Slash Your Bills

10 ways to keep more cash.

Making Ends Meet

Like a lot of hardworking couples, Ilah and Dennis Hardesty of Long Beach, California, live paycheck to paycheck. Their $1,200 monthly rent eats up about half of Dennis's take-home pay as a manager for a racing car engine manufacturer. Private school tuition for their three teens takes another $400 bite. Income from Ilah's two part-time jobs -- as a fitness trainer and school secretary -- disappears at the gas station and the grocery store.

The bottom line? Even with no car payments and just $300 in credit card debt, the family barely gets by. "We don't have a penny in savings," says Ilah. "No, I actually do have one cent in my account."

With inflation outpacing wage growth in recent years, it's not hard to find families like the Hardestys running out of money before they run out of month. According to the nonpartisan Economic Policy Institute, which studies lower- and middle-class economic trends, the median hourly wage of an American worker after inflation is less today than in 2003. The result is less buying power after the bills are paid.

These days, inflation is hovering around three percent, so anyone who remembers the double-digit price spikes of the 1970s might wonder what all the fuss is about. But even moderate inflation takes its toll, says personal finance expert Jonathan Pond, author of You Can Do It! The Boomer's Guide to a Great Retirement. In fact, annual inflation of just three percent doubles the cost of living every 23 or 24 years. Meanwhile, some essential expenses -- energy, health care, higher education -- are far outpacing the inflation index. No wonder families are feeling pinched.

Pinched doesn't have to mean powerless, though. Here, then, are ten ways to save money on the big bills.

1. Mortgage Makeover
For most families, the mortgage is the monster in the room. If you have an adjustable rate mortgage (ARM), the surest way to take control of that monster is to refinance with an old-fashioned fixed-rate note. The reason is that when interest rates rise, that low introductory ARM of yours will be ready for takeoff.

As housing prices soared over the last five years, ARMs became popular because the cheap initial rates lowered monthly payments and made it possible to afford a better home. But after a few years, the rates balloon to more realistic levels -- around seven percent. On a $200,000 30-year mortgage, a two percent increase adds $238 a month to your budget. It's like taking on a car payment, except you don't get the car. What were we thinking?

"I see no reason anyone should have an adjustable rate mortgage," says Terry Savage, syndicated finance columnist and author of The Savage Number. "Some justify it by saying, ' In three years I'll be making more money and can afford the higher rate.' But you're gambling a cornerstone of your family's finance on unknowns."

Switching to a fixed rate will raise your monthly payment, but it will never increase as it will with an ARM. Over time, with inflation, in effect you'll be paying less. "A fixed-rate mortgage will allow you to pay off your debt in cheaper and cheaper dollars," says Pond. "As your income rises, you can put extra money toward your mortgage and pay it off sooner. Short of saving, there's no better thing you can do than be mortgage-free by retirement."

College and Health Insurance

2. Education Options
Here's a pop quiz: Who's turned out more current CEOs of S&P 500 corporations -- Harvard or the University of Wisconsin? Pencils up: They're running neck and neck, according to a recent study by Spencer Stuart, an executive recruiting firm. The study reinforces what should be common sense: There's no direct correlation between where a child goes to undergraduate school and later success. In fact, the pricey Ivies trained only ten percent of those CEOs.

So if your family's budget favors State College over Snooty U., don't sweat it. Kids who are motivated will succeed, no matter the color of their cap and gown. Look for quality institutions in your area. Consider a local four-year college and save on room and board.

Or opt for a community college the first two years (tuition is bargain-basement), then finish up at a state school or private university. Don't forget: Once your child moves on to, say, Tufts, he will get a Tufts diploma.

If you'd like a merit-based scholarship, grades are more important than acing SATs, says Jonathan Murray, a financial advisor and former assistant director of admissions at Dickinson College. "Consistently good grades demonstrate commitment and discipline. Excel at one or two extracurricular activities. Better to be a leader in one sport or endeavor than someone who dips a toe into everything."

Financial planners also suggest that parents give priority to their own retirement savings over college funds, since there are no loans, grants or scholarships for surviving your senior years.

3. Taking Care of Health Care
Like education, health care costs have been outpacing inflation, which is one reason why employers are shifting more of the insurance burden to individuals. To control the expense, many people are opting for higher deductibles and lower monthly premiums. What's more, says Pond, "four-fifths of Americans enjoy pretty darn good health and could be safe choosing a policy with fewer bells and whistles. If no one in your family uses expensive pharmaceuticals, why pay for a high-priced drug benefit?"

