How to cut back and be frugal
November 19 2008 by Ellen Roseman
Businessweek ran a cover story recently on the new age of frugality. Maclean’s magazine followed with its own cover story, which speculated that we could become happier and healthier if we had to live within our means.
As we head into tough times for the economy, it makes sense to start saving more than we do already. But where do we start? Can we pull back without causing pain?
There are two approaches to saving. The Latte Factor, popularized by author David Bach, involves cutting the discretionary spending on fancy coffee and everything else that makes us feel good but doesn’t add much to our welfare — takeout meals, cigarettes, candy, entertainment or sports. We all have a Latte Factor, even if we brew our coffee at home.
I prefer the second approach, which involves paying close attention to your monthly bills. I’m talking about bank and credit card statements, insurance, telephone, cable TV, Internet, electricity and gas or oil for home heating. Go through the bills to see what you’re paying for and whether you’re paying too much.
This means questioning all the charges. Are they correct? Mistakes are common, so call and ask if you don’t recognize something.
Then, ask if you have the best plan for your needs. Has a better plan been introduced? Can you bundle and save? Are there any areas where you can save money?
This might be enough to get you a better deal, especially when it comes to cellphone plans and banking packages. But if not, you have to start shopping around and looking for better deals elsewhere.
Once you locate a lower-priced provider, you can go back to your current provider and say you’re thinking of moving. Never threaten, but just suggest that you might be going elsewhere. Then, wait for your current provider to match or beat the deal you said you were going to get.
This kind of negotiation is best done if you can reach a company’s retention department. People working there are authorized to offer whatever it takes to keep you as a customer. That’s when you hear about ultra-low prices or free contract extensions that are unavailable when you call customer service.
Unlike the Latte Factor, which requires daily sacrifices, the get-out-your-bills approach needs to be done annually at most. Once you renegotiate your pricing, the savings follow through month after month.
Tell me about how you save money or practice the new frugality. I also want to hear examples of how you can get penalized if you don’t call the companies you deal with periodically to ask about how you can save money.
I’ll start the conversation by posting Linda’s list of money-saving tips. Then, I’ll post a story about someone who found her elderly parents were paying exorbitant long-distance phone rates because they didn’t know that better plans were available.
Linda
Nov 19 2008
Some tips I rarely see. I do these all and some of my friends do too.
l. Give up cable. I get CBC, CTV, TVO, City and Omni without cable. In the party room of my condo is a TV with cable, also a DVD player and VHS player. This building has few amenities, but the room is free to use for residents and is rarely booked, so chances are I can see the cable show I want to see.
2. Buy only basic phone. No extras. My answering machine/phone cost $90 two years ago, on sale.
3. Buy second hand. I look for 50% off days at Goodwill and these come every couple of weeks.
4. Check out second hand sites like Craigslist. People are sometimes willing to deliver for a lot less than what a store delivers for, so even though I do not have a car, I can get bigger items. Or try churches which sometimes have New-to-You shops. As I write this I am wearing a Jones New York linen shirt (which I love) and it cost $4 at a church.
5. Eat and entertain at home. I live in less than 600 square feet, but I often invite people for a meal. It is something simple like a roast. Of course, the meat was purchased at 30%-50% off (the latter is Loblaw’s) on the last date of sale and frozen when I get home (on foot, with my grocery cart).
I also recently bought a rummoli game (full price, $6) and some poker chips (Goodwill) and am planning a games night.
I have also enjoyed activities around making gifts: lavender sachets (from a friend’s garden), pies for the freezer (non-cooks cut the apples), or antipasto. With planning, you can get some of the items ahead of time either on sale or even free.
6. Invest in a breadmaker, $20 on Craigslist. Give bread as a hostess gift, perhaps with a small jar of jam. I just got a fabulous price on red peppers in Chinatown and will be making red pepper jelly once I locate some jars. Buy? No. I will post a note in our recycling room asking for people to set some small jars aside for me.
7. Cut back on gifts. I am shocked by how much people seem to think they need to spend. And how many of those gifts are truly appreciated?
I no longer feel obligated to take a bottle of wine when I’m a dinner guest and the host has far more income than I do. I make something that can be frozen and with busy households these days, I believe the apple crisp or apple pie is appreciated. (Of course the apples are seconds.)
8. Read online (newspapers, magazines) or use the library. Internet costs me approximately $1/day and I scan three papers and print out the crossword from one.
