[Money Energy was kind enough to provide us with this great guest post, you can read her great articles here]
First, let me tell you that I’m not an expert on saving money. These savings tips should be followed only at the discretion of your own financial advisor. 🙂
Really, though, investing is where more of my interest lies. Frugality doesn’t motivate me as much as investing well does. But the two financial habits of saving and investing are intricately linked and mutually benefit each other. So I’d like to look at both saving money in general as well as saving money on investing in order to point out a few more places that you might be able to maximize your real ROI.
Overlooked Areas For Saving A Few Dollars
The easiest way to save money is simply not to spend it. So what can you get away with not spending any money on? That’s a great place to start looking.
1. Start with the biggest expenses and see what you can cut out. Your home, your car, your taxes. It makes sense to see just where you can get away with not spending any money on the biggest ticket items first – since you’ll be saving the most here, too.
2. Sort through your habitual expenses and uncover what you don’t really need. Our habits go unnoticed; that’s what makes them habits. Thus you need to take a closer look at your regular expenditures for things that add up over the month that you might be ashamed to admit – do you really want to continue spending $50/month on popcorn at the movie theatre, for example? [Note by Ray: Tracking your spending habitsis our first step in financial planning]
3. Keep the pounds off your waist and in your wallet. This is a special category of #2 above: because we need to eat everyday… or do we? Fasting one day a week, or less, can be beneficial to your health as well as your wallet. Give it some serious consideration – every little bit helps, both in health and in wealth. 4. Find the frivolously and freaky frugal solutions. These won’t be for everyone, but they’re what works for you. Example: maybe you don’t need to use conditioner on your hair after all. Maybe you can cut your own hair, or have your spouse or friend do it. Maybe you don’t even need an answering machine service! Or maybe you want to stop buying gifts and cards altogether from now on. Pinyo @ Moolanomy has a list of 1001 ways to save money
There are many financial bloggers out there who specialize in savings tips and the frugal lifestyle. I don’t think I can beat them for originality here. Some of these points will be obvious, but that’s ok. How To Save Money On
1. Invest in stocks commission-free. This is my favourite. I’m a long-time investor in dividend reinvestment plans that don’t require me to pay any commission fees on purchases of new stock. I don’t pay any fees associated with them at all, so the savings benefits here are enormous over the long run. Eventually, your average cost-basis on these stocks will go down to zero, representing potentially phenomenal returns.
2. Don’t pay money to get started investing in DRIPs. The cheapest of the cheap ways to get into stock investing is just to not pay any money for it at all. DRIPs are already a great deal, but if you can enrol in them for free too, you simply can’t do any better than that for saving money. Talk to someone who’s already enrolled in a DRIP plan and they might be able to help you out by transferring over a share, thus bypassing any certification costs and initial commission fees.
3. Use the accumulation of dividends in your brokerage account to offset the costs of future commissions. Whether you have to pay $4.95 per trade or $29 per trade, it’s better if this is not coming out of money you earned by trading your own time for money. Use a slightly more passive source of income to pay for these – the dividends earned from the stocks themselves.
4. Let your dividends accumulate to a sizeable enough amount so as to reduce the effective commission fee to less than 1% of your investment. If your broker charges $4.95/trade, make sure you’re investing at least $500 so that the commission fee takes as little a chunk of possible from your investment principal. [Note by Ray: Discount Brokers Review]
5. Make fewer trades. This is easy. Unless you’re 100% in DRIPs, each investment purchase is costing you money. So combine them into fewer trades if possible. This will also help with point #4 above.
6. Don’t buy brand new investment books and magazines. Just get them at the library. Any “new” information will soon be outdated anyway, and all the “classics” will be in libraries all over the continent anyway. Most libraries even keep the latest editions of magazines.
Again, some of these points aren’t earth-shatteringly original, but when you add them all up they can really make or break your budget. And if you’re a student or already on a tight budget, these tips can help you gain a lot of investment leverage in your favor.
What are your saving/frugal tips?