But what happens if you suddenly need a costly long-term drug? Many policies allow you to upgrade to a plan with better benefits, after a six-month waiting period. You might also check out Wal-Mart. The company recently started a program in 27 states to fill 30-day generic prescriptions for just $4 each. Nearly 300 drugs are covered. Among them are clonidine (blood pressure), metformin (diabetes) and fluoxetine (an antidepressant).

Consider enrolling in one of the new Health Savings Accounts (HSAs) offered by many employers. If your annual family deductible is at least $2,100 ($1,050 for individuals), you can deposit the deductible amount (up to certain limits) in a tax-free account that grows over the years. So if your family plan has a $5,000 deductible, you can put that much into an HSA every year. You'll save $1,650 annually if you're in the 33 percent tax bracket.

HSA deposits roll over year to year, so you don't lose the money if you stay healthy. Withdrawals to pay for medical expenses are never taxed or penalized as long as you live. After age 65, you can withdraw the money for any reason without penalty, but you'll have to pay taxes if the withdrawal is for nonmedical expenses.

Food Choices, Car Expenses and Energy Costs

4. Eat Healthy, Pay Less
The best way to cut your food bill is to eat less. Seems obvious, but here's something you probably didn't know: Researchers at the University of Wisconsin-Madison calculated that while "supersizing" your fast-food meal might be penny-wise (the average supersize adds just 17 percent to the price but 73 percent more calories), it's literally pound-foolish.

The study looked at how the increased weight gain (36 grams, on average) from just one supersizing increases the cost of personal energy needs, medical care and even gas mileage as your car works harder to carry the extra weight. Depending on your body type, a single supersized meal ultimately costs between $4.06 and $7.72 for men, or $3.10 and $4.53 for women.

Dave Lieberman, chef and host of Good Deal With Dave Lieberman on the Food Network, throws cold water on the common belief that healthy food costs more than junk. And he dismisses the myth that coupons will save you money. Most coupons, he says, are designed to promote new, more expensive items. "I never use coupons unless it's for something I need."

5. Drive a Good Bargain
Gas goes up, gas goes down, but the long-term trend is going nowhere but up. Protect yourself by ditching that gas guzzler, but be careful. Many hybrids don't get much better mileage than smaller conventional cars, says Terry Savage, and they cost a lot more.

Even hybrids with excellent mpg ratings save the most money in stop-and-go city traffic. "I considered buying a hybrid," says Savage, who takes public transportation in her hometown of Chicago and drives on weekends to get out of the city. "But most of my miles are on the highway. I figured out the difference in miles per gallon, and the extra cash outlay for the hybrid didn't make sense. But if you do a lot of city driving, it might be a good deal."

The federal government is currently offering tax credits for buying new hybrids. The credit varies considerably depending on the car. Check out hybridcars.com for details.

6. Get a Handle on Home Energy
You already know that by insulating and sealing up your house, you can save money on your heating and air-conditioning bills. But did you know those improvements can save you big tax dollars?

Many energy-efficient upgrades you make on your home during the 2006/2007 calendar years qualify for a federal tax credit up to $500 over the two years. (Tax School 101: A tax credit means a dollar-for-dollar reduction on the taxes you owe; that's better than a tax deduction, which merely lessens the amount of income on which you are taxed.)

Say you spend $600 adding extra insulation to your attic (the most common site of heat loss). You can subtract ten percent of that cost, or $60, from your tax bill. Energy Star-rated windows and doors (an efficiency standard set by the federal government) generally qualify for the credit, offsetting the higher cost of these products. But you won't get the credit if you don't claim it; for details, go to energystar.gov.

Taxes and Inflation Issues

7. Fight City Hall
Property taxes are on the rise across America, thanks to higher home values and cutbacks in state budgets that shift more school costs onto cities and towns. The tax bills can be whopping, but they are also subjective, based in part on an assessor's educated guess as to the value of your home. Experts say anywhere from 30 to 60 percent of homes are overvalued, costing homeowners hundreds or even thousands of dollars a year.

