34 WAYS TO CUT YOUR SPENDING AND SAVE 25% OR MORE
By GARY BELSKY Reporter associate: Amanda Walmac

(MONEY Magazine) – Snip, snip, snip. listen closely and you'll hear it: the sound of budgets being cut across the U.S. Battered first by recession and now by a sputtering recovery, Americans are taking a scissors to spending. Sharon Larsen (left, and profiled with her family on page 82), for example, is cutting her own fabric and sewing clothes, saving $1,200 a year. And who can blame her -- or the rest of us? Layoffs remain a fact of life, as any IBMer can tell you, with the unemployment rate cemented in place at around 7%. Wages for the folks who are working are frozen or rising at a measly inflation-adjusted annual rate of less than 1% for the second year in a row. Growth in real disposable income, which increased at a robust 2.6% annual rate during most of the 1980s, has slowed to 1.3%. Yet costs for health care will go up an estimated 5% this year. Says Amy Dacyczyn, editor of the popular cost-cutting newsletter the Tightwad Gazette (monthly, $12; R.R.1, Box 3570, Leeds, Maine 04263): "Frugality helps people feel insulated against hard economic times." But the current fervor for cost cutting is not just a reaction to hard times. After decades of measuring the quality of their lives by the rate of their acquisitions, Americans are re-evaluating. "Nobody wants to be a slave to their money anymore," notes Mary Hunt, editor of Cheapskate Monthly ($12.95; 310-630-8845). "Even people who aren't worried about getting fired are craving richer but simpler lifestyles." No doubt you've figured out the obvious cost-cutting moves, such as paying off high-interest credit-card balances. To help you lower expenses further and live better too (or at least no worse), MONEY canvassed more than three dozen consumer advocates, financial planners, budgeting experts and economists. We requested strategies in eight major spending areas -- including housing, transportation, education and health care -- then identified the most practical ones for you today. By adopting as few as two of them from each of our eight categories, you can trim your budget by as much as 25%. Our money- saving ideas are ranked in each category by their cost-trimming potential -- with the biggest first:

IN THE HOME -- Relocate to lower living costs. Sounds radical, but if you or your spouse is one of the more than 400,000 Americans who lost jobs in the past two years -- or if you're game for change -- this is a propitious time to move to a region where job prospects are higher and living costs lower (see "The Best Places to Live Now" on page 124 to learn what cities offer that combo). Nina and Bill Cutrone made the big move in 1991 when he lost his job as a refrigeration mechanic for Penske Truck Leasing in Portland, Ore. The company offered him a post in Arizona at the same pay, so the family -- Bill, 42, Nina, 41, and daughters Stephanie, 20, and Tanya, 16 -- headed south. In Phoenix, they found more house for their money and other sizable economies. For example: The family's monthly utility bills were a third what they had been in Oregon, falling from $350 to $100. Even Stephanie's new junior college tuition dropped by nearly half, to $600 a semester. Says Bill: "In every way this move has been great for us." For an analysis of the financial impact of moving to another city -- from housing costs to taxes -- call Right Choice, a Salem, Mass. research firm specializing in relocation costs ($190 for the first city, $95 for each city thereafter; 800-872-2294). -- Refinance your mortgage. It may seem like everyone's doing it. Actually, only one in five Americans has refinanced his mortgage in the past 21 months now that interest rates are at the lowest level since the 1970s, recently around 7%. Many homeowners who have refinanced have cut monthly payments by 25% and slashed total projected interest costs by 40% or more. Consider a couple who took out a 30-year fixed mortgage at 12.5% in 1980, with monthly payments of $1,067. By refinancing at a fixed 6.75%, their payment would drop 25% to $797; over the next 15 years they would save $70,030 (after deducting $3,500 for closing costs). Rule of thumb: If you can get a rate even one percentage point lower than your current mortgage and you plan to stay in your house long enough to amortize the closing costs (generally one to two years), you should consider refinancing. For tips on quick ways to refinance, see Banking Scorecard (page 33).

