Five Painless Ways to Cut Expenses

Trimming the home budget doesn't have to mean more macaroni and fewer cable channels. Here are five ways to smartly — and painlessly — cut your family's expenses.

Desperate Times, Thrifty Measures.

Since the recession began two years ago thrift has resurfaced as something of a national obsession. That's good. As a nation we had gone off the deep end in terms of debt-fueled consumption and low savings. Now, tough times are spurring a reversal. The U.S. savings rate, once around zero, has pushed upward to about 4% this year. We could do better, and plenty has been written about how to go about pinching more pennies.

You've probably seen a lot of this advice and found it either predictable, too painful to actually act on or insufficient to make much of a difference — things like shopping with coupons, buying energy-efficient windows and appliances, cutting back on your Starbucks habit, dropping the premium cable package (and maybe joining Netflix), having the house cleaner come half as often (and maybe picking up a broom), getting familiar with craigslist.com so you can buy more stuff used, going to the library, vacationing at home, quitting the health club (and jogging), turning down the thermostat (and putting on a sweater).

Minimize Investing Costs

Most folks don't think much about the cost of investing because they aren't active traders, and so discount brokerages offering $7 stock trades as an alternative to much higher full-service fees don't mean much. Yet odds are you have some money, maybe even quite a bit, tucked away in one or more mutual funds in, say, your 401(k) or an IRA and that you pay no attention to the recurring fees these funds impose on you whether you buy, sell, hold or, well, just go to sleep. These fees fly under the radar because they are deducted from your balance and typically minuscule next to the gain or loss in your portfolio. But make no mistake: you pay them, and the costs can be surprisingly high.

Thankfully the costs can also be chopped down fairly easily. The key is sticking with extremely low-cost index funds, where the annual expense may be as little as 0.2% of your balance as opposed to actively managed funds where the annual expense typically runs about 1.19%. What does that mean? On an account worth $100,000, your annual cost in index funds is a mere $200 instead of $1,190 with actively managed funds. So you'd save $990 a year by switching. But that's only the start. The money you save each year stays in the fund and grows. Let's say a low-cost index fund and an average-cost actively managed fund both grow 8% a year for 20 years. Over that period, you'd end up with $75,678 more with the index fund by virtue of the additional compound returns from lower expenses; the index fund would grow to $449,133 while the actively managed fund would grow to $373,455. That's more than $3,700 a year.

Rightsize Your Cell-Phone Plan

Eight in 10 cell-phone owners either pay for service they don't use or rack up regular and excessive overage charges — and, on average, they could save 22% a month or more than $400 a year without altering their calling habits, according to Tom Pepe, CEO of Validas, which advises small businesses and individuals how to pick the right cell-phone plan. Multiply that figure by the number of people in your family plan and you could be talking about way more than $1,000 a year. "The big problem is the invoice," Pepe says. "You just can't understand it." That makes choosing the right plan difficult. Meanwhile, plans offered by Sprint, Verizon and others are constantly changing, as are your family's calling, texting and downloading habits. So cutting your cell bill is like trying to hit a moving target — frustrating and seemingly impossible. For a small fee, you can get a full checkup and recommendations at fixmycellbill.com, a Validas website.

If you want to figure this out on your own start with an unlimited plan because the cost of minutes not included in your monthly package can quickly overwhelm the additional cost of a larger package. Monitor your bill closely for three months; scale back to a cheaper plan when you have a firm grasp on the minutes and services you really need. Overage charges are the single biggest bill buster; make sure you have enough prime-time minutes. Other simple ways to cut: consider switching to a prepaid (no monthly fee) calling plan if you are an occasional user, use your land line when at home to conserve prime-time cell minutes and stop downloading games and ringtones.

Rethink Your Insurance

You'll save 10% right away by raising the deductible on your car or homeowner's policy to, say, $500 or $1,000 from the typical $250. You shouldn't make small claims anyway; they may push your premiums higher. Keep an emergency fund rather than paying for a low deductible. Make sure you buy your auto and homeowner's coverage from the same insurer to get a 15% multiline discount. You can lower premiums further by adding storm shutters, reinforcing your roof or buying stronger roofing materials, or by adding smoke detectors, dead-bolt locks and a burglar alarm or a sprinkler system. You can save on medical insurance too by raising the deductible or switching to an HMO from a more costly PPO or POS plan.

"Raising deductibles to save on premiums makes the most sense for those who are healthy and have cash reserves to pay the increased cost in the event they have more claims than expected," says Kevin J. Meehan, a financial planner with Summit Wealth Advisors in Itasca, Ill. "Many pay for benefits they just don't use." This is also true of life insurance, where you may be able to save thousands of dollars a year in premiums by avoiding whole or universal coverage and opting for a term policy with a face amount large enough to retire all your family debt immediately and leave your spouse with an income stream for life.

Give Time, Not Money

This is no time to turn a cold shoulder on charitable groups that you've supported in the past. Like virtually all organizations and individuals, charities have felt the bite of the recession. They are receiving fewer and smaller contributions, and are cutting their budgets and their activities. If you've been blessed with stable and secure income in these rocky times, by all means keep giving. But if cash is short you can still support your favorite charity as before — by donating your time instead of your money.
A volunteer's time may not pay the rent, but it has measurable value. The Independent Sector, a think tank for nonprofits, estimates that a volunteer hour is worth just over $20. So do the math. If in the past you have given, say, to your church to the tune of $2,000 a year — give 100 hours of your time instead, or maybe 50 hours plus $1,000. You'll save $1,000 or more while maintaining your commitment and feeling good about yourself. One note of caution: the value of your time is not tax deductible, though any materials or supplies you provide while volunteering can be deducted.

Avoid Fee Creep ...

... and watch for unauthorized charges. Fees are going up across the services spectrum as companies look for ways to bolster revenue in a slow economy — and the worst part is that the increases typically are done so quietly you may not figure them out for months. The banking industry has been most aggressive on this front, having raised the price of just about everything from overseas charge-card transactions, ATM withdrawals and rewards cards dues to late payments, cash advances, overdraft protection, wire transfers and even insufficient card activity. It's all disclosed — in the fine print somewhere on page 98. Good luck with that. At the same time, sneaky marketers are finding ways to hit you with small monthly charges that often go undetected by cardholders for months, and once found can be difficult to stop.

You are most at risk when you accept a free trial for any product or service (it just keeps coming and you just keep getting charged) or agree to a monthly payment for, say, access to an online game that you get tired of but can't seem to cancel. Sometimes after successfully canceling, the charges inexplicably start again a few months later. Bank fees and unauthorized (or forgotten) recurring charges can easily cost you $1,000 or more each year. Your best protection is to do a line-by-line review of your charge-card statements every month, paying attention to each charge no matter how small (indeed, especially the small ones) as well as to the interest rate and fees you are paying. Don't assume a phone call to a merchant or service provider will end unwanted charges; you have to keep monitoring your statement and complain to the card company if you are unable to cancel a recurring charge.