When a person is first introduced to the idea of financial independence (FI), they quickly learn that the higher their savings rate is the faster they can reach FI. Typically, people realize they can increase their savings rate by doing one of two things. They can either cut their spending or increase their income.
Unfortunately, many people view cutting their spending as a negative thing. They’ll have to sacrifice. They won’t be able to keep up the same lifestyle. They may not be able to continue purchasing the same things they have been. They may have to cut back on spending for the experiences they enjoy taking part in.
On the other hand, earning extra income isn’t a cakewalk either. People usually have to put more hours in at work to earn more money or start up a business, or side hustle that can result in spending hours away from their family each week.
Thankfully, there is a third way to increase your savings rate that few people think of or discuss. In some ways, this third way of increasing your savings rate can be considered part of spending less or earning more. However, when you use this third way to increase your savings rate, called zero impact savings, you aren’t necessarily giving up anything in your current lifestyle as you would usually think of when you cut expenses. You won’t have to give up time on a recurring basis, either. Here’s how zero impact savings work.
The Idea of Zero Impact Savings
Eric, a Choose FI Facebook member, started a discussion in the Choose FI Facebook group. In it, he stated zero impact savings are a way you can spend less money or earn more money while having zero impact on the value you receive.
In a sense, you’ll either spend less or earn more, but it won’t cause any changes in your lifestyle or how much you have to work. Instead, it’s about being smart with your money.
Zero Impact Savings Ideas You Can Try
If raising your savings rate without changing your lifestyle sounds like a great idea, here are a few specific ways you can apply zero impact savings to your life.
Take advantage of discounts
One of the first places you should look when trying to find zero impact savings is the goods and services you already buy. However, rather than looking to buy less of them or a cheaper version, you should consider how you can get the same amount of goods or services for a cheaper price. Many goods and services offer discounts if you simply know where to look or how to ask for them.
Car insurance discounts
For instance, car insurance is one of the services you can typically find plenty of discounts for. You can call your insurance company and ask what discounts exist that you may qualify for. Some discounts are as simple as mentioning you went to a particular college or own a share of Berkshire Hathaway stock.
Other discounts exist for paying your six-month insurance premium in full rather than six monthly payments. Ask your agent about every discount possible. If you don’t know what to ask about, here's Insurance.com's guide to car insurance discounts. These methods could apply to other types of insurance, products, and services as well.
Auto pay discounts
Another great discount with zero impact on value is loan auto pay discounts. Some lenders will offer a 0.25 to 0.50 percent lower interest rate if you simply sign up to make automatic payments. Check with student loan lenders and personal loan lenders, in particular, to see if you could qualify for any auto-pay discounts. It doesn’t hurt to check with other lenders, but the discounts aren’t as prevalent for other types of loans.
When you’re shopping for anything, make sure to price shop. A quick Google search will often display prices at multiple competitors to make sure you’re getting the best deal. It only takes a few seconds but it could save you hundreds of dollars on big purchases.
Another zero impact way to save money is using browser extensions like Honey. You simply sign up for an account then install their browser extension. Whenever you go to make a purchase, make sure you click on the Honey button before you make your purchase and you could end up with a coupon code, which will save you money. If you use a rewards credit card, you can earn some cash back or travel rewards, too.
Of course, you shouldn’t forget to look for free alternatives, too. If you just want to read a book and not keep a copy in your home, consider checking the library for a book before you purchase it. You may want to look on Facebook Marketplace or craigslist for other free items before you make a purchase, too.
Make Use Of Credit Cards
Do a balance transfer
If you're carrying a balance on a credit card you may be able to transfer your balance to a card that will give you a 0% interest rate for a period of time. The idea is that you would take full advantage of your introductory rate and use that time to pay off your credit card. This will both save you interest now and free up cash for investing when your card is paid off.
Earn Travel Rewards
If you like to travel, getting a card that offers travel rewards is a great way to save money on travel. A card like the Chase Sapphire Preferred Card will earn you 50,000 bonus points if you make only $4,000 worth of purchases in the first three months of getting the card. That's $625 worth of travel if you use the Chase Ultimate Rewards portal to redeem your points.
Earn Cash Back
If you'd prefer cash back, you can be earning a little cash every time you make a purchase with a cash back card. It's money in your pocket with almost no effort on your part.
Take Advantage of Your Employer Match
One way to get a little bit of extra income or savings, depending on how you look at it, is making sure you get your employer’s retirement plan matching contribution. If your employer matches your contributions on any level, it’s free money you need to make sure you’re not passing up.
Reduce Your Investment Fees
One expense that can usually be cut without any major negative outcome is investment fees. If you haven’t looked at your investment fees lately, check to make sure the funds you invest in don’t have high fees.
This is especially true if you invest in index funds. Since index funds aim to provide the same returns as an index, you should in theory be able to pick the index fund with the lowest fee as all funds that track the same index should all get very similar returns.
Optimize Your Savings
High-yield savings accounts
Another way to earn a bit of extra income is optimizing your savings. While money sitting in savings vehicles, such as savings accounts and certificates of deposit (CDs), won’t make you rich, optimizing these accounts could earn you some extra income each year. Make sure money in your savings account is sitting in a high yield savings account rather than a big bank that pays little to no interest. High yield savings accounts often pay 10 to 20 times or more than the big brick and mortar banks.
If you don’t need access to the cash in the short term, consider putting your money in a high-interest rate CD. These can often earn even more money than letting money sit in your savings account. However, if you may need access to the money in an emergency, make sure you can get to it. You may have to pay an interest penalty, such as three months interest, or accept a lower rate on your CD to have access to the funds in case of an emergency.
Zero impact savings can help you boost your savings rate without losing value in your day to day life. Some of these suggestions only take a few minutes to enact. These ideas are low hanging fruit for those looking to accelerate their path to FI. Make sure you don’t ignore them.
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