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David Bach The Automatic Millionaire

David Bach, The Automatic Millionaire

Five Ways to Save $2,500 in 20 Minutes

by David Bach

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Posted on Friday, January 12, 2007, 12:00AM

If you feel like you're starting late on your savings plan, you're not alone. According to a nationwide survey I commissioned while writing my book "Start Late, Finish Rich," half of all Americans feel that they're "starting late."

Half of those surveyed had less than $10,000 in total savings, while 3 out of 10 had less than $1,000 in savings. No wonder so many Americans are worried about their financial futures.

Give Yourself a Break

While some may blame themselves for not having started earlier, the reality is that many people start late not because of shortsightedness or laziness or irresponsibility, but because life threw them a curveball.

I hear from people all the time who start saving late because of divorce, death, illness, disability, and so on. But what's done is done. You can't go back and fix the past -- it's time to move forward. (To read more about making a fresh start this year, see my column from earlier this month, "Five Principles for Happiness in 2007.")

Turbo-Charge Your Latte Factor

What's the fastest way to get back on track with your financial plan for the future? You've got to find your money and keep track of the small daily expenditures that tend to add up over time.

If you're a regular reader of this column or have read any of my books, you already know about this phenomenon, which I call the Latte Factor. If you're starting late, though, tracking these expenses won't be enough.

Instead, you've got to turbo-charge your Latte Factor by cutting back on all fixed expenses -- those monthly or yearly recurring costs that are also known as your overhead. You don't have to give things up; again, just cut them back. Call it the Double-Latte Factor.

Finding your Double-Latte Factor is fairly simple, since you most likely get a bill for your fixed expenses (like rent or mortgage, car payments, Internet service, phone, cable, etc). You should also check your bank and credit card statement for any subscription-type services that are automatically debited to your account or charged to your card.

Take a close look to determine who's attached themselves to your monthly income. You may be shocked to realize how many people are on your household "payroll."

The 20-Minute Solution

Most people overestimate what they can do financially in a year -- and underestimate what they can achieve financially in just a decade or two.

For now, aim to find $2,500 to cut out of your spending this year and invest it in a savings or retirement plan instead. To see the potential results, do the math with my Latte Factor calculator.

In 20 years, investing $2,500 a year with an 8 percent interest rate will amount to almost $125,000. In 30 years, you'll have accumulated over $300,000, and in 40 years, almost $700,000. Earn a higher interest rate -- say 10 percent -- and in 40 years you would have well over a million dollars.

Are you ready to transform your finances this year? Here are five ways to save over $2,500 in just 20 minutes:

  1. Lose the premium cable television package and save $960.

    The average premium package -- over 200 channels -- can easily cost $100 a month when you include the cable box fees and all the crazy taxes and unexplainable expenses that are legally tacked onto the fixed cost. That's $1,200 a year just to watch TV!

    And, of those 200 channels, you probably only watch maybe a dozen. Do you really need all the extra channels? And do you really need a cable box for every TV set in the house? If you downgrade to a more basic cable package (many of which start at $19.99 a month) and return a cable box or two you'll save about $80 per month, or a whopping $960 for the year.


  1. Get real about your cell phone and save $240.

    According to a recent study by Yankee Group, on average cell phone users pay for 791 minutes per month and use only 477. Right now, an individual plan with 900 minutes through Verizon Wireless costs $60 a month -- add in taxes and fees and you're looking at an $80 monthly bill. That's close to $1,000 a year in cell phone charges.

    If you go with a plan that offers fewer minutes -- 450 -- it will only cost you $40 a month, or $60 with taxes and fees. Simply by opting for a lower plan, you'll easily save $20 a month, or $240 a year. And that's being conservative; chances are your cell phone bill is even higher than my estimate here, considering all the available bells and whistles.

  2. Go wireless and save $600.

    It's becoming increasingly common to cancel landline phone service altogether and use a cell phone in place of a home phone. Your landline is probably costing you at least $50 a month, so ditching it would mean a savings of $600 a year.

    If you get great reception at home, are organized enough not to lose your phone, and are good about keeping it charged, this might be a great solution for you.

  3. Exercise smart and save $240.

    We all know the trap: You pay your monthly or yearly gym membership dues and don't go quite as often as you thought you would.

    You could cancel your membership and save a bundle, but you don't have to give it up completely. Many Platinum Memberships offer certain extras, including the option to work out in other locations -- maybe while traveling or on vacation. If you downgrade to a more basic membership you can save at least $20 a month, or $240 a year at the very least.

