Skipping EVEN MORE Nickels and Dimes for Bigger Savings (Long and Updated)

Back in 2005, I was reading a book called "Getting All You Can with What You’ve Got", and noticed this sad but true little ditty: "Too many of us are guilty of nickel-and-dime thinking when we seek to save money." Then, I identified some of the places we tend to nickel-and-dime ourselves to death in futile efforts to save (way beyond coupons, rebates, and prices per unit)…sometimes without even realizing it. Since then, I updated a few to reflect other ways I’ve since discovered:

• Investing—Buy stocks direct when possible by participating in DRIPs and DSPs from companies that offer "direct-to-customer" purchase options, etc. You can also buy and sell individual stocks through an ICN (independent commission network, such as Instinet) without paying more than pennies per share in commissions, although the annual ICN membership is expensive. Bonds, of course, can be purchased through Treasury Direct. Mutual funds, indexes, and ETFs are still another way to go.

Why pay hefty commissions and fees to anyone ever again?

• Durable Goods—Buy directly from the maker when you can, and if not, consider Amish or antique goods. For appliances and other goods, do your research on energy efficiency and reliability through independent sources other than Consumer Reports, because a conflict of interest exists between advertisers and test results. Above all, be patient when searching for the perfect durable good, because it may take some time before you find it at, or negotiate it to, your price. Figure out what you need, do the research, and keep your eyes open.

• Cars—Buy from the owner and not the dealer. Dealers are in business to make money...BIG money. They take cars in trade, offering about half what the Kelley Blue Book says they're worth, then turn around and sell them for twice what Kelley says the value is. Owners tend to stick to the Kelley numbers, which reflect the true worth of the car at the time, in the current condition. Just to be sure, do some research on Kelley and check out the car yourself—know what the car’s actually worth before buying.

Update: current day “bling” isn’t worth anything unless it’s listed in the Kelley or NADA book as a manufacturer’s option. Everything’s negotiable, so learn to negotiate!

• Gemstones—another high-margin item for retailers. Let me start by saying that diamonds in particular are NOT precious commodities—De Beers has got a stranglehold on the market. Diamonds are actually quite common for being nothing more than pressurized carbon, and huge numbers are being kept in vaults to promote the concept of scarcity. Demand for “scarcity” drives prices up, and it serves to keep prices high.

To cut down gem prices DRASTICALLY, take a gem enthusiast with a loupe to area pawnshops and estate sales, check out the inventory, and make an offer on a suitable piece (remember: you’re judging the stone, not the setting). Take your purchase for a new setting. Better yet, learn how to perform this entire process for yourself—from gem grading and valuation, through price haggling, to making new settings.

When completed, have your “new” ring appraised at another retailer—chances are very good it appraises at 250% or more than what you paid for it. Now you see the markup scheme jewelry stores use on unsuspecting customers.
As you may have already guessed, jewelry refurbishment and resale would make a dandy small business.

Another alternative: lab-grown gems and cubic zirconia make worthwhile substitutes, with much smaller price tags. Unless the intended recipient is a jewelry expert, chances are very good he/she won’t be able to tell the difference.

• Household items and clothing—Of course, you know this one...yard sales and freebies. If something isn’t given away free, then buy from the owner and not a retail outlet (such as a thrift store). Retail outlets are in business to make money, and in the case of thrift stores, most of their merchandise was free donations to start with—this means the profit margin per item is quite high (believe me, I worked in one). Regular so-called “discount” retailers buy their goods overseas for pennies per piece, and sell to us for what we think are bargains (I also worked for Target).

• Livelihood—This may be trickier to accomplish, but by all means give it a go...WORKING FOR YOURSELF. The middleman here is your employer, who is in business to make money. By pre-determining how much your service is worth to the business (by your salary or wage—regardless of your market value), then taking a cut just to cover payroll needs, the boss is effectively squelching your earning power. Consultants get paid 3-4 times your rate for the same job performed, so why shouldn’t you? Do the research before stepping out on your own (cost-benefit analysis, tax consequences, etc.).

Another method: creating passive income through rental real estate, a sideline business, etc. This creates the “third income” in a two-earner household, allowing one or both earners to back away from the grindstone a little, either in conjunction with or as a substitute for frugal living methods. Working harder doesn’t necessarily mean working SMARTER.

• Home purchase—Buy direct from the owner whenever possible. Sales commissions amount to at least 6% of your purchase price—more for hotter markets. To save even more, build one yourself (or have it built for you), because contractors buy wholesale, build wholesale, then mark up the merchandise to market value for real estate agents...and then the agents tack on their commissions...and you see where this ball's rolling.

If you have time, try checking out tax lien and deed sales—by purchasing someone else’s unpaid property tax note for a few thousand dollars from your local tax collector, then waiting a year or two (or immediately in the case of deeds), you just might wind up with the property instead of your money back plus interest. Check with your local tax collection agency for details, as some states have tax lien certificates instead of tax deeds.

