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Cutting Back (and Then Some)

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$kip Massengill is not a small man. In fact, the former Villanova University defensive tackle—who played next to Howie Long in the late 1970s and early ’80s—is rather substantial. He favors power suits and striking suspenders, and when he talks, his deep baritone can quiet a bustling room.

Illustration by Brian HubbleYet, when he returned home from a trip to the Acme in January, he experienced a little, ahem, pushback from the family. It seems Massengill had purchased 20 cans of soup, instead of the two he was supposed to get. Not only had he “wasted” money, but he had created a storage headache. He had some explaining to do.

As it turns out, Massengill wasn’t some clueless husband seduced by a sharp display or the thought of endless nights of beef barley soup. Acme was having a “10 for $10” sale, and Massengill, who serves as an executive vice president for financial planner Robert W. Baird & Co. in Conshohocken, was merely taking advantage of a good deal.

“It was a case of buying more to save more,” he says. “The 20 cans of soup cost me $20. Usually, each can goes for $2.58. By buying so much, I saved $32. And it’s not like the stuff stays around our house for long.”

Massengill was merely following some of his own advice. Even though there are other ways to carve hundreds of dollars off the monthly budget, those $32 savings do add up. These days, you’ll find Massengill hunting for those 10-for-$10 sales, and at the price clubs, buying 100 razors “for 12 bucks.” A veritable bargain hunter, he’ll gladly purchase the generic version of the children’s aspirin he takes for heart health. He even gets top-shelf beef at about a third of its cost at specialty grocers.

Massengill does his homework, finds out what the best deals are and then acts. “You want to maintain a realistic lifestyle and experience the benefits of your hard work, but you need to pay attention to what you’re paying,” he says.

During his last State of the Union address, President Barack Obama spoke of a spending freeze. He and Congress have been trying—often without success, in light of the trillions of dollars our government has in debt—to cut costs. Businesses throughout the country are working to do the same things. That’s why Massengill is buying so much soup—and why the rest of us can find plenty of ways to cut back on our expenses.

Some out there have attacked the cutback scenario with an all-encompassing passion, saving money as if it were their life’s work. They examine everything, from their utilities to the type of gum they chew. Massengill suggests another approach.

“Go by the 80-20 rule,” he says. “If you know 80 percent of what you’re spending, you can have a better handle on your finances than most,” he says. “When you try to come up with every penny, you end up procrastinating. Look at your large bills and see where you can save. Then look at things like how often you go to dinner.”

Michael Stewart, a CPA and PFS from Havertown, agrees that it’s important to go with the big things first, but more savings can be found the deeper you look—and it’s not too difficult to do. He recommends keeping a monthly budget and writing down just about every dollar you spend. “It’s amazing what people do when they count pennies,” says Stewart. “Where do they spend their money and where do they waste it?”
 

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Stewart offers this example: A family goes out for pizza every Friday night. If they’re spending $22 on two pies they could buy at the grocery store for $10—that’s $12 a week and $600 a year they’re losing. Families who are able to make three or four such trade-offs can reach $2,000 or more in savings each year. That will help offset any losses in income caused by the brutal economy—or even create opportunities for retirement or education savings. “It just makes sense,” Stewart says.

Whether or not you look at the small stuff, there can be no denying there is money to save with the big-ticket bills, too. And none is bigger—at least for most people—than the monthly mortgage payment. Interest rates, particularly on 30-year mortgages, remain low, and refinancing can be accomplished in most cases without any points. There will be fees for title insurance, home inspection and the like, but any money you put out to cut your interest rate (if you can get one full percentage point or more less than your current figure, go for it) will come back quickly in monthly savings.

“If you can reduce your mortgage rate, that’s real money,” says Chuck Creighton, regional financial representative for KeyAdvisors Group in Media. “If you save $1,000 a month, you can take that and allocate it for future expenses like college costs or retirement funds.”

Once you get that better rate and smaller payment, double your savings by making additional principle payments each month. That may sound counterproductive to the cutting-back process, and if you’re struggling to make ends meet, it’s probably not the best thing to do at first. But adding even an extra $25 to the principle each month can take substantial time off the life of your loan. Each dollar you trim saves the interest on that buck down the line.

Creighton also suggests eliminating any other debt you have besides your home. That means paying off credit cards, small loans and other items that stick out in monthly budgets and preclude you from saving or making payments in other areas. If you’re carrying a high balance on a credit card, and you’re not going to use it again, call the company to see if you can work out a payment schedule at a lower interest rate. If the company isn’t willing to comply, then try to transfer the balance to another card, making sure to pay close attention to the rate you’re getting from its provider and the term.

Or think about trading in that credit card for a debit card that’s tied to your checking account. That way, you won’t be buying things with money you don’t have, and you’ll save on interest charges. “If you can’t afford it, don’t buy it,” Stewart says. “You probably don’t need it, unless it’s an emergency.”

There’s a simple way to save money on bank fees. Make sure you protect your checking account by linking it to a savings account. In the past, that provided overdraft protection for checks. Now, it’s security against overages on debit cards and electronic purchases. “Most banks make a large percentage of fees on overdrafts,” says Massengill. “People are worrying so much about $2.50 ATM fees, and they’re not worried that banks are getting $25-$40 for each overdraft on a debit card. Banks are trying to replace the old check fees with these charges.”

