If you're looking for more money saving ideas, financial expert Mike Schiano, known as "The Debtbuster", offers many solutions to spending smarter and saving more. Schiano is a certified professional money manager and credit counselor, as well as the author of the book, Spend Your Way to Wealth.
Through his one-on-one financial workshops, website, and multi-media "Money Minutes", Schiano guides individuals and families toward the best resources for spending and saving. He shared his advice in LoveToKnow Save's first expert interview.
Money Saving Ideas From Mike Schiano
In your book Spend Your Way to Wealth, you state that while consumers can't avoid spending, there are smarter ways to spend. Please highlight a few money saving ideas.
- Smart spending starts with managing expenses, and the best way to properly manage your money is by creating a spending plan.
- Use coupons for as much as possible.
- Research prices before making any purchase, especially large items. This will help you find discounts, rebates, and coupons.
- Become informed about the product.
- Read the fine print on offers.
- Avoid impulse buying as much as possible.
- Remember, you generally pay a price for convenience. It might be worth driving a few extra miles or waiting a few more minutes.
- Getting the lowest price is not always the smartest thing to do if you get poor quality.
- Paying the highest price does not always guarantee best quality.
- Don't be afraid to ask for a lower price, and ask if you can have a discount for paying with cash instead of credit.
- Think in terms of quality over quantity.
How can someone create a detailed spending plan?
You don't need fancy software programs, but if you prefer to use Excel or another program, feel free. All you really need to get started is a piece of paper, a pencil, a calculator, and some time.
- Use one piece of paper for each month of the year.
- List your categories down the left side of the paper and put the numbers to the right of the categories.
- Start with income at the top of the list. Write down gross income and treat deductions such as income tax as an expense, which it is.
- Once all sources of income are down, write down all expenses. The big "fixed" monthly expenses like mortgage, rent, and car payments are easy to get down. The hard ones are the smaller and variable expenses like groceries, eating out, credit card payments, and so on. It's important to account for every expense, including the two cans of soda every day at work or the coffee on the way to work each morning. Those are usually overlooked expenses and lead to families wondering "where did all our money go" at the end of the month.
- Create a savings category and try to earmark 5-to-10 percent of income to that category. The great thing about a spending plan is you can change the amounts to see how it affects the bottom line. See how much you can afford to save and still break even.
- Once you have income and expenses logged, simply subtract expenses from income. You'll have a surplus, break even, or be in a deficit situation. Break even is okay if you are saving at least 10 percent, but if you can't afford to save at least that much, you still have work to do.
A detailed spending plan template is included in the book Spend Your Way to Wealth.
You've said that being on a budget is like being on diet. How is a detailed spending plan a better money saving idea than from working from a budget?
A budget usually means doing without things you want. No eating out, no vacations, no new clothes, no toys for the kids. Just like a diet means doing without your favorite foods. It doesn't take long before people get tired of depriving themselves, and fall off the program.
Doing a spending plan properly is more positive and action oriented, and provides a feeling of control over the family money.
- It allows for planning of both short-term and long-term goals.
- It shows you how your money is currently being spent and reveals the family's financial condition.
- It helps show where a family is overspending and where changes can be made to begin to make improvements.
In what areas have you personally been able to save the most money because of a spending plan?
On large expenses that sneak up on you, like appliances, car tires, and repairs. A spending plan also helps immensely if you have children. We have four very active children and beyond their personal needs, they're also invited to parties for their friends and those expenses, if unplanned, can cause a financial burden.
Also, planning for the extra holiday expenses and vacations each year has allowed us to manage those expenses. We rely less on borrowing and can avoid too much use of high interest debt.
If you had a magic wand and could automatically stop people from spending money foolishly on one thing, what would it be?
I wish people would be more discriminating and careful with their purchases of electronics. Cell phones, PDAs, video games, even computer purchases are out of control in my opinion. I wish people would spend more on assets that appreciate in value rather than on consumable, fad items that depreciate, wear out, go out of style and become outdated in a year or two. And, our lives simply don't get any easier with these gadgets.
The Importance of Savings
We've talked about money saving ideas through spending. What about actually putting money away to save - how are we doing?
Currently, the American savings rate is below zero. We are spending more than we earn. This is a financial and social disaster in the making.
The Social Security system may be bankrupt in 20 or 30 years. But, even if it is still in business, the average Social Security recipient today receives $900 a month. Even adjusted for inflation, any payment would not provide enough for a quality of life we might desire from age 65 on. We are living longer thanks to medical technology. We must have enough money to afford to live all those extra years. We must be able to save money!
Starting a Savings Account
What are some easy ways to start a savings account?
Setting up auto-deposit into your savings account on a regular basis, such as each payday, is the best way to automatically put money in savings. An automatic regular savings program, even with small amounts of money, is the best way to start and keep building.
An easy way to find the money to start a savings account is to put your daily change in a jar until you have $20 saved. Or, cut $20 out of the grocery bill each month and put that in savings. It has been my experience that for most families, it's pretty easy to cut $20 out of the grocery bill each week. This allows an additional $80 a month that can be saved or paid toward high interest debt.
Where are the best places to have a savings account?
I urge everyone to go online and open a savings account at any of the top Internet banks. There are accounts now paying in excess of five percent interest, which is equal to or greater than most CDs and money market accounts. It requires as little as $25 to open the account and no minimum monthly deposit. I personally have an account with Emigrant Direct, which is a service of Emigrant Bank of New York. Online banks don't have the expenses that traditional "brick and mortar" banks have, so they can pay higher interest rates.
Also, go to your local bank or credit union and open a savings account. They will not pay as much interest as an online bank but it's a very easy thing to do. Be sure you are not charged any fees whatsoever to open the account, as they will eat up any gains. Also, make sure the account is FDIC-insured.
At what monetary level should someone transfer some savings into a financial tool that garners more interest?
I'd say when they are totally debt free of all revolving, high-interest, credit card type of debt, leaving only a mortgage payment and car payment. That's when they can begin to focus on saving and growing their money with more aggressive investment instruments.
Frugal Doesn't Mean Cheap
Is there such a thing as being too frugal?
I believe having a frugal mindset is good. I think of frugal as being very careful with how you spend your hard-earned money, and living within your means is smart. However, I think when you start to deprive your family of a quality lifestyle in the name of saving money, it can be taken too far.
There is no doubt that people can easily confuse being frugal with being cheap. For example, eating fast food value meals might save a lot of money, but they don't do much for your health and might actually cost more in the long run in the form of medical bills and the costs of obesity.
If you are smart and manage your income and expenses properly using a spending plan, you can live a richer lifestyle on any income and have more of the things you want.
- Mike Schiano is always willing to share his money management advice with LoveToKnow. Read his interview on managing credit.
- Schiano's book, Spend Your Way to Wealth is available through Amazon or his website, In Charge Radio. On his website, you'll also find more money saving ideas and other financial information. He's also edited a new book, Credit Booster: Ultimate Guide to a Better Credit Score, available in January 2007.
- The site Young Money is a financial management tool for young adults.
- For more information on how to find an online savings account, visit Savings Account Review.
~Tracey L. Kelley