What’s the key to saving money?

Smart Money magazine says most people think they can save by trying to cut back on small expenses, like cappuccinos or music CDs.

But other financial advisors say the real key to saving money is to target the “bigger game.� This tends to include big-ticket items like your house, car, and medical bills on which you spend a lot more money.

But does this really work? Smart Money started calculated how a middle-to-upper income family could trim its expenses enough to set aside an extra $150,000 over 10 years not including any other savings they might have, such as 401(k) plans or other retirement accounts, or special savings accounts.

To find out what these families were spending, the magazine studied data on the expenditures of households with incomes of more than $75,000 per year. Their data came from the federal Bureau of Labor Statistics’ annual consumer-expenditure survey and from another study by Mendelsohn Media Research. In it, they found that by focusing on the expenditures that make up the four cornerstones of a typical household’s obligations  home, cars, investments and insurance â€â€the family they were budgeting for could get at least $137,500 in savings.

Ready to give it a try? Here are a few ways to increase your savings:

House and Home: Refinancing, renegotiating a lower rate with your current lender, could help you save. In 2002 and 2003, nearly 20 million homeowners refinanced and together they have saved about $48 billion.

Cars: Buy used cars and make sure they are fuel efficient. The American Automobile Association says it costs 56 cents per mile to own and operate a new car. Assuming you spend about 60 years of your life driving and rack up 15,000 miles a year (900,000 miles in your lifetime) you’ll pay a total $504,000. If you consider that the average family will own two cars at any given time, the lifetime tab will surpass the million-dollar mark.

Investing: Keep an eye on how you spend the money you do have saved. Focus on mutual funds and brokerages that keep their fees and expenses low.

Insurance: Check out Flexible Spending Accounts (FSAs) that let employees put aside pretax dollars to cover uninsured health care expenses  including the cost of meeting your health plan’s deductible. The average upper-income household pays approximately $4,900 a year in premiums, making it a serious financial commitmentâ€â€find room to cut back costs.

For more tips on how to cut back on daily expenses, visit www.smartmoney.com.

July 26, 2005