by: Richard A. Anderson, CFA
There are many self-proclaimed financial experts who like to stand up on their soap boxes and disparage ordinary people for how they spend their hard-earned money. The most commonly referred to “waste of money” is your morning coffee. There is even a website that will calculate how much you would accumulate if you didn’t buy your morning coffee and instead invested it. Suze Orman and Kevin O’Leary are two financial experts who refuse to pay for a cup of coffee because they think it’s like throwing money away.
I have written on this topic before, but I think it’s worth revisiting. The logic behind the advice is sound: we often spend money on unnecessary little expenses, like coffee, without realizing what they add up to over time. If we don’t spend on things we don’t really need, we’ll have more money to spend on things we do really need or more money to invest for our retirement.
However, eliminating small, regular purchases likely isn’t the only obstacle standing in the way of our retirements. That’s not to say we shouldn’t cut back on buying those little things that we often don’t think about, but there’s a limit to how much we can cut out while still living our lives.
The areas we should focus our attention on the most are big purchases and earning potential. The decision on how much to spend on housing, whether buying a house or renting, as well as how much to spend on an automobile, whether buying or leasing, are much more likely to have a long-term impact on our ability to achieve our financial goals. In addition, how much you earn over your lifetime will impact how much you can save for your financial goals.
With that being said, there are small changes we can make that will not materially affect our day-to-day lives.
Earn rewards by using your credit cards
You can get rewards like cash back or travel points when using your credit card to make purchases. You don’t have to go crazy attempting to optimize your rewards by having a dozen credit cards, each with a different rewards scheme. Having one card that gives you cash back for everyday purchases and one card that gives you a higher reward for travel is sufficient. Getting something is better than getting nothing, which is what you get when you use cash or a debit card.
Save with coupons and deals
In addition to earning rewards for using your credit card, you can get extra cash back through online programs. I personally use Rakuten. You can earn cash back bonuses from thousands of stores, either in-store or online. The best part is there is no coupon clipping or hassles. All you have to do is sign up and start earning.
Periodically review your insurance premiums
It’s likely that you purchased your home, auto, and/or umbrella coverage when you first moved into your house and haven’t reviewed it since. But every year, your insurance premiums increase. It’s good to get quotes from competing insurance companies every two to three years. Why should you pay more than you have to for the same coverage?
Periodically review your tv, phone, and internet service providers
The cost of cable and satellite tv has gotten out of hand. Those deals you see advertised for $99/month for tv, phone, and internet are often pipedreams, unless you are a new subscriber. Between the actual cost of your service and all the add-ons, you could easily be paying $250/month. Like your insurance coverage, it’s a good idea to compare service providers every time your contract expires. Often times, you can qualify as a new customer and lock-in any promotional pricing.
Additionally, you could consider cutting the cord all together. To do this, you would only pay your local service provider for internet access. Then, you would subscribe to a streaming service for your tv. The most popular streaming services include YouTube TV, Hulu, Sling TV, and AT&T TV Now. You would also need to purchase a streaming device, if you don’t have a smart tv, that plugs into your tv. The most popular streaming devices include Apple TV, Amazon Fire TV stick, and Roku Streaming Stick+.
While none of these changes will make or break your ability to retire, it will help make sure you are in control of your spending. Typically, our inability to dedicate a significant amount of time to keeping an eye on all of these recurring expenses is our greatest downfall. Try setting up a day, once per year, to review all of your current subscriptions and recurring charges. You may be surprised by how much you are spending, especially on cable TV!
Author’s Bio
Richard A. Anderson is a portfolio analyst at HIGHLAND Financial Advisors, LLC based out of Wayne, NJ. HIGHLAND Financial Advisors, LLC is a Fee-Only financial planning firm that offers comprehensive financial planning, retirement planning, employer retirement planning, and investment management services to help clients focus on what matters most to them.
Richard graduated from Ramapo College of New Jersey where he earned a Bachelor of Science degree in Business Administration with a concentration in Finance. Richard joined the firm in June 2013 and is responsible for assisting HIGHLAND’s Wealth Advisors in developing portfolios to help individuals, families, and institutions reach their financial goals. He is a Chartered Financial Analyst (CFA) charterholder and member of CFA Society New York. For more of Rich’s thoughts on the markets and sports, follow him on Twitter and connect with him on LinkedIn.