping around for items that you need. We can all think of something that is hanging in our closet that we don’t wear that we wish we had not purchased on impulse. How many of you have ever shopped at a used clothing store for clothing items that you wear infrequently like ski sweaters, umbrellas (lose them often), or costumes (usually worn once)? Often, in college towns, there are stores operated by upper-middle class citizens where clothing is donated for those of lesser means to purchase. This upscale resale can be a bonanza for today’s students.

Drinks: Occasionally I see students in line at the local coffee shop spending $2.00 for a cup of coffee they could purchase at the student union for $0.85. I’ve asked them why they do this and they say that the coffee is better at Barstucks. When I ask them how they know that, they admit that they’ve never purchased coffee at the student union. This problem is greater if you like to buy the chocolaty, sugary concoctions (besides the empty calories). Think what saving a little over $1/day can mean at the end of the month and what it could do for your ability to pay for the things you really need. Advice: Save the lattes for when you’re truly able to afford them. Then, with your savings over the years, buy stock in the company that sells them!

Credit cards: First (I shouldn’t have to write this to our readers), use your credit card as a convenient way to make purchases but do not carry a balance and pay the finance charges that come with high interest rates. If you do carry a balance, shop around for a card with a lower rate of interest. Finding a rate of interest of 14% instead of 16% can make a difference in the cost of carrying a balance. If you have a balance of $2,000 and, assuming you make the minimum payment of 3% of the original balance or $60 per month, you’ll spend $547 in interest, compared to $662 in interest at 16%. Moreover, you’ll repay the loan 2 months sooner. Whenever you get the balance paid try very hard to keep from carrying a balance on your credit card. Very few things we need bad enough to pay 30% more for them ($662/$2000 = 33%)!

These six ideas, from a multitude of possible ideas, can save you $1,380 per year which could add up over time to over $300,000, if you invested the savings at a modest rate of 7% for the next 40 years. Moreover, for most of the above changes in behavior, no one will notice the changes – except your banker, investment advisor, or significant other.

For more information on:
Checking accounts:
Auto Insurance:
Credit Cards:

NOTE: This is the second of our new MU Financial Tips of the Week and was written by Rob Weagley, Ph.D., CFPTM, Chair of the Personal Financial Planning Department, University of Missouri. He appreciates hearing from you about ideas for future “Tips”. Importantly, feel free to forward our “Tips” to others and remind them that they can sign up to receive the tip by sending an email to with “Subscribe” in the Subject Line. Thanks. – Rob Weagley

- Robert O. Weagley, Ph.D., CFP(r)
Chair, Personal Financial Planning
University of MissouriColumbia, MO 65211

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