Yet few homeowners bother to challenge their assessment, for a number of reasons. Often the tax is lumped into the mortgage payment, so people don't notice it. Still others assume that "fighting city hall" is futile. Finally, communities have a sneaky way of placating homeowners: Many assess homes at a reduced percentage of the actual value, so when a homeowner receives a notice that his $300,000 home is assessed at $200,000, he thinks he's getting a good deal. In fact, he may not know that the town assesses at 50 percent of actual value, so his house should really be assessed (for tax purposes) at $150,000.

People who challenge their assessments stand a good chance of winning. About 40 percent did in Nassau County, New York, in 2003, for an average annual savings of $881.

The first step is to carefully check your assessment (it's available at your municipal office) for errors, such as a miscalculation of the square footage. If your home has problems that might lower its value, like a cracked foundation, make note. Compare your data with that of your neighbors' homes (it's all public information), to make sure similar houses are being assessed equally as required by law.

If you think your home has been overvalued, talk to the assessor. It's his job to keep valuations fair. Bringing good records and photographs helps.

File a formal appeal (time limits generally apply) if you don't get anywhere. Go to ahahome.com, the website of the American Homeowners Association, for more information.

8. Think Long-Term
When prices are going up, it pays to buy early. "Inflation simply means it'll cost you more in the future for things you can buy for less today," says financial advisor Ric Edelman, author of The Truth About Money. "The way to lock in current costs is by making long-term commitments. And the longer you're willing to commit yourself, the better the deal will be."

Examples include payment plans for heating oil that lock in the current price for the season, and extended cell-phone contracts. Still more savings can be had by putting all your insurance needs under one company. With some cable companies, you can save by bundling digital phone, cable TV and high-speed Internet into one bill.

"Ordinary everyday costs really add up during times of inflation," says Edelman. "It's important that you inflation-proof every aspect of your finances."

How much can you save? Look at it this way: Just about anyone can find ways to trim $50 a month from the family budget. If you earn $46,000 a year (the median household income), that's like giving yourself a one percent raise. Combine that with your three percent cost-of-living increase and you're already ahead of inflation.

Cost-Effective Clothing and Job Outlook

9. Shop Smart
Clothing's a basic need, but the endless cycle of sales, the proliferation of outlet stores, and online coupons can actually make people spend more on clothing than necessary, says Kathryn Finney, author of How to Be a Budget Fashionista.

Instead of grabbing everything that catches your eye, apply Finney's "cost-per-wear" rule: "When I see something I like, I ask myself ' How many times am I going to wear this in a year?' Then I divide the price by that number. Ideally, an article of clothing should cost no more than $3 per wear."

To help you find the best deals on the Internet, there's new bargain-tracking software that notifies you (your toolbar turns colors) when your favorite stuff is on sale. Check out the Intelligent Shopping toolbar at ShopAtHome.com. Finney also likes Wow-Coupons.com for its printable coupons that she takes to the store.

When you do go shopping, don't be afraid to ask your salesperson if she's got any coupons or deals. Or ask if that's her best price. Some stores will take off as much as 15 percent, just for the asking.

To stick to her budget, Finney avoids credit cards and buys prepaid gift cards at her bank in the amount she can afford. "Once it's gone, it's gone," she says. The cards may cost a few dollars. Check for hidden fees and expiration dates.

10. Up Your Skill Set
Money expert and radio host Dave Ramsey doesn't mince words. He regularly orders callers to perform a "plastectomy" by cutting up their credit cards, and he counsels down-on-their-luck types to "turn off your stupid TV and develop a five-year plan." Ramsey says the best protection against inflation is to bring in more money. And these days, the best way to do that is by upping your skill set.

"We're in a knowledge-based economy," he says. "What you know five years from now will determine your income. So learn something you don't know now to make money later. Read books, take classes, find a mentor, network with smart people. It's true, lots of people in this country are becoming poorer, but the good news is some poor people will become wealthy."

Ramsey doesn't have to convince Ilah Hardesty, who is studying for a degree in business administration. She hopes to move into a management position, perhaps at the exercise studio where she works, or as principal of her kids' small private school. To help pay for college, she locked in an affordable student loan when the rates were about to jump two percent.

Studying takes time away from work, which means a thousand painful budget decisions every month, but Ilah keeps focused on the payoff, saying, "I'll sacrifice what I can now." That kind of pluck really impresses Dave Ramsey.