I was cleaning out papers, attempting to tidy per Marie Kondo, and found a savings bond that I had forgotten about. The call center I worked at gave me the bond about 10 years ago as a bonus. I don’t remember what the reason for the bonus was. To be honest, the bar was pretty low there for “high performance” so it could have been anything.
I had some memory of childhood savings bonds (purchased in the 1980s) maturing in 10 years. I thought I just found $50 of free money! But then I looked up the value of the bond and discovered than in 10 years the value had gone from $25 to…
I was disappointed since I was looking forward to $50. It had been 10 years after all! The interest rate on the bond is only 3.5%. But then I thought about it for a second and realized that is higher than any other government bond (that I’m aware of, at least in the US). It’s also over three times higher than a high yield savings account. This was turning out to be a very lucrative asset indeed.
I quickly stashed it back with the other important papers and felt secure knowing my bond portfolio was just a little bit stronger and more secure.
In all seriousness though, I began to think about the small guaranteed returns or savings that we have taken advantage of and what other ones we may be missing. There are plenty of things that we do to optimize our spending. Since I’m talking about guarantees though, most are savings not earnings. Either way, we increase the gap between what we make and what we spend.
These things are relatively low-percentage gains or savings, but they make a difference. Three rules to follow:
1) Money We Are Already Spending – Turned Into Savings
We have already decided to make these purchases. We have already performed a cost/benefit analysis and we know if it is a want or a need. Never buy something for the low percentage perks. Buy it based on comparison between costs and value, once you have decided it’s something that deserves your resources.
2) Low Maintenance
It takes almost no time to set up these savings. Once they are set, we don’t have to spend constant effort to get these low percentage savings. If we spent time every month to save 5% on a purchase, it probably wouldn’t be worth it.
Of course bigger absolute numbers tilt the importance towards smaller percentages, If we had a monthly $10,000 expense it would be worth spending an couple hours to save 5%
3) We Have The Money
We already have the money up front to pay for these items. Usually we take from personal escrow and then refill if it is a new expense. Most of these savings rely on paying for a full year up front. Since it’s something that we are spending money on already, the savings outweighs the opportunity cost of paying up front. We wouldn’t invest the money that needs to be spent monthly, so the savings is worth it.
Without further delay, here are some of the things we have locked in savings or earnings:
Personal Escrow Account – Savings account interest earned. See that post for details.
Carbonite – We use the cloud backup service Carbonite on both computers. I love it. Carbonite has saved us several times when a computer died. Since it’s continuously backed up, I have significantly less stress than if I had to figure out how to recover data. We buy three years at a time for a 10% discount.
Term Life Insurance – You have term life insurance, right? Good. We pay yearly which is a 5% discount to paying monthly or quarterly. This is the best example of locked in savings from automated actions. We have 20 and 25 year plans. For that entire time, we are paying 5% less than if we just bumped along with monthly payments.
Preschool – 5% discount for paying for the year up front.
Kids’ Braces – 7% discount for paying up front and with a check. Additional discount since we’re running the kids through like an assembly line and probably paying for the orthodontist’s new boat. But, that’s not the main point of this post. We have cash available, so we can use that to spend less overall. It’s a near-term need though, so the cash cannot go towards investing.
Terminix – We get quarterly treatments and paying for the year up front is 5% less. I would say this is a want, but Em feels very strongly about not having house centipedes scamper about the house.
For some reason, our current house has many more centipedes (when untreated) than our last house, and we live about 100 yards away from our old house.
Target RED DEBIT card – I’m including this, but not credit cards or other store cards in the category of guaranteed savings. Using a Target RED card at Target results in a 5% discount on most items and free shipping from Target.com. We have the DEBIT card, so there is no way to carry a balance and spend more money than the savings. Not that we would, but we can’t recommend any store card (like the Target RED credit card) which always has a high interest rate and often results in people buying more than they can afford. We never buy anything at Target just because we have the RED card and we tightly control our budget anyway. Ultimately, we decided that there was no reason not to save another 5% when we were shopping at Target.
Great Clips – The Great Clips near me gives a free haircut if you buy a $50 gift card. That’s equivalent to a 21% discount! (A haircut is $13, so I get $63 value for $50). This follows the three rules I identified above 1) I need to get my hair cut, so it’s money I would already spend 2) It takes minimal additional time. I just have to remember to put the gift card in my wallet when I’m going to get a haircut 3) I have the $50.
The store gift card with a bonus is an example of one that can be a big savings, but also often gets people to spend more, which is why businesses do it. It is easy to be tempted to spend $50 somewhere to get a bonus. But if you weren’t going to spend the full $50 anyway, the savings is imaginary. You may have ended up with more stuff, but what’s the point of that?
Car, homeowner’s, and renter’s insurance are other areas that you can lock in savings by using your well-earned existing capital. Check with your carrier for a reduced premium for paying for the full year and for increasing your deductibles. For some reason, our insurance premium does not change if I increase the deductible or switch to a yearly payment. So, I just continue with the existing deductible and monthly payments. If there is no benefit, keep the capital for yourself for as much of the time as possible.
Beyond just not buying something, what ways am I missing to lock in savings?
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