  4. Shop for car insurance and save $500.

    This one's a no-brainer. If you own or lease a car, car insurance is a must-have. But don't settle for the first rate quote you get -- you've got to shop around. Simply by picking up the phone and getting some comparative quotes, you could wind up saving 10 to 15 percent on what you're paying today, and possibly more.

    I wrote a column on this topic last year. My assistant saved $800 with one 10-minute phone call. Even with a more conservative savings estimate of, say, $500 a year, it's still a windfall.

Your grand total savings: $ 2,540.

A Little Pain, a Lot of Gain

Pretty simple, right? Well, maybe not. The truth is that it'll take some effort on your part. The key is to remember that you only need to cut back on certain items, not give them up entirely.

I challenge you to find your Double-Latte Factor. Explore how much you're paying for your bottled-water delivery, homeowner's insurance, high-speed internet connection, car lease, DVD subscriptions -- I could go on and on. The extra money is there. You just need to find it.

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129 Comments

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  • Yahoo! Finance User - Friday, March 30, 2007, 9:34AM ET  Report Abuse

    • Overall: 5/5

    We have never had cable, we now just have cell phones, we don't belong to a gym and we shop for car and homeowners insurance every few years. Our biggest $ problem is my husband likes to spend. He eats out for lunch all the time. We could save at least $120/month. Also like to eat out for dinner. Even if I have food cooking. $200/month. If we could cut back we could save alot. One way that we stated saving money and I know that this will not work for everyone...we invested in a corn burning stove. We live on 5 acres. We plant our own corn enough to last 2 years of heating and then we heat our home for a lot less then the cost of propane. It has also decreased our electric bill.

  • Yahoo! Finance User - Wednesday, March 28, 2007, 4:47PM ET  Report Abuse

    • Overall: 4/5

    Great stuff! Another way to save at least $2,500 per year is in Groceries/Restaurants!!! This spending category is out of control for most people. I got my spending under control by spending all of my money on paper PRIOR to the month's start. That way, I had a plan BEFORE I had the money. There are free spending tools available at www.josephsangl.com that really helped me.

  • Yahoo! Finance User - Monday, March 12, 2007, 9:38AM ET  Report Abuse

    • Overall: 5/5

    This works and has made a TREMENDOUS difference in my life. We pay for things that we assume we need, yet really don't. Who NEEDS two phones and premium cable? (Didn't we get by without those things before and survived? Wouldn't spending that money in a college fund or putting towards an emergency fund be wiser?) Thanks to this concept, it's easier and fun to save money. Why? Sometimes something may seem like a little cost (say a $40/mo bill), but when you multiply that by a year, that's $480. So I often ask myself, is this service that I probably only use a fraction of the day worth that much? Wouldn't I rather donate that to charity, buy a nice present, apply that to a vacation to a dream location, buy furniture or art (my house is sparsley furnished)? Usually the answer is, Yes, I would rather do those other things. Dave, your easy to follow tips and way of describing them have made a huge difference in my life and I want to thank you and encourage others to follow this. It's an approach that is feasible, low risk, but best of all, works! It doesn't necessarily mean living like a hermit, it means making sure that your money only goes to those things that will truly make you happy and in a good place when you are ready to retire. Thanks again, David!

  • Yahoo! Finance User - Thursday, March 8, 2007, 10:41AM ET  Report Abuse

    • Overall: 3/5

    This is good advice for a lot of people, but what if you already live a no/few frills life? I have lived pretty minimally for the past few years, so I just wish there were places I could save money. I don't have a gym membership, cable, or a car. But I suppose the right question for me would be, "How can I make more money?"

  • Yahoo! Finance User - Wednesday, March 7, 2007, 8:27AM ET  Report Abuse

    • Overall: 4/5

    i use 4 0f these comments and several more (turn off TVs at the outlet; reduce water heater temp to 120 degrees, turn down heat 3 degrees whenever leaving house for 2 hrs etc)in my class on managing money after retirement

  • Yahoo! Finance User - Tuesday, March 6, 2007, 11:19PM ET  Report Abuse

    • Overall: 4/5

    this is a one piece of good advise and easily understandable as it crawls back to the basic ~ spend less patient rational = save more happier financially happier life

  • Yahoo! Finance User - Friday, March 2, 2007, 2:41PM ET  Report Abuse

    • Overall: 5/5

    I read this article and it all made sense to me and it made me see a lot of places where I could really cut back on my expences. Thanks a lot for this article.

  • Yahoo! Finance User - Friday, March 2, 2007, 10:55AM ET  Report Abuse

    • Overall: 5/5

    These tips seem like common sense. But in the hurry to manage everything in life I forget to keep track of the common sense stuff! Thanks for the reminders.