9. Check out the homestay sites. Not all need to be simultaneous, as some people have a home and a vacation property. I could manage a week in Cape Cod by exchanging homes. And 11 weeks in Mexico. You can also exchange somewhere close to home - a city person might want your country home or vice versa.
10. Go to bed earlier. If you stay up, chances are that you watch TV with all those enticing ads and maybe eat junk food too. Take the extra hour in the morning. And it is often a daylight hour, another bonus.
11. Be very wary of the words On Sale. Even 50% off on an item you do not need (e.g. a bigger TV or latest gizmo) is no bargain.
12. There are many opportunities to volunteer where, as a thank you, you can get freebies or heavily discounted purchases. I happen to get points toward theatre tickets and when I get enough, I get a free ticket. I give them as gifts.
13. Share with family, friends or a specially created group. I do not own a dog, but am willing to care for one when I am free. I don’t get money but I may negotiate a car ride or a pick-up, or maybe the person can do me a chore in return. For example, I don’t own tools, so small repairs are often negotiated.
The “extra” in many of my suggestions is that they involve others. And they often involve more getting out and getting active.
Last week, I was chatting to a man with a large garden and I had the impression that he was finding it hard to keep up on his own. When spring is here, I plan to approach him to see if he needs an extra pair of hands. In return for some produce, of course. And who knows, I may even make a new friend at the same time!
Deb
Nov 19 2008
I recently uncovered the fact that my elderly in-laws were paying an exorbitant amount of money for long-distance charges with Bell Canada.
My father-in-law was recently diagnosed with Alzheimer’s, so it was decided that my mother-in-law would take over paying the bills. In an attempt to make it easy for her, we decided to have their entire household bills set up as automatic debit.
I was shocked when I saw her most recent Bell bill. The long distance charges alone exceeded $100 for the month. These people are on fixed incomes.
My in-laws were on Bell’s really old First Rate plan, where reduced long distance rates kick in after 6 p.m. and on weekends.
Unfortunately, my in-laws have had to make a lot of calls during the day due to other serious illness that currently exist with other family members.
I called Bell to see about a better plan for them and they told me they had one that would better suit their needs at a cost of $14.95 per month for unlimited long distance calling 24/7 in Ontario, along with a $4.95 per month activation fee.
This is a far cry from the over $100 they were paying for their long distance charges on a monthly basis.
I asked Bell why they hadn’t contacted my in-laws by phone to let them know about their new plans and they told me that it wasn’t standard practice to do that. I reminded them that they call non-customers and let them know about their new plans. So why didn’t they call their existing customers, especially senior citizens like my in-laws, who have been Bell customers for nearly 60 years?
Sure it might have cut into Bell’s revenue slightly, but that would have been the right thing to do. How many other senior citizens out there are paying too much for their long distance charges?
These people need to be respected and protected. A lot of them deal with Bell because that’s all they know and they think that Bell is tried, tested and true.
I would really appreciate it if you could inform your readers to check their phone bills, as well as those for other elderly family members, to make sure that they aren’t paying too much for their long distance charges.
Thanks for all your help and keep up the good work.
For the record, I contacted Bell first to ask them for a credit of $100 as a good will gesture when I changed their long distance plan. That was totally out of the question.
After many smoke screens from their Escalation Department, Bell promised to backdate the new plan for my mother-in-law. That didn’t happen.
So I contacted the Executive Office. It took a long time to get an email address from their customer service department in the Philippines, but I said I wouldn’t hang up until I received one. The Escalation Department has since promised me that the credit promised to my mother-in-law will be on their next phone bill.
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I just wanted to say “thank you” for taking the time to relay my concerns to your media contacts at Bell. I spoke to Bell’s Executive Office, which addressed all of my questions and applied an additional $75 credit towards my in-laws’ account.
My in-laws are ecstatic and they have asked me to convey their thanks and appreciation to you for taking the time to help them out.
Ram
Nov 19 2008
I can recommend a simple suggestion that has worked for me.
1. Start by setting up a specific chequing account to pay the regular monthly bills.
2. On a specific day of the month transfer from your main chequing account to the “Pay Bill” chequing account the total $ required to pay all bills.
