We've spoken before about the Latte Factor and how making small changes to your spending habits can really add up in a short space of time. Today I'll be looking at how making these same changes in how we pay for our everyday household bills can add up to significant savings which can really effect the household budget. This topic was discussed with Maura Derrane on FourLive on RTE1 on Monday March 21st 2011 - skip about 11 minutes into the program if you want to have a look.
Saving a few bob on your everyday expenses might not seem like an important thing to do. But making some straightforward savings across all of our expenses could mean the difference between getting a week in the sun or having to stay at home.
The concept of the Latte Factor is quite straightforward – if you routinely spend a few euro every morning on your way to work, by dropping into your favorite coffee shop for a nice frothy latte and maybe a muffin, you might think it’s only a few quid per day. The Latte Factor was a term coined by writer David Bach which says that if you spend €3.50 per day on coffee & muffin, that works out at about €1,000 per year on coffee!
The Latte factor doesn’t necessarily apply solely to coffee- it could be that you buy your lunch in a café everyday or maybe it's the extra pints you have mid-week. They’re luxury, non- essential spends that can be eliminated. The total spent on these non-essential treats Is a hefty amount considering it’s more than the average annual electricity bill.
It’s important to note that we’re not talking about becoming so frugal that all the fun goes from your life, if you want a coffee & muffin the odd time then of course go ahead and get one - the point here is that making a habit of it can mean you might be stretched when it comes to having a holiday – and I know which one I’d prefer to spend money on!
We’re going to take a look at all of the savings we’ve spoken of in various blogs already and how by implementing them, we can save over €1,500 per year. That money is huge – think of how long you need to work to earn that as an after tax amount. It would easily pay for a sun holiday for a family of four.
First Up: household utility bills
For an average user spending €1,200 per year with the ESB you can save €137.59 per year on your electricity bill. You can switch your supplier at any time, there is no change at your home, just the bill you pay will reduce.
For an average user spending €900 per year with Bord Gais Energy you can save €116.84 per year on your gas bill. You can switch your supplier at any time, there is no change at your home, nobody will call to your home. Just the bill you pay will reduce.
Phone & Broadband:
For an average user spending €304 per year just on line rental, a further €240 on calls and a further €540 per year on Broadband for a combined cost of €1,084. You can bundle these all into a single package including line rental, calls and Broadband for as little as €43 per month, saving €568 per year on Phone & Broadband. For Broadband, where you live will play a big part in determining what Broadband you can get.
When we spoke about mobile phones, we discussed that for pre-pay customers there are massive differences in how much you can pay for your mobile phone top-ups. For bill-pay customers, we learned that if you regularly use more minutes and/or texts than your plan allows for, you will be heavily penalized.
Pre-pay customers can expect to save €166.08 per year by being on the correct tariff.
Bill-pay customers can expect to save €157.44 per year by being on the correct tariff.
Averaging these we get an average saving of €161.76
**You can also get money for your old mobile and, depending on the model, it could net you up to €150!
Second Up: Insurance
We wrote a blog about 4 steps to save money on your car insurance which was hugely popular and really resonated with people. We’re all fed up of paying too much for the stuff we have to buy - insurance is a compulsory purchase: if you have a car you must by law have adequate insurance cover. The good news is that some companies are working really hard to make things cheaper for us. The piece on car insurance showed that it was really simple for one of our researchers to save €313.66 on his car insurance renewal premium.
Naturally we’re all different and prices will vary – but his saving was over 30% on his renewal premium, that level of savings is achievable.
The piece on car insurance gave a method to reduce premiums for your insurance – the same exact steps will work for people who want to make savings on their home buildings & contents insurance. We haven’t yet covered home insurance in detail – so we should make a couple of short points in addition to the general steps.
1) don’t underinsure – you will pay if you need to make a claim
2) don’t over-insure - re-assess your rebuild costs – your home is not worth as much as during the housing boom and consequently any costs to rebuild your home will also reduce – make a reassessment of these costs – visit www.scs.ie for more information
By following the steps from car insurance, we managed to save €280.08 on a renewal premium.
Note for all insurance types: make sure you are comparing like with like and not reducing your cover level or increasing the excess you might need to pay in the event of a claim.
Sell some stuff:
We all have too much stuff lying around the house and, as the old adage goes, ‘One man’s trash is another man’s treasure’. Why not flog your unwanted goods on online auction sites and add the profits to your holiday fund? Use www.donedeal.ie, www.gumtree.ie or www.buyandsell.ie to offload your unwanted possessions.
Set up a holiday account:
Why not set up a separate bank account to deal solely with your savings for the holidays? A good idea might be to have people put money into it for birthdays, Christmas etc in lieu of gifts. This way, you can accrue interest on the money as you’re going along. It may not be much but it’s better than nothing! You might want to look at how much the holiday is going to cost and break it down into how much you would have to put away each month into the account in order for it to cover the cost.
Again, if you’re not in a position to go away this year, you could set up the account anyway and leave it as your rainy day fund. Who knows when you might have unexpected car repairs to pay for or other unforeseen expenses.
Summary: what have we saved?
Looking at the totals, we have saved over €1,500 per year on everyday household bills. Think how long it would take to earn that much as take-home pay. None of the savings here compromise on quality of service, or have required a reduction in your usage on anything – it’s just being more savvy on what we’re paying for.
We have included only 6 categories – these are the common bills people pay. Think of adopting these changes across a full range of your bills – think of waste charges, bank charges, credit card interest, current account fees.
This is the Latte Factor in action – small savings across a number of bills can really add up to great savings – savings you can use to pay for a nice holiday for your family.
If you dropped €50 from your wallet, what would you do?? You'd pick it up!
Broadband & phone