  • Yahoo! Finance User - Friday, March 2, 2007, 7:59AM ET  Report Abuse

    • Overall: 3/5

    I think that this is very sound advise. I already have done the cable reduction, gym membership, and cell phone advise on my own prior to reading this article. I do find that not having a home phone can be a dangerous thing however. Ever heard of 911? If you call 911 from your HOME PHONE, emergency services know exactly where to go. If you call from your cell phone however, what's to say the person making the call isn't having a heart attack and cannot disclose a location for lack of being able to speak. That's really rolling the dice in order to save a few bucks if you ask me. Also, if you're not using a home phone wouldn't you be using more cell minutes? Thus having a higher cell bill?

  • Yahoo! Finance User - Thursday, March 1, 2007, 8:59PM ET  Report Abuse

    • Overall: 3/5

    Here I was all excited when I was about to read this article, but I see that for the past 6 or so years I have already been doing everything he recommends. Well except for the exercise thing which I don't even pay for in the first place. The article was still informative though.

  • Yahoo! Finance User - Thursday, March 1, 2007, 8:51PM ET  Report Abuse

    • Overall: 4/5

    This just validates all the things that my husband and I have decided to do. We don't have a landline phone and we actually work out at home with some basic equipment and some workout videos (my favorite is Yourself!Fitness which changes to your personal level and the workout is never the same, but you have to have a PS2, XBox or PC). We order netflicks instead of cable and enjoy the no-commercial viewing of many tv shows and movies We hardly go through 3 movies a week so cable would really be a waste of money for us. We only eat out once every 2 weeks and budget our grocery and spending money. We are saving a ton for buying a new home. Thanks for sharing, any other ideas?

  • Yahoo! Finance User - Thursday, March 1, 2007, 7:54PM ET  Report Abuse

    • Overall: 4/5

    You said you could go on and on - well, I really wish you would! I think this article could really help the average person who does spend too much on these things, but my cell bill is only $35 plus taxes (as low as can be) and I have basic cable (no box whatsoever). My land line only costs me $10 a month because I don't use it for long distance and hey - think twice about going wireless! If you do, then every time you order something or have to give out your number - you have to use your cell number. Can you say solicitation? Because once you give out your number, that's what you'll get - and you will get called during the day at work (not cool) with updates and notifications from businesses etc. - my land line is SO worth that $10. I also don't have a gym membership - figured out it was much cheaper/more effective to buy the machine I really liked and use it at home. I also learned that using a smaller insurance company that only takes good drivers can save a lot of money and give you more quality insurance - did that a long time ago too. I need more ideas! :)

  • Yahoo! Finance User - Thursday, March 1, 2007, 6:42PM ET  Report Abuse

    • Overall: 4/5

    To all the people that keep complaining they can't save money or that this won't help them; please stop complaining and really concentrate on what you can do to make things better for yourself and family if you have one and be on the positive side. Negativity only brings more in return and will never help you get out of it...This article was great!!!

  • Yahoo! Finance User - Thursday, March 1, 2007, 6:27PM ET  Report Abuse

    • Overall: 2/5

    Easy to say then done, basically the rule is to be as cheap as you can be. =)

  • Yahoo! Finance User - Thursday, March 1, 2007, 6:21PM ET  Report Abuse

    • Overall: 5/5

    To the moron that said the article was "pretty poorly written": That very phrase you wrote was, itself, very poorly written. Never use "pretty" before poorly! Anyway, I earned 15% last year in my 401(k) & IRA accounts. The mutual funds my money rests in have posted 10%-plus earnings historically over the past 30 or so years. The writer of the article stated that one need only start investing their money--he didn't say where, goofball. Every financial advisor I have ever had uses 8% as a conservative rate of return for mutual fund investments, and use 10% as a liberal tool to show what could happen in a better market. Reason being is that solidmutual funds in America have offered about 8%, on average, for about the past 40 years.

  • Yahoo! Finance User - Thursday, March 1, 2007, 6:00PM ET  Report Abuse

    • Overall: 1/5

    Umm.... This was pretty poorly written. Who is going to get 10% interest, let alone 8%, especally for only $2,500??? Oh yea, to the guy who could not figure out the interest and said that it was like $11,000? Are you figuring $2,500 a year, every year, plus the compounded interest? That would be right if you could get 8%, Right now the T-Bill rate is a little over 5% and no bank is going to give you much over that!!!!!!!!! This guy should not consider himself a financial adviser at all. I think he is trying to mislead people to help out his own pocket book.

  • Yahoo! Finance User - Thursday, March 1, 2007, 5:57PM ET  Report Abuse

    • Overall: 4/5

    For Mr. Math below, the rate will increase the money...the rate will then have a bigger and bigger affect on the investment, basically what I'm saying is, you are an idiot...and I'm only a 9th grade.

