When people ask about how to save money, they often ignore the fact that they are paying hundreds, if not thousands of dollars more to service providers, simply because they didn’t ask for a better deal.
Everything from paying monthly to ignoring family discounts can make a big difference on how much you pay each year and ultimately lead you to either saving or paying more each year.
In our final Spring Clean blog for the year we look at a few different services and the questions you can ask to get a better deal – after all – it’s your Money and you want every dollar you can keep as you make your way to your best Financial 2017!
Saving is better than Investing
We often hear about the best return – the best return on an investment on a share portfolio or a property.
But would you rather save $1,000 or would you rather earn $1,000?
Well if all things are equal, then you probably wouldn’t care. But, things are not equal for two big reasons;
- Tax: Saving $1,000 is saving you $1,000 of after tax dollars – that means you probably have to earn more than $1,000 to keep that $1,000. Comparably, if you earn $1,000 you have to add this to your taxable income – meaning you get less than $1,000 in your bank account.
- Risk: There is very little risk in saving money. If you ask for a discount, the worst that can happen is the service provider says no. To generate $1,000 in income from assets, you have to take some risk – i.e., your capital might decrease.
The key thing a lot of people consider when looking at an investment is the (expected) rate of return. I.e is this portfolio going to generate a 10% rate of return? 10% is quite high for an annual rate of return. The risk associated with a 10% rate of return will be close to that inherent in shares or property.
However, a 10% saving (that’s actually not too hard to get even without switching providers) is virtually risk-free.
That’s why it makes perfect sense to save money where possible. Let’s have a look at a few easy ways you can do so.
Annual Vs Monthly Payments
It turns out that some providers offer an annual discount. This is often the case with insurance providers, gyms, software licenses (such as Microsoft Office) and even car registration.
While many people are happy to pay month to month, or in smaller payments throughout the year it is important to consider the saving you make by paying annually. Let’s say your insurance is $1,000 pa, but you save 10% if you pay annually – that’s $100 saving.
Let’s say your gym offers an annual payment option. You can pay $700 for an annual subscription or $15 per week ($780 pa). That’s a saving of $80 pa. But what happens if they also include a direct debit fee of $1.50 for each transaction – that’s an extra $78 each year!
Lock in contract or Flexible
Commonly across Telcos you will have the option for a lock in contract of 12-24 months, in exchange for a lower monthly rate. Should you break the contract, you are generally liable to pay an exit fee as well as any equipment costs associated with the service – this might be the cost of a modem etc.
If you are certain you are going to be residing in the same residence for at least 12 months – then why not consider the contract in exchange for a lower rate?
Just understand the difference in total cost between a contracted and non-contracted service and weigh this up with the exit cost and likelihood of having to cancel the service in the contract period.
Need car and home insurance – Ask for a bundle.
Have a mobile and Internet? – Bundle.
You and your partner use the same provider – Bundle.
Bundling is an incentive providers offer to get more of your business. But to entice you to move similar services to the one company, they will offer a multi-product discount. This can come in the form of a percentage discount across all products, a waiver of an administration fee or both.
Make sure however, the products you purchase are right for you – don’t just bundle for the sake of getting a discount – there’s no point paying for something that is wrong for you – no matter how cheap.
Pay for what you need
Very few people think about what it is they are paying for. For example, many health insurance providers offer a wide range of benefits – often to people who do not need them.
Perhaps you’re young and fit – do you need hip replacement coverage? Say you are retired and are happily living your life – do you need pregnancy benefits?
By scanning over your policies and looking at what is on offer you will be able to see the benefits that are appropriate for you and those that are not. If possible you can ask to remove the benefits that are irrelevant OR look at an alternate product that is better aligned with what you require.
This doesn’t just apply for health insurance – it can apply for almost anything – your bank account, your superannuation, your phone provider, your gym. There’s no point in paying for stuff you don’t use – so just ask to have it removed in exchange for a better deal.
The Key to Saving Money
If you are looking to find extra room in your budget for savings, why not look at the services you pay for? Follow these simple steps;
- Look at a full months worth of bank transactions and list all the providers that have come out that month
- Add any providers that may not come out each month – like rates/rego/body corporate
- Do a quick search online to see if you can easily find better providers
- Otherwise contact your provider and simple ask “Can you do Better?“
After all, your providers want to keep you as a customer, and they know they are operating in a competitive market place – it doesn’t hurt to ask and the worst outcome is a no.
Just think – if you make these changes today – in 12 months time you will have additional funds saved up -for Christmas, a holiday or an investment.
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Important: The examples/scenarios are illustrative only and is not an estimate of any investment returns you will receive or fees and costs you will incur.Share