If You Want to Budget, Start With the Big Stuff

You hear and read it everywhere: “If you want to save money, look at the little things. They add up! Consider how much you’re spending on that latte!”

Sure, your mid-morning trips to the coffee shop add up. If you’re spending $3-4 on a specialty coffee drink every work day, you’re probably spending $650-900 each year on coffee and steamed milk. That isn’t a small number by any means, but consider how much of your budget flies out of your wallet without thought every month.

Consider things like your mortgage, car insurance, health insurance, phone, internet access, cable and utilities. Those are the heavy hitters for a lot of people, but most of us rarely reevaluate these services once we sign up for them. Here’s a look at the things taking a chunk out of your monthly expenses you might want to examine:

#1 Mortgage

Are mortgage interest rates at present significantly lower than your current rate? Now might be the time to refinance. The decision to refinance is trickier than just comparing mortgage interest rates, however.

Remember that refinancing comes with a new loan and new closing costs. In other words, you have to save a significant amount of money in decreased payments before you start seeing a benefit.

Also, keep in mind that refinancing often means extending the length of your mortgage. If your monthly payments are reduced but the length of time you’ll be paying is greatly extended, you may not come out ahead. Further, remember that in the early years of a loan, most of your payments are interest. Depending on where you are in your current mortgage, a refinance might reduce your monthly payment while increasing the lifetime interest you pay.

Finally, if you’ve shopped around for refinance options and think it’s the right idea, don’t go ahead before contacting your current mortgage lender about a loan modification. Explain you can get a lower rate by refinancing, but you’re willing to consider staying with them if they can lower your rate.

#2 Car Insurance

Everyone is used to increasing payments each year. Rates go up. But how big a rate increase does it take to get your attention? If it’s been a while since you price compared car insurance, shop around! If you find other insurers offering the same coverage for less, call your insurer and tell them it’s time they slashed their prices or found a new customer. If a phone call really could save you 15 percent or more, isn’t it worth the call? If you’re one of the many Americans who purchase individual health insurance, the same advice applies.

#3 Phone, Internet and Cable

These services can get tricky. Because companies are increasing the variety of services they offer, many offer multiple services in “bundles.” Search around and see how you can pay the lowest total for all of these services. Also, consider whether or not you need a landline phone. If everyone in your household has a cell phone, what’s the point of the added expense? If your cell contract is soon to expire, see what else is out there.

#4 Utilities

If your utility costs are through the roof, bringing them down might require a bit of an investment. Huge heating costs can be brought down with increased insulation or a different heat source, but both of those generally require costly renovations. If your electric costs sky-rocket come summer because of the increased electricity required by a half-dozen window unit air conditioners, a new energy efficient central air system will probably bring those costs down. But, it will cost money to install. Compare the total costs of these alternatives, and see if any can increase the money that stays in your pocket long-term.

Sure, little things add up, and it’s great advice to keep a close eye on these expenditures. But it’s an equally good practice to take a look at the money that’s leaving your account without much attention every month. This way, you’ll have more left for saving and investing.