-- Make hay out of homeowners insurance. For ideas on how you can slash homeowner premiums by up to 20%, see Idea of the Month on page 23. -- Challenge your property tax bill. Tax experts, such as Vincent Czaplyski, author of The Homeowners Property Tax Relief Kit (McGraw-Hill, $14.95), estimate that half of the homeowners who challenge their property tax assessments by appealing to local tax authorities win reductions of 10% or more in a matter of months. The National Taxpayer's Union in Washington, D.C. offers a helpful 12-page pamphlet, How to Fight Property Taxes; send $2 to 713 Maryland Ave. N.E., Washington, D.C. 20002. -- Lighten electric bills. You can install a load controller that conserves electricity by shutting down or lowering power to certain appliances. For instance: A controller will cycle your water heater off when rates are highest. Some utility companies will install the loader for you at no cost, or you may have to buy one and have it installed yourself. The cost: between $100 to $1,000, depending on the size of your home, what appliances you own and how much power you use. Some families report that monthly bills have dropped by 40%. -- Buy big-ticket items out of season. Air conditioners are like swimsuits. When the temperature goes down, so do prices. Also, watch for new-store "grand openings" as well as beginning- and end-of-season promotions, which can offer discounts of 25% to 50% off retail prices for many appliances. From the editors of Cut Your Bills in Half (Rodale Press, $24.95) comes this rough-and- ready calendar of sales: January or June for freezers, ranges and refrigerators; February and September for air conditioners. Potential savings: $50 to $200 on each appliance. -- Zap the cost of batteries. Any parent knows how fast Game Boy or Walkman gobbles batteries. A recent study compared alkaline batteries with nickel- cadmium rechargeables in a battery-powered cassette player put to normal use. After three years, the user would have gone through 876 alkaline throwaways at a cost of $657. The cost of using rechargeables -- including batteries, recharger and electricity -- would have come to just $26, for a savings of $631. -- Disconnect phone charges. Choosing the right long-distance carrier and discount plan can cut monthly bills by 20% or more -- assuming at least six long-distance calls a month. Send $2 and a self-addressed, stamped envelope to the Telecommunications Research and Action Center (P.O. Box 12038, Washington, D.C. 20005) to receive a comparison of rates for the five biggest carriers.

ON THE ROAD -- Don't buy that new car -- yet. If you are wondering whether to buy a new car or keep your old one, consider this scenario from The Complete Car Cost , Guide ($45, plus $4 shipping and handling; 800-227-2665), published by the San Jose research firm IntelliChoice: Assume you own a 1988 Chevrolet Corsica and are thinking about buying a 1993 model with financing. Over the course of the next five years, IntelliChoice figures you would incur $27,168 in ownership costs for the new Corsica, including $8,494 in depreciation, $7,035 in insurance and $2,378 in finance charges. Keeping your old Corsica, on the other hand, would run you just $11,732 -- the big differences being the absence of finance charges, far lower depreciation ($2,500) and far cheaper insurance ($5,187). The deciding factor is how much you would end up paying in maintenance charges on the '88 model; that's not reflected in IntelliChoice's figures. However, you could average a whopping $3,000 a year in mechanics' bills and still come out ahead. The bottom line, says IntelliChoice president Peter Levy: "If you're trying to conserve cash, holding on to a well- maintained car may be the smart move." -- Choose low-maintenance cars. If you decide to buy a new car, carefully consider operating costs -- such as maintenance and tires -- which vary dramatically from one vehicle to the next. According to MONEY's December 1992 annual car rankings, the five-year maintenance costs for a Dodge Caravan three-door minivan (model SE AWD) were nearly 25% lower than those of a Mazda three-door -- $3,720 vs. $4,645. When you add other expenses such as fuel, insurance, depreciation, financing and taxes, the difference in ownership costs over five years is also significant: $24,888 vs. $27,913, or 12% less. -- Time your car deal. The dealer trying to sell you that Volvo or Ford has monthly quotas. Further, carrying inventory runs up his costs. Advise Ron and Melanie Moore, authors of Smart Cents (Price Stern Sloan, $6.93): You can knock 10% or more off sticker prices by shopping at the end of the day or month, when dealers are eager to close deals. -- Steer clear of unnecessary insurance. Fine-tuning can cut car insurance tabs. Barbara Taylor, author of How to Get Your Money's Worth in Home and Auto Insurance (McGraw-Hill, $9.95), suggests increasing collision insurance deductibles from $200 to $500 (providing you can afford it) to lower your total auto premium by more than 10%. Also, compare your health coverage with the personal-injury protection clause of your auto policy. If you're paying twice for similar benefits, drop the personal-injury coverage. It can save 15% on total premiums.

ON THE TABLE -- Volume still pays. You can pare 40% or more from food bills if you join a wholesale food service, which sells bulk orders of frozen meats, juices, pasta, fish and other groceries and delivers them to your house every few months. Such services help you plan orders and are usually cooperative about returns or problems. You'll have to supplement deliveries with produce and dairy products. Still, if your family eats at home much, the savings are unbeatable. Colorado Prime (800-365-9498) is one of the biggest, but also check your phone book under "Food Plans." -- Join a discount club. More than 700 retail warehouse clubs like Sam's Club (800-925-6278), Price Club (800-597-7423) and BJ's (800-257-2582) sell groceries, auto supplies, office equipment and more at rock-bottom prices. A 1992 study by the Food Marketing Institute found that on average these clubs, which typically charge a $25 annual fee, offer 26% savings over retail competitors. -- Grow your own. The prospect of pesticide-free produce has swelled the ranks of U.S. gardeners to more than 30 million. Says Ernest Callenbach, author of Living Cheaply With Style (Ronin, $9.95): "People are worried about what's on their food. Growing your own eliminates that fear." Like Rebecca Shelledy, a Houston mother of three who began growing vegetables and herbs in her quarter- acre garden in 1989, you can cut monthly food bills by 30%. Climate and soil vary, so check a bookshop or gardening store for the best manual. -- Dine out at a discount. Membership in restaurant clubs entitles you to discounts of 20% to 50% at participating eateries. Restrictions limit where and when you can use the card, but savings are worth the $25 to $50 annual fees. One example: Premiere Dining ($49 a year; 800-346-3241) is a two-for-one club, meaning you get the lower-priced of two entrees for free at some 7,000 restaurants and 15,000 chains nationwide.