Update: Another source for cheaper homes is the bankruptcy/foreclosure market—leads can be found in your local paper’s “legal notices” section (pre-foreclosure) or in a bank’s REO department (post-foreclosure). You might have to deal with courts and lenders, but the discount can be worth it. Negotiating skills are a must here—know how much that house is worth in market value AND rental value (to recoup the total ownership costs) before signing on the dotted line.

Here's how to determine worth: go to Zillow.com's site, enter the address and zip, and look over in the right margin for PRICE PER SQUARE FOOT. Take this dollar figure, mulitply it times the number of square feet the house in question is, and this will give you a good ballpark of what the home is actually worth (my real estate agent here says Zillow is within $5,000+/-).

Formula: Price per square foot x square footage in home = market value (+/-$5k)

• Home mortgages—No matter how long you intend to stay in your home, an ARM is the loan type for you if you are a perennial principal pre-payer (pays excess principal every month) and interest rates are steady or high-and-falling. ARM rates will always be lower than fixed rates, and quickly dwindling principal will incur a much smaller interest charge each month than with a fixed-rate loan. The interest savings will snowball over the life of your loan. Why not make the interest rate laws of physics work for you?

Update: when interest rates are low and climbing, a fixed rate mortgage is best for initial financing, but a long-term ARM will do. When interest rates are high and falling, an ARM with an extremely short term is best, and refinancing from fixed to ARM is actually cheaper in total interest outlay WHEN EXTRA PRINCIPAL IS CONSISTENTLY APPLIED.

• Borrowing money—Instead of schlepping to your bank and filling out papers for a loan (at exorbitant interest rates), borrow against your house. The rates are a whole lot cheaper because you have collateral that isn't likely to disappear overnight or suddenly plummet in value. Second mortgage money is cheap compared to regular loan rates, and the debt erases itself when you either pay the loan off or sell the property. This is called “wholesale borrowing.” A car may disappear (theft) or suddenly plummet in value due to an accident or other damage, so it isn't suitable for a collateralized loan. The risk is reflected in the interest rates. Minimize your loan officer’s risk and your interest rate by using more durable and reliable collateral.

• Taxes—It always pays BIG TIME to know the tax code, how it applies to you, and how it could apply to you. Loopholes abound in it, and it pays to know how to use them (just like the rich and corporations do). Congress invents them, and always manages to create more loopholes than it takes away every year.

Update: Paid tax preparers and tax preparation software can easily net you 10 times (or more) what they cost to use, and what you would likely get back on your own, so don’t be afraid to use them if you have lots of deductions or are a huge saver—there are more new credits and deductions for various savings programs than ever before, and it’s hard to keep up with them all.

• Insurance as estate planning tool—Whole life policies are a way of leaving your heirs money without having the worries of probate or estate tax bills. Use term life insurance for yourself, but any excess monies meant for beneficiaries should be used to buy a whole life policy for them to borrow against (and not repay), or to be a beneficiary of, when it comes time to collect an inheritance. Repayment of borrowed principal is NOT required, because the only consequence is a lower policy face value. Since this insurance is just a wealth vehicle and not meant for actual coverage, policy face value is of no concern. Insurance proceeds are NOT taxable in any way, shape, or form, and there is no limit to the number of policies one can own. This method is a whole lot simpler (and probably cheaper) than setting up a trust of some sort.

Estate planning update: see the “Stretch IRA” method as a way to expand your Roth IRA to cover more than just your retirement needs—it can cover generations if done properly.

• Grocery shopping simplified—Throw away your coupons, rebates, price books, and your warehouse store cards too--super-sized groceries have the same effect as McMeals. Focus on buying wholesale instead of nitpicking over per-unit retail prices by going directly to the growers: farmers and ranchers. Grocery store chains buy large volumes wholesale from suppliers (who buy from farmers and ranchers), and then it all gets jacked up to make money for overhead costs and profit.

A new method: shorten the shopping list by determining what foods your family REALLY needs to acquire and maintain superior health—you’ll find that many previously-bought “touchstone” foods like dairy and grains aren’t really necessary for anything, despite what the Food Pyramid and Fiber Police have to say. By focusing on better, higher-antioxidant foods and more nutritious meats (grass-fed), you’ll make your food dollar go further than just merely preventing hunger. Think quality of food rather than quantity when determining best sources.

• Nutrition—Next time you go to a warehouse store, take a look at other people’s carts…you’ll see mostly junk food in village-sized portions. Not many are buying the healthier stuff (if you can call it that)--the produce, the eggs, and the meat.

None of your formerly-used shopping tools will help you to buy better quality food, direct from the producer...only cheaper processed foods full of questionable ingredients.

Take a look at the labels, and count the ingredients you can't pronounce or explain to a child. Nothing good ever came out of a box or can. A jar, sometimes—provided someone familiar put it in there to begin with (by canning and preserving).

The concept of wholesale food buying entails going directly to the growers and producers for your food. This way, you can ask questions like:

1. where it came from (place of origin)
2. what was used to feed and/or fertilize it
3. how long it took to get from farm to market, and did it freeze along the way
4. what alterations have been made, such as GM, hormones/antibiotics, etc.

