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.

10 comments

  1. 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.

  2. 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.

  3. 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.

  4. 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 🙂

  5. 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!

  6. 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!

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