CLOTHING -- Read labels. Buy washable clothes, especially now that many silks and other delicate materials can be tossed in the washer. Dry-cleaning costs can double or even triple the purchase price of clothing. A MONEY poll last year found that a pair of $85 wool slacks required $80 worth of cleaning bills for a year's wear, assuming 20 dry-cleaning trips. -- Rely on discounters. Veteran off-price retailers such as Loehmann's and Marshall's offer name-brand clothing for 20% to 60% less than department stores, while 8,000 manufacturer-owned outlets across the country often sell at 50% off. Calvin Klein and Liz Claiborne are among those who run their own stores. The Outlet Shopper's Guide (Lazar Media Group, $9.95) provides store hours, selection and driving directions for 300-plus outlet centers located in all 50 states. -- Subscribe to newsletters to save on kids' clothes. Kid News appears bimonthly ($24.95; P.O. Box 797, Forest Hills, N.Y. 11375) to tell parents where to buy designer clothing for kids at up to 85% off. Another helpful newsletter is Kids Report ($29; 212-679-5400), which provides a listing of outlet and showroom sales, as well as mail-order firms.

MEDICAL CARE -- Enroll in a top-rated HMO. More than 40 million Americans have joined health maintenance organizations. Here's why: With fee-for-service, traditional health insurance, you likely pay an annual deductible of $100 to $500, 20% of covered expenses and 100% of uncovered charges, such as prescription drugs and immunizations. HMOs, however, provide most care for a flat fee, usually with no deductible, with co-payments of $5 to $10 per office visit. Generally, there are no charges for lab tests or preventive care, such as mammograms. Lower out-of-pocket charges mean savings -- as much as $1,000 a year for a family of four. For example: The Edwards of St. Louis (see page 80) saved 55% in out-of-pocket expenses in the past two years after switching from an indemnity plan to an HMO. Check your company's benefits department to learn which HMO is available. Or call HMOs in the phone book to find those offering coverage directly to individuals. -- Use ambulatory-care centers. You can shave 20% or more off emergency room and other outpatient costs by seeking treatment at one of more than 4,000 ambulatory-care centers around the country. Essentially privately run clinics, the centers can treat noncritical injuries or illnesses, such as broken bones or flu. To find one, check the phone book or call the National Association for Ambulatory Care (305-441-2421). -- Challenge every hospital bill. "More than 90% of all hospital bills contain errors, 75% of which are in the hospital's favor," says Charles Inlander, president of the People's Medical Society, a consumer advocacy group ($15 annual membership fee; 462 Walnut St., Allentown, Pa. 18102). Common overcharges are for services you never receive, such as an inflated number of times your newborn was examined by a staff pediatrician. People's Medical Society will decode your bill and advise you on how to complain about errors and overcharges. -- Be smart about prescription drugs. As Merck & Co.'s recent acquisition of drug discounter Medco Containment Services underscores, generic drugs are increasingly in demand. Always ask your doctor or pharmacist whether you can use a generic version of your prescription, which can save as much as 70% of the price of brand-name drugs. Also, consider mail-order pharmacies, which offer discounts of 5% to 40% off the price of store-bought drugs. Two reliable ones: Action Mail Order (800-452-1976) and Family Pharmaceuticals (800-922-3444).