There are several ways to save money on your energy bills, beginning with installing a programmable thermostat. That way, you can set the temperature to be lower when no one is in the house or while your family is sleeping. Turn down the thermostat on the hot-water heater also. And the other old chestnuts still apply: wash clothes in cold water; make sure lights aren’t on when they don’t need to be; buy energy-efficient appliances; and use low-energy lightbulbs.

$aving money on telecommunications is a no-brainer. There are so many options available, and people often end up with so many different gadgets—and fees—that they lose track of how much they’re spending. Decide whether it’s possible to make your cell phone your only phone. That eliminates the cost of a landline.
 

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Even if you don’t go solo with the mobile, be sure to get the right cell plan. If many of the people you call are on one carrier, try to join them. That way, you can lower the amount of minutes you need. If you text, pay the $5-$10 a month for unlimited texting. And be careful of superfluous extras: If you belong to AAA or your insurance provides roadside assistance, don’t get it from the cell provider at $5 or so a month.

Check the cable TV next. The onset of digital programming has made things pretty expensive, since more companies require you to rent a box each month for each TV. If you like premium channels, investigate bundling them. Often, if you tell the cable company you want to drop service, they’ll come back at you with a special offer. Just be sure to renew the deal at the end or risk getting whacked with a big charge when things revert back.

When it comes to auto insurance, shop around. But make sure you’re not trading savings for cuts in service. If you have teenage drivers, for instance, make sure you’re not signing with a company that will drop you after just one accident.

“The better agents and brokers are ahead of the curve in terms of cutting costs and are presenting ideas to their clients,” Creighton says. “It’s the same thing with medical benefits. Some companies are coming out with high-deductible plans that can lower premiums. If the employee is paying the bulk of the premiums, he or she might want to save on the premium and pay the deductible.”

If you’re not worried about a million doctors’ visits—especially for kids—it might make short-run sense to cut back on the premium.

Some people consider it smart to cut back contributions to IRAs, 401(k) plans and other retirement investment vehicles during tougher economic times. But even a year of doing so can have a big impact down the road. “You still have to save for retirement,” Creighton says.

If your company offers a 401(k) plan, invest the full 6 percent—all the better if you get a complete match. By getting that employer contribution, you’re making money that can increase exponentially later. Since employee deposits in those accounts are pre-tax, chances are you won’t miss them, since you haven’t been seeing them in your paycheck to begin with.

If the stock market crash didn’t scare you, Creighton recommends looking at companies that do well when times get tough, like Walmart or McDonald’s. The goal is to maximize your money every way possible. And if that also means buying more soup, then stock up.
 

Teacher, Teach Me

During her 10 years at Saint Joseph’s University, Carolin Schellhorn has schooled students in the art of business as an assistant professor of finance. Here, she shares some practical insights with the rest of us.

MLT: Why is it so tough to stay on a budget these days?
CS:
It was easier to be on a budget in the old days because there was no Internet and not as much TV, so you didn’t know what other people were doing and it was easier to control your own costs.

MLT: What are some of the things people can do to cut back?
CS:
You have to get rid of your credit card debt. People are paying enormously high interest rates on them. If you don’t pay for something right away, you’re often going to pay a lot more down the road. Also, look for simple ways to cut back. Visit thrift shops for kids’ clothes, or hand things down to younger siblings.

MLT: Is consumer consumption out of control?
CS:
One of the things that led to the current crisis is that people bought all sorts of stuff because other people did it. You have to re-think what matters to you.

MLT: So the herd mentality can cause some serious problems.
CS:
People have to start thinking on their own and take responsibility for their own choices. If you want to buy things, do it for your own reason. Just be honest with yourself and identify your true needs and likes and dislikes, then spend accordingly.
 

“10 Ways to Cut Costs” on page 4 …
 

10 Ways to Cut Costs (Some Obvious, Others Less So)


Refinance, refinance, refinance. You can save hundreds of dollars a month by cutting your mortgage rate by 1 percent or more.

Do away with debt. Pay off credit cards—no matter how hard it is. Interest rates are sky-high and take a huge toll. If you can’t renegotiate the rate, then look to transfer the balance.

Practice self-awareness. Pay attention to what your costs are each month, then look for ways to cut back.

Shop around. What’s happening with your insurance? Are you paying too much for homeowner’s, auto or health? Look for plans that cost less, without sacrificing coverage.

Communicate more efficiently. Check out your phone plans. If you can go with just the cell, great. If you need a landline, too, investigate the best program for your needs. And beware of extras.

Bundle up. Combine your phone, Internet and TV charges into one bill. Just be careful about big cost increases down the line.

Be energy conscious. Install a programmable thermostat. Turn down the hot-water heater. Use compact fluorescent lightbulbs. And turn out those lights.

Bank on it. Make sure your debit card is backed up by a savings account to avoid overdraft fees. And see if your bank is hitting you for other services you don’t need or could find cheaper elsewhere.

Make the little things matter. Can you save $20 a week on groceries by substituting brands? That’s $1,000 a year. Can you pack your lunch? That could be another grand. Pay attention to details.

Avoid impulse buys. Wait a week and see if you can do without the desired item. If you can, you really don’t need it.
 

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