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Cutting Back Without Cutting Down


Common sense ways to avoid leaving money on the table.

If you're looking for ways to reduce spending in an increasingly sour economy, eliminate things you don't use regularly and look for bargains that don't sacrifice quality.

Then make cuts in the big three household budget busters: food, insurance and telecommunications.

"You can't out-earn dumb spending," says Gregory Karp, author of Living Rich by Spending Smart: How to Get More of What You Really Want. "You don't have to be a cheapskate to get spending in line, but you do have to keep an eye on what you buy and redirect your money to things you care about."

Start with the basics: If you haven't gone to the gym in months or rarely work out, cancel the membership. If you pay for unlimited rentals from a mail order video service but only watch a few flicks each month, reduce your membership level. Then realize that life is possible without Sirius Satellite Radio (SIRI) in your car.

Many people pay for unlimited long distance service from major companies such as Verizon (VZ) or AT&T (T), but make just a few calls each month. Track the number and length of calls for two or three months and do the math – you may be better off buying long distance service at five cents a minute rather than paying $60 or more each month for unlimited calling.

And you might be better off with a prepaid cell phone rather paying for 300 minutes a month. If not, shop around for the best cell phone plan because the sector is highly competitive. Don't buy more service than you need and don't pay extra for a ringtone unless you light your Cuban cigars with hundred dollar bills. Keep an eye on text messages and use a landline when possible to conserve minutes.

Buying phone service, Internet and cable TV as a package through a major company such as Time Warner (TWX) can make sense, but if you're paying for premium channels you don't use, you're wasting money.

Karp says life insurance has gotten cheaper, and it's easy to check prices online. If you bought a policy in the 1990s or earlier, shop around. You may want to buy a new policy and cancel the old coverage. Remember: Premiums increase with age.

"Extended warranties are a total waste of money," Karp says. "They're pure profit for electronic retailers."

First, you're on the short side of a bad bet: Quality new equipment from major manufacturers such as Sony (SNE) rarely goes bad. In any case, the manufacturer's warranty typically covers any problems for 90 days and you may have extended coverage if you purchased the item with a credit card. Spending $400 for an extended warranty on, say, a flat panel TV that sells for $2,000 makes no sense.

Here's a better solution: Regular contributions to a savings account. The money allows you to cover repairs should something go wrong after the manufacturer's warranty expires. In addition, the savings enables you to increase the deductible on your auto insurance and reduce the premium because you can cover minor repairs out-of-pocket. This will save you money year after year.

Many large grocery chains offer online coupons. You can tuck steaks in the freezer and stack paper towels in the closet for future use. Buy detergent and household cleaning products in bulk. Give store brands a hard look because quality has improved.

Buy disposable diapers and other daily needs items online through (AMZN) or (DSCM) and the stuff will be delivered to your door. You'll probably save money and won't have to fret about lugging oversized boxes home. Be sure to check shipping costs. Some Internet retailers require a minimum purchase to avoid a shipping charge and a few hit you with a stiff fee if you exceed a weight limit.

Online comparison shopping sites, including those offered by Yahoo (YHOO) and Micosoft (MSFT), make it easy to check prices so you no longer have to take a retailer's word that an item's priced competitively. If your child's old enough, there's a basic personal finance lesson to be learned by having the kid click through the various shopping sites in search of the best price.

Banking is extremely competitive, yet many people give little thought to selecting a bank. Always check the fees and what you have to do to avoid them. Be wary of a bank that requires you to maintain a high balance in your checking account to avoid a monthly service charge. You'll earn a low interest rate on the money and it's easy to dip below the threshold and get whacked with a fat fee. Look for a bank with ample ATMs, or risk getting hit with out-of-network fees each time you withdraw cash from a bank other than your own. If you use a small bank with few ATMs, you can avoid fees by getting cash back when you use a debit card at a supermarket or drug store.

Credit card interest rates are highly competitive so shop around. An Internet bank may offer a higher interest rate on savings than a traditional bank, but make sure the cyberspace institution is FDIC-insured. Find out about being reimbursed for using a traditional bank's ATM. A credit union may offer a better deal than a commercial bank on just about everything.
"You can save if you buy things used," Karp says. "If you buy a used car, someone else took the depreciation hit by driving it off the lot. Take a look at used clothing. This gives many people the willies, but items at a high-end consignment store are often available at about 25% of retail cost – and some still have the original price tag. I do a lot of TV appearances in a $7 sports coat – and it doesn't look bad."
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