Friday, December 09, 2005

Saving money.

Bean counting and the 'latte factor'

By Linda Stern

Wed Dec 7,12:31 PM ET

If you've read it once, you've read it a dozen times: Cut out those daily lattes if you want to save enough for retirement.

The so-called "latte factor" is so widely used in this context that it's now in dictionaries, defined as "seemingly insignificant daily purchases that add up to a significant amount of money over time."

That is certainly true. But it's a little preachy, too, isn't it? Aren't you grown up enough to figure out how much you can and should spend on your morning cuppa?

You probably already know it's smart to brew your own and bank the savings. But sometimes (here comes the heresy) that caramel macchiato, enjoyed with friends, is worth more than $5 in the bank, isn't it?

What would really help are some big money savings: Tips for trimming your expenses in ways that you might not know about and that would save you far more than the price of a cup of coffee.

Here's a starter list:

-- Save on your health, car and home insurance. Raise your deductibles. As an example, CareFirst BlueCross BlueShield charges $945 a month for a family health plan with a $100 deductible, and $357 a month for a $1,000 deductible. Do the math: In a worst-case scenario, the higher deductible could cost a family of four an additional $1,800 in a year, which is where it is capped. But they'll save $7,056 in premiums, and it's not likely that every year will be a worst-case year.

You can reap similar savings on car and home insurance by increasing your deductible. While you are reviewing your insurance, comparison shop for cheaper plans, too.

Several companies -- Geico (http://www.geico.com), Progressive (http://www.progressive.com), Ameritas Direct ( http://www.lowload.ameritas.com) offer home, car, and or life insurance that they claim is cheaper because it eliminates the agent. They aren't always cheaper, but it doesn't take long to get a quote.

-- Save on your car. Buy a car that's less expensive to operate. A 2006 Toyota Corolla or Honda Civic will cost about $8,000 a year to buy, insure and run, according to Runzheimer International ( http://www.runzheimer.com.) A Lincoln Town Car, Lexis or Cadillac will be more than twice that. Before you buy a new car, check its fuel efficiency and call your insurance company to find out how much the various models you're considering would cost to insure for a year.

Want to save even more? Hold on to your old car a little bit longer. With typical car payments pushing $400 a month, one year of driving past your last loan payment will save you $4,800. Pay off your car and drive it for five years and you can save enough to buy your next car, all cash.

-- Save on your credit cards. This is probably one of your easiest opportunities for saving money. If you're carrying a balance, shop at http://www.cardtrak.com or http://www.consumer-action.org for the lowest-rate card you can find. Transfer your balance to that card and send every possible dollar there until the balance is burned.

Meanwhile, get two cash rebate spending cards. Citibank and Chase each offer cards that kick back 5 percent of everything you spend at the grocer. They, and almost every other issuer, will give you a 1 percent rebate on all other purchases. Use one card for the grocery, drugstore rebates. Spend a lower-than-average $100 a week at the grocer, and that's $260 a year in savings that you've given up nothing for. Put all your other expenses (including utility bills) on that other card and with $2,000 in charges every month (paid off with one check or money transfer from your checking account) and that's another $250 a year.

And, here's another tip: If you spend a lot at home improvement centers like Lowe's or Home Depot, buy gift cards at the grocer's with those 5 percent rebate credit cards and use them when you shop.

-- Save on your savings. Legitimate online banks are like those bricks-and-mortar banks around the corner from you. But if you're building an emergency fund that you rarely expect to tap, you don't need the location, you need the interest. The biggest banks are paying less than 1 percent on passbook savings; the big Internet banks like ING, ( http://www.ingdirect.com), Emigrant (http://www.emigrant.com), and Etrade (http://etrade.com), are topping 4 percent.

-- Save on your investments. If you have several different brokerage accounts or mutual fund accounts, consider consolidating them to save fees. Comparison shop at nasd.org to see how much less you would pay if you switched to lower-cost mutual funds than the ones you are holding. You'll give up $18,000 in 25 years by holding $10,000 in a fund that charges 2 percent a year in expenses instead of one that charges 0.5 percent a year, says Morningstar.

If you are buying funds and stocks through a broker whose fees are hidden in commissions, compare how much you would save if you paid for your investment advice by the hour (check The National Association of Personal Financial Advisors, http://www.napfa.org or Garrett Planning Network, http://www.gfponline.com, to find a planner who will devise a portfolio for you. Alternatively, you can get good mainstream investment advice from the big no-load fund companies, including T. Rowe Price, Fidelity Investments or Vanguard Investments.

-- Save on your house. Wait a few more weeks and then pony up for some insulation or tighter windows and doors. For the next two years, you can take a $600 credit off on your taxes, depending on how much you spend. The new products should cut your energy costs, too, at a time when the cost of heating oil and natural gas costs is higher than ever. Find out more details at http://www.energytaxincentives.org, the Web site for TIAP, the Tax Incentives Assistance Project.

(Linda Stern is a freelance writer. Any opinions in the column are solely those of Ms. Stern. You can e-mail her at lindastern(at)aol.com.)

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