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.
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