Nickel and dime your way to prosperity

An old friend and I have been talking a lot about debt elimination these past few weeks. With any luck, both of us will be completely debt-free by age 45 at the very most, and probably sooner.

The trick is to dump as much money as possible into debt retirement. As recently as November, the interest on my Honda Civic was costing me $1.40 a day. Think what you could do with that $540 a year you’re paying in needless interest.

The challenge is finding the money to use to retire debt.Some of these tricks will only save you a few cents. You must get yourself over the it’s-only-25-cents mentality. That quarter can either work for you or against you. A quarter paid at the beginning of a 30-year mortgage saves you more than a dollar by the end of the loan. Can you find a safer way to quadruple your money? I doubt it.

If and when you have no debt, dump those pennies, nickels, dimes, and quarters into an index fund. An index fund just buys you the same stocks that are in the Dow Jones Industrial Average, or some other index. Historically, these funds double in value every seven years. Great Depression, Schmeat Schmepression. Dump a quarter into an index fund and don’t touch the investment, and in 28 years, it’s $4.

So let’s find some creative ways to get some quarters.

1. Pay your bills online. This potentially does more than save you the 37 cents in postage. My gas and electric companies both have arrangements with checkfree.com to allow online payments free of charge. I was invariably late in paying them, which subjected me to interest payments. The other nice thing about Checkfree is that it schedules the payment for the due date. So if by chance you have an interest-bearing checking account, that money can work for you until the last possible day. You probably won’t save more than a couple of bucks a month this way, but that’s $25 over the course of a year. If someone offered you $25 without any strings attached, I doubt you’d turn it down.

2. Make car and mortgage payments as soon as possible. I may be showing my ignorance here, but interest paid to me on most accounts I’ve had is calculated monthly. Interest on my car is calculated daily. So, making that payment as soon as my paycheck shows up in my checking account reduces the principle, thus reducing my interest payments by a few pennies a few days early. It’s only pennies? I’d rather they be my pennies than Honda’s.

3. Use credit wisely. I remember one day a few years ago, I was at the grocery store and instead of pulling out my debit card, I pulled out a credit card accidentally. I thought how awful it would be to have to pay for life’s necessities on credit.

But if you’re disciplined, and you have a credit card with rewards–and we should be talking cash here, not merchandise–then it makes sense to pay for life’s necessities on credit. Take a look at my Discover Card bill, and you’ll see the bulk of it is things like gasoline, groceries, my telephone bill, and $20 trips to Kmart, which means I was probably buying stuff like toothpaste and deodorant and other household necessities. I pay the balance in full every month, so the result is essentially some bank paying me to buy the things I’d need to buy anyway. This nets me about $80 a year. I never see a dime of it–I apply it directly to the card’s balance.

4. Buy a programmable thermostat. The cheapest programmable thermostats cost about $30. They can easily save you that much in a month. During my 8-hour workday, my thermostat only heats the house to 56 degrees in the winter time. It cools it to 82 in the summer. During waking hours and on weekends, it keeps the house at 70 degrees in the winter and 75 in the summer. During sleeping hours the temperature raises or lowers by 5 degrees depending on whether it’s summer or winter. I used to have $300 heating bills in the winter months. Now I have $175 bills. That’s still ridiculous, but it leaves me money to actually do something about it.

5. Cut out the sodas and snacks. I used to routinely spend $1.50-$2.00 a day at the vending machine and the cafeteria at work, buying coffee, soda, and snacks. Over a 240-workday year, well, do the math. The 34.5-ounce can of coffee in my fridge (it lasts longer when stored there) is marked 9-26, the date I bought it. I expect it will last me until the end of the month. So that can of coffee will last me five months. I buy the off brand, so I can sometimes get one of those cans for between $3 and $3.50. So my morning coffee costs me 2.3 cents. I quit drinking soda entirely and I pack a granola bar in my lunch. Over the course of the past year I am sure I’ve saved $300.

6. Pack your lunch. Lunch at a sit-down restaurant almost always costs you $7. Fast food usually costs at least $5. The cafeteria at work is usually $3-$4. Sometimes I pack leftovers that would otherwise get thrown away, so they’re essentially free. It’s fairly easy to pack a lunch for $2. Again, do the math over 240 days. Do you want to spend a house payment on lunch every year, or do you want to spend a car payment instead?

7. Eat out less. A couple of years ago I was dating a girl who had to eat out 3-4 times a week, at least. Usually it was places where I was lucky to get out for under $20. I always paid, of course. I couldn’t figure out why I didn’t have any money. But with a little creativity, it’s entirely possible to make dinner for two for $4. You can make a fairly impressive dinner for two for $10.

8. Shop the cheap stores. St. Louis has five different chains of grocery stores. At the top of the ladder is Dierbergs, followed by Schnucks. A third local chain, Shop ‘n’ Save, generally beats the Schnucks and Dierbergs prices by a few percent. But now I do most of my shopping at two stores that white-collar professionals rarely visit: Aldi and Save-a-Lot. In most cases the quality of the product is the same. But when I can get a loaf of bread for $.99 versus $1.59, the difference adds up quickly. For the things Aldi and Save-a-Lot don’t carry, I still go to Dierbergs, but I rarely spend more than $10 at Dierbergs now, unless they’re running a big sale on something.

8. Buy generics. A lot of people are afraid of generic products because they feel they might be getting ripped off. You’re actually a lot more likely to get taken with a costlier brand name. I’ve found the quality of most generics to be as good as the name brands. When it isn’t, I try a different generic the next time. Eventually I’ll find a generic that’s as good as the big name brand, and save a bundle. I’ll buy the name brands when they’re on sale, but aside from that, my pantry is full of generics and I don’t care who knows about it.

