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6 Tips for Finding Money You Are Wasting

Here are some practical ideas for how to find more money:

  1. Establish a spending plan and track all expenditures.  You will discover a ton of extra money you are wasting by doing this.  I have found in my coaching that the average amount of money found is 1 percent of annual income per month. Example:  If someone is making $60,000 a year, they will most likely find $600 a month they could stop wasting.
  2. Use an existing IRA, with tax code 72(t) to retire this money.  When you receive this annual distribution it is not subject to the 10 percent penalty for early distribution.  Example:  A person has $100,000 in an IRA and life expectancy is age 84.  This person is age 44 so he has 40 years to withdraw.  The calculation allows $3,367 a year to be pulled out and used in any manner.  You can use this toward savings, or pay off debts that may have interest rates as high as 24 percent.  This could save $808 of interest a year, or $67 a month.  Taxes will be due on the $3,367 but not the 10 percent penalty.  Also, the account will keep growing so when the 10 percent penalty rule falls off at age 59.5 you can have the same $100,000 you started with, as you have only been withdrawing the growth.  Why would anyone want to save money on taxes into a locked box earning only 3 to 5 percent while spending out the backdoor 24 on credit card interest expense?  You are transferring money away from yourself by doing this. Think about taking a different road.
  3. Some people have a 401(k) they can borrow from.  The amount that can be borrowed is usually 50 percent of the balance or, up to  $50,000 which ever is less.  When you get this money at an average 6 percent interest charge, you could use it to pay off debts, which frees up a lot more money.  Two benefits to this plan: 1) your money is no longer at market risk because you have used it; 2) you are paying yourself back the money, and it is all yours, both principal and interest.
  4. Do you get a tax refund each year?  Stop this process by taking more exemptions.  Remember you have already established a spending plan as directed in my tip #1, so you no longer need this tax refund to pay off debts each tax season.  Here’s how: If a person gets a $2,800 tax refund each year, divide this by 12 months to determine how much extra you paid the IRS each month.  Answer:  $233. Since each exemption taken is worth $43 a month in tax savings, then in this example you can take 5 more exemptions and receive about $220 more a month in your paycheck.  If you used this money to pay down debts, you would save interest expense and feel better about retirement savings.
  5. Do you have a 30-year level term life insurance policy?  Switch this to a 10-year level and save two-thirds of the premium.  People are living longer and therefore premiums have been declining for the last 25 years.  Purchase a 10-year life insurance policy every three years and save the money that a 30-year level term policy will cost.  If your insurability changes and you no longer qualify for new life insurance, then convert the term to permanent insurance and keep it for the rest of your life.
  6. You might be able to sell an asset.  For an example, I had a client with an old motor home they could not use.  They could not afford to license it each year.  They sold it and got $8,700 which allowed them to reduce debts and save even more interest expense.

Add up all these potential savings and you can find as much as $1,377 a month.  This is tons of money…  And to think, you thought you were broke!  But let’s suppose you can only find a $377 a month to save.  When you find this extra money that would normally be gone forever, you gain confidence and will probably be able to find more as you go forward and become smarter with your spending and tracking.  Example: When you get a pay-raise you don’t just spend it and can it to pay down debt, which over time could equal $200,000 in saved interest expense.
Unfortunately, most people do not take the time to open themselves up to examination.  But if you will have the courage to try my experiment above, you are likely to find at least $377 a month.  As you may find $377 to $1,377 a month, just know you need to do this examination at least once a year.  Oh, and remember me in your will!

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