How to Spend Money Wisely to Save Money (and Improve Your Finances)

How to Spend Money Wisely

Being frugal is key to lasting financial health. But sometimes you can save too much — or be so concerned with costs that you miss out on a great value.

This can be especially true when it comes to financial tools. Some of the most useful financial services have an upfront cost. And sticker shock can scare savers away, even if the price is well worth the return.

So how do you know if a financial tool is worth the cost? Figuring out how to spend money wisely includes identifying opportunities to spend a little and get more — more time, more knowledge, or even more money.

Here are five ideas for how you can spend to save in ways that will improve your financial world.

How to spend money wisely to save money

Refinance or consolidate debts

Finding strategic approaches to handling your debts can net significant savings. Consolidating or refinancing debt can both lower monthly payments and cut the interest you pay over the life of the loans. It’s worth your time to look into refinancing student loans, refinancing a mortgage, or consolidating credit cards to lower interest rates.

Restructuring debts can incur new costs. Refinance a mortgage, and you’ll often face closing costs. And personal loans used to consolidate credit cards often carry loan origination fees.

Use the calculator below to compare the costs of your current debts with the savings of refinancing a loan.

Even with an origination fee or new closing costs, you might still come out ahead by consolidating or refinancing your debt.

Student Loan Refinancing Calculator

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Make extra payments on a debt

On top of refinancing your debt, you’ll also get guaranteed savings by paying ahead. To do so, make your minimum monthly payment — and then some.

Finding extra funds to put toward repaying debts isn’t always easy, but it can have big payoffs. Depending on your balance, loan term, and interest rate, extra payments could shave years off your debt repayment and save thousands in interest.

Take your tax refund, for instance. A recent Student Loan Hero analysis estimated the savings of applying the average $2,973 tax refund to repaying student debt. If a new college graduate used an average-sized refund to pay down a $37,172 student debt, they’d get out of debt a year faster and save $1,504 over the life of a standard 10-year loan in student loan interest.

Use the prepayment calculator below to see how much interest you could spend to save with extra monthly payments toward debts.

Student Loan Prepayment Calculator

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Invest in an excellent financial app

Sometimes, all you need are the right financial tools to get ahead — even if you have to pay for them. At times like these, financial apps can help you manage your money and get ahead financially.

Many popular financial and budgeting apps are free. But don’t discount a promising financial tool just because it has a cost. For instance, every person I’ve talked to about budgeting app You Need a Budget swears by it. Even with its $5 monthly subscription fee (it has a free, 34-day trial, too), they love it and think it’s well worth the cost.

Then there are investing tools like the app , which charges just $1 a month to invest your spare change from digital transactions. Or you could get the help of a robo-advisor like  to maximize your 401(k) growth — without having to become an investment expert overnight.

Whatever the problem area is in your finances, the right tools can help you solve it simply and efficiently. And even for a price, that could be worth it.

Hire a financial professional

Maybe you have a financial problem too complicated to solve with an app. Consider hiring a human’s help instead — such as certified financial planners (CFPs), investing advisors, or certified public accountants.

Financial planners can help you quickly understand your financial situation, including the cause of your problems and potential solutions. They can point you to tools and products that will maximize savings and profits. And they will be more familiar with the complex world of finances and taxes and can find opportunities to save that you would miss on your own.

When preparing my taxes for 2015, I got a nasty surprise: a tax bill of $8,100. With this enormous bill hanging over my head, I opted to get the professional help. With a better knowledge of tax rules and benefits, our tax preparer found almost $1,000 in additional tax savings.

There is a caveat, of course: make sure you understand how your financial expert gets paid. Fee-based advisors are often preferable because costs are easy to anticipate and understand.

Get insured

Last but not least, make sure you’re adequately protected — especially if you can get insurance for a cost you know you’re likely to face down the road. There are the obvious options like renter’s insurance, car gap insurance, life insurance, and disability insurance. But you should also consider insuring things like electronics or your pets.

For me, I’m pretty hard on my belongings, and my smartphone is no exception. So when switching to a new phone plan, I opted for the insurance policy. So far it’s replaced a phone dropped in the ocean and one with a cracked screen — and more than paid for itself.

To find your ideal level of insurance, think about the big costs you could be facing if something went wrong. Then look for an insurance policy to match. For example, pet insurance can make a huge different when you’re facing big veterinary bills.

Make sure you compare premiums to how often you expect to use the policy to ensure you wouldn’t be better off just contributing to and emergency savings fund, instead.

Sometimes you have to spend to save

When it comes to building financial security, sometimes it pays to spend to save. Spend money now to give your finances a little extra boost, and you could see significant returns for months — or years — to come.

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