  • Yahoo! Finance User - Thursday, March 1, 2007, 5:55PM ET  Report Abuse

    • Overall: 3/5

    It is a $2500 investment every year, that is how it grows to over $100K. What if you have already done everything on this list? I have no cable, no land line, a cheap cell phone and cheap gym. What's next?

  • Yahoo! Finance User - Thursday, March 1, 2007, 5:55PM ET  Report Abuse

    • Overall: 2/5

    For the poster that disputes the amount of savings. RE-READ!

  • Yahoo! Finance User - Thursday, March 1, 2007, 5:54PM ET  Report Abuse

    • Overall: 5/5

    Great ideas. Of course, if you already have cut to the bone, this won't help. BTW, the calculation is based on depositing that $2500 EACH year for all those years. Add to that the miracle of compounding interest, and you can save quite a bundle. :)

  • Yahoo! Finance User - Thursday, March 1, 2007, 5:50PM ET  Report Abuse

    • Overall: 5/5

    To the college student and person who thought the info was outdated: The info is great. You both need to check your grammar, esp the college student. A resume with those mistakes could cost you a great job. I put myself through college - worked full time, planned my wedding, and got through nursing school in 9 months. Hang in there, and make a real effort.

  • Yahoo! Finance User - Thursday, March 1, 2007, 5:49PM ET  Report Abuse

    • Overall: 5/5

    its saving $2500 a year for 20 years moron. not a one time investment of $2500. if you people learned to read the articles and not spend all your time looking for flaws in them, you might actually make some progress in your lives.

  • Yahoo! Finance User - Thursday, March 1, 2007, 5:49PM ET  Report Abuse

    • Overall: 2/5

    I just can't really use any of these instances. I don't have premimum cable or more than one cable box. I haven't got a cell phone. I do have a gym membership but I go at least 3 times a week. And my car insurance is pretty cheap so I am not sure where else to cut. I don't buy lattes or lunch every day so I can't cut that out either....I do have a dvd subscription w/ netflix but it's much cheaper than renting here at home. These ideas may be helpful for some folks though.

  • Yahoo! Finance User - Thursday, March 1, 2007, 5:48PM ET  Report Abuse

    • Overall: 2/5

    Interesting to see how people spend their money; but I did not read a single idea that applied to me - I never fell into the money traps mentioned and so will never have to pull myself out - so what can thrifties like me do to save?

  • Yahoo! Finance User - Thursday, March 1, 2007, 5:47PM ET  Report Abuse

    • Overall: 5/5

    More brilliant advice as usual... Thanks Mr. Bach. To the person in college below, education is an investment in yourself (i.e., always a good investment) so it's worth every penny. Plus, you appear to be so adept at math, why not get an MBA and set your sights way higher than $40K? Just my two cents... Good luck to you.

  • Yahoo! Finance User - Thursday, March 1, 2007, 5:42PM ET  Report Abuse

    • Overall: 1/5

    I'm not sure how you did your calculations, but a $2500 investment with an 8% return for 20 years does not turn into $125,000. It's more like $11,600.

  • Yahoo! Finance User - Thursday, March 1, 2007, 5:38PM ET  Report Abuse

    • Overall: 4/5

    These are helpful ** GENERAL** comments. To those idiots who complain its not helpful to their situation: This is not taylor made to your specific situation.

  • Yahoo! Finance User - Thursday, March 1, 2007, 5:31PM ET  Report Abuse

    • Overall: 1/5

    Is this a joke? What if I don't have a gym membership or a cellphone? What if my insurance is already at the lowest it will possibly be? I have another way to save you money ... just don't pay bills. This guy is a joke and should be ashamed

  • Yahoo! Finance User - Thursday, March 1, 2007, 5:11PM ET  Report Abuse

    • Overall: 5/5

    These suggestions are all great and exactly what I've been telling my husband who thinks I'm joking when he goes up the guide and down the guide and says there's nothing on TV (180 channels). I try to run a pretty lean household but the phone and dish are places I need to work on. Now that our daughter has moved out of the house, we should be even leaner. Thanks for the advice.

  • Yahoo! Finance User - Thursday, March 1, 2007, 1:31PM ET  Report Abuse

    • Overall: 4/5

    I thought this article was great. You just don't think about these things as often as you should. I'm single, with no dependents, and I just bought my first home. I'm making ends meet, but there's just nothing left after all the bills are paid. Should I get a part time job, and dedicate those earnings towards savings? Are there any negatives to doing this?

Showing comments 6-35 of 129<< PreviousNext >>

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