After I graduated from university, I worked in an office for many years. Unfortunately, I knew that I had made a mistake in my career choice. I could not see myself working in an office for the rest of my life, so I quit my short lived career, and started a new career at home, investing in the stock market. I knew that it would be risky and that it was not a guaranteed income so I needed to make sure that I watched my expenses and that I was living a frugal life.
I became the king of frugality! That's when I discovered the secret to saving money. This secret is the foundation to all possible money saving ideas. Here is the simple tip:
The most successful way of saving money is to think of it as a business, and that saving money is actually a way to make money.
Let me explain. There are two ways to get richer. You can earn more money or you can spend less money, or both. At the end of the day, your ultimate objective is to earn more than you spend and have money left over for savings. So, by spending less money you are also helping to grow your savings. And growing your savings is actually a form of making money.
How do you treat saving money as a business? Just as any business would, I itemized all my expenses right down to the dollar. I used a computer spreadsheet but you can use a book to record all your expenses. Any money that left my wallet or bank account had to be accounted for and each expense was questioned and scrutinized. Every time I saved money, I got just as excited as when I made money. Remember the following rule.
Save Money By Questioning Every Expense – Ask yourself the following questions to see if you can spend as little as possible and preferably not spend anything at all.
- Do I really need this?
- Can I repair my old one?
- Do I have an old one lying around in storage?
- Can I borrow it from someone?
- Can I make it myself?
- Can I get it for free from the classifieds
- As a last resort, can I buy it used from the classifieds
Use Google to help you with any information you need on how to repair things, on how to make things, and to find classified ads. Google is the oracle. Everything I've ever needed to know, to save money, I have learned through Google.
I will give more examples in future articles but here is one of my favorite, and most profitable experiences in saving money.
Saving Money on Home Insurance
Question # 1: Do I Really Need This
When I was able to afford to buy a home, I looked very carefully at what the insurance broker was offering me in terms of coverage. He gave me what he considered a standard package that most customers just accepted. I just about took that policy but decided to ask the first question. Do I really really need this? Four hours later, the broker was exhausted after explaining every detail of the policy and I mean every detail! I left that meeting refreshed, knowing that I had saved a fortune by simply asking.
You see, I live in a city where it snows but we rarely have major snowfalls. However, hidden in the policy was an option to be covered for damage due to the weight of snow on the roof. That cost was $ 77 / year.
Also hidden in the policy was coverage for water damage. In fine print, it said that they would cover damage due to normal rainy but not damage due to continuous seepage from an extended period of rainy. They would also not cover damage due to a flood. That's just plain crazy. Why would I want water damage insurance for anything other than excessive rainfall and flooding? That cost was $ 31 / year.
I declined both premiums to save $ 108 / year.
The policy also had this cryptic description of "Property Insurance Option 3 premium". I asked what Option 3 mean and they told me that it included coverage for several thousand dollars worth of jewelery and artwork. I declined that coverage and dropped it down to Option 2, which saved me $ 54 / year.
My Total Savings
My total savings was $ 162 / year. That may not seem like much. But you should make sure you are sitting down to read this because I'm going to floor you with the next calculation.
Each year home insurance goes up an average of 5% per year. If I had taken that extra insurance for $ 162, the next year it would have cost me $ 170. But what if I took that $ 162 and put it in the bank to earn 5% interest? And then the next year I could have put $ 170 into that same account to earn 5% on the combined amount. I would have saved $ 357. That's called the magic of compounding interest. If I did that year after year for as long as I owned a home, here's how much money I would save:
- $ 2,262 over 10 years
- $ 7,778 over 20 years
- $ 19,338 over 30 years
- $ 42,361 over 40 years
- $ 86,694 over 50 years
Let me repeat that. I would save an astonishing $ 86,694 over 50 years of home ownership, by simply raising to ask questions. Spend a few hours of your time to question everything you are paying for in your home insurance policy. Slash any items that do not make sense to you. In my case, my four hours effectively paid me $ 21,673.50 per hour!
Now that's what I call making money by saving money!