3. Now look hard at your bills and see where you can negotiate and what you can reduce. Talk to that Insurance company for a lower premium, do you really need a $5+tax per month voicemail from your provider when a GE equipment costs $25. Do you need a 7 MBPS internet line where a 2 MBPS would suffice. Are you buying insurance you don’t need. Are you buying credit insurance (by far the most stupid insurance you can buy)
4. I am sure step 3. can reduce atleast a few $s if not more. Do not change the $ you transfer in step 2. This way the “Pay Bill” account acts as piggy bank.
5. If you want the maximum value from this process you can consider using a combination of a “Pay bill” chequing account, a savings account and a 1% cash back credit card.
Remember the setup process (steps 1 and 2) are one time which means the effort you spend will pay off in the long run. Step 3 can be done once every 6 months-1 year.
Another incidental benefit of this is that the money you transfer from your primary chequing account can act as the upper limit for your bills. On months where you consume more or during periods where you tag on additional service you know how close you have gone to the limit and that can motivate you to pull back.
brad
Nov 20 2008
While I’m a fan of frugality in general, I am dismayed that so many people are tightening their belts instinctively, out of pure herd mentality, rather than basing their decisions on their own personal financial situations. For many of us, there’s no need to change our behaviour in the face of this economic crisis, at least not yet.
Regarding cutting out cable: Apple’s iTunes Music Store sells TV episodes for about $2 each, sometimes less. Depending on how many shows you like to watch regularly, purchasing them through iTunes can be a lot cheaper over a year than subscribing to cable. If you’re like us and only watch one or two shows regularly, buying them online is definitely cheaper than even basic cable.
Instead of buying a bread machine, make bread by hand — it’s easy, especially if you use the no-knead recipe made popular by Mark Bittman of the NY Times. It takes literally five minutes the night before and maybe another 10 minutes of prep the following day, and makes by far the best homemade bread I’ve ever eaten (and I’ve been making my own bread for 25 years). That said, making your own bread isn’t going to save you that much money; there are bigger expenses to tackle first.
By far my biggest savings have come from an approach similar to what Ram suggests above. I allocate most of my paycheque to retirement, mortgage, and emergency fund, and leave myself a relatively small amount to live on for the following two weeks. That helps me spend more consciously and carefully.
Kate (frugal Living)
Nov 21 2008
lately it’s been a case of switching supermarkets and actually buying less. This was simply because the food bill was almost doubling for my normal shop.
I must admit though, shopping at the discount supermarkets is rather a grim experience.
How to Live in Canada
Nov 21 2008
I am always checking the http://www.save.ca website and looking for deals. You can save a lot, if you plan in advance when buying stuff. Another good one is http://www.bestbuys.ca.
I usually buy stuff at outlets. Orfus Road and Dixie Mall are good places to buy clothes and shoes.
I am with Rogers. Before, my landline was with Bell. One day I called Rogers and said I was thinking of switching my home phone with them. The first CSR did not help me. I asked to transfer my call to the Retention Department.
After some talk, I decided to move my landline (now paying $13/month for 1 year), got free PVR for 2 years and 10% discount on my internet.
My next step? Buy HDTV antenna and get rid of my basic cable.
As Ram said, it takes time and effort, but that’s your money and you should care
Mike Macdonald
Nov 22 2008
On the investment front, it is likely time that people look seriously at 2 components of their investing:
1- If you have a financial planner selling you investments (bank or otherwise), they are paid a trailer fee for providing you advice every year. So since you already have paid for it from the funds’ assets, go and have your planner update your financial plan (if they did one, as they were supposed to) or create a new financial plan to let you know whether the economic situation has materially changed your situation.
2- It’s time to find out what the fees on your investments actually cost you. If you are paying an MER of over 2% on your investments, then research index funds and save yourself significant dollars. Running your own couch potato portfolio is simple enough for most people and a lot cheaper!
E Ingrim
Dec 12 2008
I had a good experience with Telus. As a Telus TV/Phone/Internet 3-year contract holder I called to see how I could reduce my costs. Telus worked with me and reduced my bill by $10 per month by tweaking some of my services that I rarely used, plus gave me $4 per month off for disability and customer loyalty.
I would like to know if you have the CBC script that people were using to talk to credit card companies to induce them to lower the interest rate. Do you have ideas about how to approach a credit card company if you are a regular payer and have a good credit rating about lowering the interest you are charged?
P.S. THANK YOU! I have just heard on CBC about you, Ms. Roseman, and will be checking in with you regularly, as well as poring over your most excellent website. Again, thank you!