We hear about the “Latte Factor” all the time: Cut out small purchases each day and your savings could add up to a million dollars in a few decades, provided you invested them.
But what if instead of sweating the small stuff, you paid attention to the bigger expenses in your life?
Rather than spending the rest of your life counting pennies, here are seven money moves that might have a bigger impact on your financial well-being. You might not even have to give up your favorite luxury splurge.
1. Downsize your home
Do you have more space than you need?
That’s probably costing you, said Thomas Nitzsche, the communications lead at Money Management International, a nonprofit focused on financial education.
Nitzsche went from a four-bedroom home to a tiny house with only 220 square feet.
“I was able to pay off the tiny home remodel in less than two years, and now I have almost no housing expenses,” Nitzsche said. “I only have a few utility and communication costs.”
You don’t have to buy a tiny house to see savings, though. Natasha Rachel Smith, a personal finance expert at TopCashback.com, pointed out that any downsize in your living situation can reduce your bills in several ways:
- Smaller housing payment
- Lower utility bills
- Less temptation to buy more things due to excess space
- Lower property taxes (if you own)
I’m planning to downsize my own living situation when my son graduates from high school. Instead of paying $995 per month on rent, I’ll be able to find something for $600 per month — a monthly savings of $395.
With that much saved, I could buy a $5 latte each morning ($150 per month) and still come out ahead.
2. Refinance your home
What if you’re not quite ready to downsize but still want to save money on homeownership costs?
By refinancing, you’d save $222 each month on your mortgage by nabbing a lower interest rate. Those savings would be automatic and amount to $2,664 annually. Use our investment calculator to see what you could earn by investing those savings.
Assuming an 8% rate of return, you’d have an extra $131,723 after 20 years of investing. That would be on top of what you already had in your account. And it sure beats paying more than $53,000 extra in mortgage interest.
3. Bundle your insurance policies
“Bundling home insurance with auto insurance typically saves the consumer between 10% and 25% per policy,” said Smith. “You can get additional savings if you include life insurance.”
By bundling, I save 30% overall on my auto, renter, and life insurance coverage. Rather than paying about $350 each month for these three policies, I pay $245 — a savings of $105 each month.
It’s not just about bundling, though. Joel Ohman, a certified financial planner and the founder of the insurance website CarInsuranceComparison.com, pointed out that taking a few minutes every six months to get new quotes on your policies can save you big time over the years.
“The cheapest insurance company six or 12 months ago might not be the cheapest today,” said Ohman. “Your situation, coverage needs, and insurance rates all change. Take 15 minutes to compare rates and reap the savings.”
4. Improve your credit score
No matter your situation, you can save money when you take the time to boost your credit score — and maintain it.
“Credit scores affect a wide range of financial realities, including car insurance rates in some states,” Ohman said. “The better your credit score, the better your insurance rates, the better your interest rates, and the better your financial options overall.”
According to Nationwide Credit Clearing, a credit repair company, here’s what you could save with a credit score of 750 compared to a 650 score:
- Five-year $25,000 auto loan: $4,239 in total interest
- Thirty-year $274,640 fixed-rate mortgage: $1,956 in the first year
In addition to saving money on insurance premiums and loan rates, you could also see a reduction in security deposits required by landlords or utility companies, according to Nationwide Credit Clearing.
All of that can add up over time, making it worthwhile to pay attention to what’s happening with your credit score.
5. Refinance your student loans
Depending on your credit and income situation, you might also be able to save big bucks by refinancing your student loans.
You can choose to refinance both federal and private student loans, but be careful. Choosing to refinance federal student loans isn’t always the best decision, even if you could get a lower interest rate. For example, if you’re eligible for loan forgiveness, getting rid of federal loans through refinancing could be a poor choice.
With private student loans, on the other hand, you’re almost always better off refinancing if you can get a better interest rate.
Run the numbers on both your federal and private loans to see if you could benefit. Our student loan consolidation versus refinancing calculator can help you get a rough idea of where to start.
For example, consider how refinancing or consolidating could affect repayment on a $25,000 federal student loan.
As you can see, both refinancing and consolidating can save you money in terms of monthly cash flow. But only refinancing will result in overall interest savings.
6. Increase your insurance deductibles
“While everyone realizes that the higher your deductible is, the cheaper your monthly premium will be, many people balk at having a high deductible,” said Ohman.
According to Insurance.com, you could save, on average, between $261 and $419 on your annual homeowner’s policy by boosting your deductible to $2,500 from $500.
While that doesn’t seem like a lot, consider if you raised your deductible on other insurance policies. Back when I paid for self-employed health insurance, my premium savings were about $250 a month, thanks to a high-deductible plan and my Health Savings Account.
I’m also saving money on my auto insurance, thanks to a $1,500 deductible rather than a $500 one.
These changes to your situation are fairly large, but the savings each month and year become automatic and add up over time.
Before you rush out to increase all your deductibles, though, take some precautions. “Start a savings account designed to cover these deductibles,” Ohman said. “Only after you have enough money saved up to cover the deductible should you call your agent and make the change.”
7. Start a retirement plan
Rather than focusing on all the penny-pinching, Smith recommended making sure you start saving for retirement early.
“Even if you only save 5% of your salary, the longer you contribute, the more money you end up with,” Smith said. “It’s more important to start a solid savings habit than cut out cheap, small pleasures from your life.”
If your employer offers a match, take advantage of the free money that can help you grow your future wealth. Even if you don’t have access to an employer plan, you can open a tax-advantaged retirement account on your own.
You don’t need to be a miser to save big bucks
While it’s always important to be smart with your money, that doesn’t mean you can’t have any fun in life. Rather than stressing out over every penny spent, consider a few bigger strategies that can lead to more efficient wealth-building over time.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
Savings example: average savings calculated based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were disclosed. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
Application detail: 5 minutes indicates typical time it takes to complete application with applicant information readily available. It does not include time taken to provide underwriting decision or funding of the loan.
Instant rates mean a delivery of personalized rates for those individuals who provide sufficient information to return a rate. For instant rates a soft credit pull will be conducted, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
Total savings calculated by aggregating individual average savings across total borrower population from 9/2013 to 12/2017. Individual average savings calculation based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were provided. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate||Visit SoFi|
|2.47% – 5.87%1||Undergrad & Graduate||Visit Earnest|
|2.47% – 8.03%4||Undergrad & Graduate||Visit Lendkey|
|2.95% – 6.37%2||Undergrad & Graduate||Visit Laurel Road|
|2.48% – 6.25%5||Undergrad & Graduate||Visit CommonBond|
|2.72% – 8.32%6||Undergrad & Graduate||Visit Citizens|