In continuation with my opinion that saving money is the best investment that most people can make, it makes sense to spend your time saving the greatest amount of money you can with the least amount of time and effort involved. That means knowing what type of savings will have the biggest payoff. While you might assume that this would be obvious, many people spend a lot of time chasing small savings and ignoring the biggies where they can make significant reductions in their spending.
There was recent research done by One Account (a British firm on British spending habits, but they are quite similar to those of Americans), 25% of consumers are planning to cut out fast food in 2006 to save money. Another 22% intend to quit buying chocolate to save money. At the same time, only 18% were planning to refinance their mortgage to lower the interest rate. This despite the fact that refinancing their mortgage could save the average Briton thousands of dollars a year and giving up chocolate would save them about $100.
While there is absolutely nothing wrong with saving money by reducing the amount of junk food you eat, not going out on the town as often or giving up a bad habit, these should be tackled in a second wave of saving money after the biggies have been addressed. This is because the savings resulting from giving up chocolate or fast food are much less likely to materialize and will cause a lot more stress and anxiety than going after the biggies. Giving up something that your crave will put yourself in a position of doing something that you don’t enjoy doing and may take some extra effort to accomplish. Many of the biggies are painless savings meaning that you save money to invest without the difficulty that comes with other types of saving.
Refinancing your mortgage is an obvious step if you haven’t done so yet. Other areas that you may be able refinance to save money to invest include all your insurance (home owners, auto, life, medical, etc). It also may include finding ways to streamline and consolidate other bills that take a large chunk out of your monthly income.
By going after the big savings you can greatly increase the amount of money in your investment pool in a short amount of time and allowing this money to sit in compounding interest accounts for a longer period. Not only is it easy money to save, it’s savings that won’t impact your current living standards in the least bit – a double plus that’s difficult to beat.