9. Don’t spend a dollar to get 14 cents. A common excuse for not paying down your house is that the interest is tax deductible. That may be, but you’re getting pennies on the dollar. My car payment was costing me $1.40 a day until I paid it way down.

It’s tax time. That means you have a piece of paper that tells you exactly how much interest you paid on your house last year. Are you paying $14 a day to inhabit a house you supposedly own? That tax deduction only reduces the net cost to $12. I can think of better things to do with $12, and I’ll bet you can too.

10. Don’t spend your windfall all at once. Are you getting a tax refund? Did you get a bonus? Have you been working a lot of overtime lately? It’s OK to reward yourself and/or your family. But don’t blow all of it indulging yourself. Spend 10 percent of it, tithe 10 percent of it, and use the rest to retire debt, and dream of the day when you have no mortgage payment and no car payment and every paycheck is a windfall.

11. Save your pennies. Coinstar, the makers of those change-converting machines in grocery stores, says the average household has $90 in loose change scattered about the house. A fairly painless way to save money is to dump your change into a jar at the end of the day, rather than spending it on frivolous things. At some point, convert the money into a more usable form, then apply the windfall rule to it.

12. Cascade your debt. I pay extra on my car every month. When the car is paid off, I’m going to start adding that amount to my mortgage payment every month, except in case of emergency. I estimate I can have my house paid off in about five years by doing this.

13. What will I have to show for this purchase? This is key. Before you spend even a quarter, consider what you will have to show for it by buying it. Just because you walk past a candy store in the mall doesn’t mean you have to go in and buy something. If you’re lucky, all it’ll do is rot your teeth and make you fat. You could have paid that quarter into your mortgage and turned it into a dollar.

Some purchases are unavoidable. In a couple of months, I’m going to need new tires. I can think of a million things I’d rather do with that money, but I need it. That’s OK. I’ll have it.

The trick isn’t to live in total self-denial, but to exercise restraint. Most of us live like millionaires, but the problem is that we’re spending our million dollars instead of letting it work hard so we don’t have to work as much. And it’s killing us.

8 thoughts on “Nickel and dime your way to prosperity

  • February 16, 2005 at 11:00 am
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    OK, this is being REALLY cheap – but it’s worth a minimum of $200 a year, and it all counts, right?

    Save your leftovers. Chop them, freeze them. Everybody has leftovers – unless you force yourself to eat a little too much. A few slices of meat, bones you’ve carved a roast from, a spoonful too much beans, a half potato, a last slice of bread, half a cup of macaroni, leftover casserole or meatloaf or rice – whatever. Have a soup-container (that’s a container for making soup) in the freezer. Heck, even put leftover soup in it too, or a little leftover milk that’s about to sour. It all freezes. Once a week or once a fortnight, haul it out, chop it up, add a chopped onion, boil it all to make a soup meal. If it’s a bit thin on substance, stir up a couple of eggs with a little cold water, then pour them into the boiling soup, stirring as you go. Instant egg-flower soup. Or add a handful of rice or pasta. A splash of soy sauce, a sprinkle of your choice of dried herb that night.

    It will probably taste better than any soup that isn’t home-made, and how much did you say an evening meal was costing you? This one cost nothing, and saved you the cost of a meal – fifty times a year.

    • February 16, 2005 at 11:27 am
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      Whoops! I forgot one of the biggest morale boosters or motivaters for me.

      Money saved is worth much more than money earned – because it’s after-tax money. Thing about whatever you’d have to earn in pre-tax dollars to have as much in your pocket as you save.

      For instance, if your marginal tax rate were 25%, then you’d be losing 25¢ in every extra dollar you earned. Turning that around, it means you’d have to earn 1.33 to have a dollar in your pocket. A saved dollar is worth 1.33 times as much as an earned dollar – and you can save it at home, in your own time at your own pace with no transport costs, no commute, no stress of crabby bosses and demanding workplaces.

      And without further contributing to the care and feeding of politicians.

    • February 16, 2005 at 10:46 pm
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      Don, I really like the way you think.

  • February 17, 2005 at 8:13 am
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    The Coinstar machine idea is good, but those typically charge you some percentage of the value of the coins counted. We have a free "user operated" coin counter at our credit union that pays out 100%. I keep a change jar around and run it up there when it’s full – usually get $90-$100 out of it 🙂

    Credit Unions are also a great way to save on fees, etc… that regular banks charge.

  • February 18, 2005 at 8:49 am
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    About four years ago, I took a couple of empty coffee cans from work, sanded them lightly, and spray painted them copper and silver. Put the plastic lids on the bottom to keep the metal from scratching things, and keep the can from moving around. I throw pennies into the copper can, and nickels, dimes, and quarters into the silver can. A full can of silver is approximately $600. A full can of copper is approximately $50. I roll the silver myself, and let Coinstar handle the pennies. The silver pays for big things like tires, repairs, or maybe even a DVD box set. The pennies typically pay for a shopping visit to the same grocery store where the Coinstar machine sits.

  • February 22, 2005 at 1:20 pm
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    Dave,
    What if you save and then your local government takes it all?
    The U.S. Supreme Court has the case. Write your justices. Oh I’m sorry, they do what they want.
    What a wonderful system.

    WASHINGTON (AP) — Supreme Court justices expressed serious doubts Tuesday whether the court has the authority to protect some residents in New London, Conn., who face losing their homes to the city’s ambitious program for economic revitalization.
    http://www.nytimes.com/aponline/national/AP-Scotus-Seizing-Property.html?

    • February 22, 2005 at 10:04 pm
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      Very true. I guess I’d rather own it outright before they take it than to still be making payments on it after they take it from me.

      I haven’t been shy about my thoughts on eminent domain, I don’t think.

      • February 22, 2005 at 10:17 pm
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        No, you haven’t. We are in agreement.

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