By buying directly from the grower/producer, you cut out the entire retail level of food selling. You almost certainly will be paying less (except in the case of organics) for better quality without fuss, bother, or effort. Learn where the nearest farmer's market, u-pick farm, CSA (community-supported agriculture), or food co-op is, and start shopping at Mother Nature’s stores. Or, if you have room, go one better and grow your own!

Another method: take another look at those labels—do they serve as a WARNING rather than a source of information? Why not strive to buy foods with fewer or no “warnings” on them, like fresh fruits, vegetables, meats, and eggs? I’ve found that the fewer labeled foods I buy (within known parameters), the better my health gets. Cheese, celery, and Asian greens are known to be salt-laden (according to the USDA nutrient database), so I avoid those.

• Organics—Your money is best spent on meats, dairy, eggs, and produce you plan to eat with the skin on, or has a thin skin that can be penetrated by chemicals. Pre-packaged food items defeat the purpose of buying organic because shelf and/or freezer life must be extended with some kind of chemicals, and a lot of these foods defeat the purpose of eating organically, such as toaster pastries—junk food is junk food, no matter how well it’s disguised.

Growing your own produce, hunting your own meat, and fishing your own fish comes in handy for drastically cutting costs.

• Health Care—A published medical study discovered that an apple a day DOES keep the doctor away (as long as it’s a high TAC one—Washington Delicious or Granny Smith), suggesting that most of us really need a corrective eating plan instead of more pills.

Get more bang for your food buck by making it cover your future health care costs as well as your hunger. Fresh is best, and direct-from-grower is as fresh as it gets these days. Granted, you shop for food more often (at least weekly), but the payoff is worth it! Raw, well-washed veggies (organic or not), high on the TAC antioxidant list, are where the nutrients are, and fish or eggs contain the highest level of protein when compared to other meats. Focus on these foods, and lose or minimize the rest. Spending more wisely with food quality in mind is a "different" sort of investing—in your HEALTH future.

Streamlining and improving your food choices will lead to more cupboard and refrigerator/freezer space, more time and money for other things, weight loss (which leads to less spent on clothing, less closet space needed, and less laundry), and improved health. Better nutrition also leads to more energy, less stress, slowed aging, and less susceptibility to sickness, both obvious and hidden (blood pressure, cholesterol, etc.)

Convenience foods cost us in many ways, and they really aren’t so “convenient” after all—especially when you discover that you really don’t need any of them!

• Social Security—Why depend on Uncle Sam to save you in your golden years, when you can make better use of the savings vehicles Congress gives you?

There is one little-known tidbit called “self-directed pensions” that will allow you to leapfrog your retirement savings beyond the usual standard stock-and-bond offerings. Self-directed IRAs (both Roth and traditional), held at designated independent trustees’ offices, allow you to take advantage of a Congress- and IRS-approved law that allows you to invest your retirement money in real estate tax liens or deeds of trust, real estate options on land or residential rentals, discounted mortgages, land lease limited partnerships, and vacant land or lots.

The only things you CANNOT legally invest your IRA money in are:
--collectibles (wine, art, stamps, coins, cars, sports memorabilia, etc.)
--a business which you own more than 5%
--any investment where your IRA would be used as collateral for a loan (such as a mortgage).

If you buy real estate to keep (using your Roth IRA) through tax liens or deed sales, and hold the property for appreciation until retirement age, you can legally take “a house” as a distribution, making it a personal asset and no longer an IRA-held asset—and no taxes incurred until you sell (hopefully after two years to take advantage of new sales rules). Even those taxes can be forestalled with a property exchange or keeping the property proceeds under $250k for singles and $500k for couples.

If the real estate isn’t a keeper, then the property gets fixed up (using IRA money) and sold, with sales proceeds go directly back into the IRA account (through the trustee). The whole process gets repeated over and over—this is a way to make a $2k-$10k investment in someone’s back taxes and tax-forfeited property (through the trustee using your IRA money) into an $80k-$100k market-value investment in a short time.

If you wind up buying the tax note (lien) and the current property owner redeems it quickly, you’ve at least made better returns than bonds or CDs pay out.

If you decide to use the funds from your traditional IRA to perform such maneuvers (outside the independent trustee), taxes will be incurred the moment you take distribution of any money or property that comes from this IRA account.

It makes more sense to build up your Roth account and make it self-directed—more investing opportunity with less tax hassles later. You lose the traditional IRA deduction (up to $800), but make up for it with the Savings Credit (up to $2000).

With all this retirement fund opportunity available, who needs to rely on a Social Security check now, considering the shaky state of the system’s future, and the lousy options we're given to deal with it?

Update: there are so many things that can be done with a Roth IRA, for your own retirement as well as future generations—look into the “Stretch IRA” information as a way of funding your own grandkids’ Social Security shortfalls and program evaporation.

• Organization-Use the 80/20 Principle in your life: keep the most effective 20%, and shed the marginal 80% (corporations call this more with less…sound familiar?). Get 80% of the stuff done in 20% of the time. Get 80% of your nutrients with 20% of the food (and spend only about 20% of what you used to in money and preparation time). Do 80% or more of your shopping at one location, without regard to loss leaders or per-unit pricing. Do 80% of your living with 20% less space, money, and material goods. Less is more.