TRAVEL AND ENTERTAINMENT -- Book through a discounter. Travel consolidators buy blocks of "room nights" from hotels at volume discounts and pass on 20% to 50% savings off regular rates to you. Three established consolidators: Hotel Reservations Network (800-964-6835), Quickbook (800-221-3531) and Express Hotel Reservations (800-356-1123). Flexible fliers, especially those headed overseas, might consider consolidators for air tickets: Travac (800-872-8800), UniTravel (800-325-2222) or Jetway (800-421-8771). For more tips, see Travel Wise, page 145. -- Try a travel club. Annual membership fees range from $20 to $100 for travel clubs, which divide roughly into two types: those offering hotel room discounts only and those featuring discounts on hotels, restaurants, cruises and tours. Some clubs, like the one Denver retiree Ed Simpson, 75, joined (see page 78), arrange tours for members at discounts of more than 40%. The oldest is Entertainment Publishing (800-285-5525), which publishes a series of directories such as Travel America at Half Price ($32.95). Other clubs: America at 50% ($19.95 for the first year, $24.95 thereafter; 800-248-2783) and Quest International ($99; 800-325-2400). -- Swap homes. Though not the ticket for every traveler, an estimated 20,000 will swap their homes this year for one in a place they want to visit. Savings on lodging adds up to as much as $3,000 a couple for two weeks in Europe. To learn more, consult Trading Places: The Wonderful World of Vacation Home Exchange (Rutledge Hill Press, $9.95) or join a home-exchange network like Intervac/International Home Exchange ($62 a year; 415-435-3497). -- Rent cars smarter. The larger rental outfits, such as Alamo and Budget, provide travel agents with coupons good for about 20% off at hotels, free upgrades and sometimes 10% off rates. You can also lower your bill by 20% by avoiding the big four (Avis, Budget, Hertz and National) and renting from smaller firms such as Thrifty (800-367-2277) or Value (800-327-2501).

EDUCATING YOUR KIDS -- Choose a topnotch public college. Opting for a highly rated public university over a private school is an easy way to save $20,000 to $60,000 in four years. The average public college costs $2,253, vs. $8,879 for a private institution. And the difference between a year at the University of Chicago ($24,517) and the University of Illinois at Urbana/Champaign ($7,746 and one of the highest-ranked schools in MONEY's new College Guide) is $16,771, or a whopping 54%. For more on cutting bills, see the story that follows this article, "How to Slash College Costs" on page 84. And to learn the cost and quality of more than 1,000 U.S. colleges, consult MONEY Guide: Best College Buys ($4.50; P.O. Box 30626, Tampa, Fla. 33630).

-- Canvass company benefits. Some employers have assistance programs designed to help employees pay their kids' tuition. Example: RJR Nabisco provides matching funds up to $4,000 a year for each child headed for college. Check your benefits department. -- Screen-test campuses. Visiting just three prospective colleges can rack up more than $1,000 in travel costs. Instead, buy a video tour from Collegiate Choice (201-871-0098) for a preview, then visit only your top choices. At $15 a tape (average length: 50 minutes), you can walk through some 300 colleges. More are in the works.

BORROWING AND INVESTING -- Consolidate debt. If you've amassed $5,000 or more in credit-card or other unsecured debt, consider bundling it into a home-equity loan, assuming you are certain you can afford to pay down that loan. Figuring a balance of $10,000, you can save more than $2,000 in interest payments over five years if you consolidate into an HEL at 8%. Then add another $750 in tax savings, since interest on as much as $100,000 HEL balances is deductible. -- Check out dividend-reinvestment plans. If you buy stocks directly, look into automatic dividend-reinvestment plans. More than 900 of the largest corporations let you invest your dividends in additional shares, with few or no brokerage and transaction fees. -- Use a discount broker. For routine investing, discount houses like Charles Schwab, Quick & Reilly or Brown & Co. can shave as much as 75% off your brokerage commissions. Some let you trade by Touch-Tone telephone or through efficient on-line computer services at discounts of as much as 10%. -- Invest in no-load funds. If you want professional money management at bargain rates, invest in one or more of the 1,200 no-load mutual funds sold directly to investors -- without sales charges -- by operators like Vanguard and T. Rowe Price. Historically, they perform as well as or better than the load funds your broker may sell you. To learn which funds are right for you, check the Fund Watch department in every issue of MONEY (beginning on page 43). Or order MONEY Guide: Mutual Funds, featuring the 220 best funds to buy now ($4.50, including postage and handling; write to MONEY Guide: Mutual Funds, P.O. Box 30626, Tampa, Fla. 33630).

BOX:

ED SIMPSON'S EUROPEAN TRIP Ports of Call tour $3,098 Travel agent tour $5,400

THE EDWARDS' OUT-OF-POCKET COSTS With HMO $3,133 With indemnity (potential) 5,400

THE LARSEN MONTHLY BUDGET Before March 1993 $7,901 Since March 1993 5,800

CHART: NOT AVAILABLE CREDIT: Sources: Bureau of Labor Statistics, The Official Guide to Household Spending CAPTION: HOW WE AMERICANS SPEND OUR MONEY Though individual budgets vary from skinflint to spendthrift, here's where your money goes. Spending patterns among the affluent, making $50,000 or more, and the median U.S. household are roughly the same for such basics as housing, transportation and finances. But the affluent, who tend to be well insured, shell out comparatively less on health care and a good deal more on discretionary items, including entertainment.