Finding extra money means keeping track of the little things. But there are also big things you can do that will definitely make you richer. Here are four examples.
The following post is from Len Penzo at partner site LenPenzo.com.
The other day I was talking to somebody (who, um, shall remain nameless) who was lamenting the fact that he couldn’t find enough discretionary income for an annual family vacation. I found that fascinating considering Eddie (oops!) drives a brand-new BMW and lives with his family of four in a modest Southern California neighborhood.
Of course, life is all about choices.
Eddie – oops, I did it again – may be upset that he can’t afford to take the wife and kids to Hawaii or Yellowstone, but that’s his opportunity cost of tootling around town in a brand-new luxury car.
Guys like, ahem, you-know-who are always looking to stretch their income. Heck, to be honest, I think we all are to some degree. If you’re looking to stretch yours to its maximum potential, here are four of the biggest ways:
1. Buy a used car
There are plenty of luxury car owners who struggle to pay their bills – or constantly complain they’re short of cash. Why is that?
Well, Experian found the average monthly car payment last year was $452. Now, according to this handy paycheck calculator, a family of four living in the state of California with an annual household income of $40,000 receives $2,706 per month after withholding for state and federal taxes. That means two car payments would consume one-third of the household’s monthly income on cars – leaving just $1,802 for groceries, utilities, rent, and other bills.
Good luck with that.
Nobody understood the financial benefits of used cars better than my dad, who brought home a very modest salary when I was growing up. He saw the folly of driving a new Mercedes to the grocery store only to be left with enough cash to buy store-label pork and beans. As a result, he always did due diligence and only bought affordable, well-maintained, used cars that he kept for many years.
2. Eat at home
Speaking of pork and beans…
Almost everyone knows that dining out is horrendously expensive. After running the numbers for my household, I found we spend an average of five times more per meal when dining out compared to eating at home.
Eating breakfast at home, brown-bagging lunches whenever possible, and reducing restaurant trips can free up lots of spare income, folks.
Last year we saved more than $3,500 by choosing to eat out every other week instead of twice weekly. And if you want to stretch your food budget even more, don’t toss those leftovers! We save an additional $1,400 annually by eating them at least once per week.
Add it all up and that’s enough for a family vacation.
3. Refinance your home loan
I’ve refinanced my home loan five times since 1997, dropping my monthly mortgage payment each time. The last time I refinanced, the goal was the lowest payment possible, so I not only refinanced to a lower rate, but I also extended the loan term from 15 to 30 years.
What are the results of all that refinance activity?
Well, my initial mortgage payment in 1997 was roughly $1,450. Today it’s less than $650. Over time, I’ve freed up roughly $800 in additional monthly income.
4. Downsize to a smaller house
Let’s face it, a lot of people end up buying more house than they realistically need or can afford, putting undue strain on the pocketbook. For those times when refinancing isn’t a viable option, consider downsizing to a smaller home.
True, that may seem a bit drastic. But if you’ve already cut your expenses to the bone everywhere else and you still find it difficult to make ends meet, drastic times call for drastic measures.
People downsize all the time. Just last night the Honeybee and I were watching an episode of House Hunters. In it, a middle-aged couple were looking to trade their very large old house for a smaller “green” home that was easy on the environment.
That’s not my cup of tea, but to each his own. Still, the couple on TV seemed to have their stuff together.
“I like these two. They’re practical!” I said to the Honeybee.
“Really? In what way?” she asked.
“Well, now that their kids are off to college,” I said, “they’re selling their big old house so they can downsize into something more appropriate. It’s a win-win; they exchange their old over-sized home for a brand-new, smaller house – and they get to pocket the difference too!”
Not three seconds later, I found myself choking on the cupcake I was eating after the narrator announced the couple was in the market for a 3,500-square-foot McMansion (with solar panels, of course).
“So much for being green,” the Honeybee snickered.
“Or practical,” I answered, before regaining my composure. Then, almost as an afterthought, I mumbled, “I wonder if they know Eddie.”
“Who?” the Honeybee asked.
“Never mind,” I said.
And with that, I grabbed myself another cupcake.