How Much are You REALLY Saving? Calculate Your Savings-Per-Hour Rate
How much you make is often expressed as an hourly rate. Even if you're paid weekly or monthly, you've probably calculated how much you make per hour. Time is the stuff of life, after all, so you don't want to sell it too cheaply.
But do you do a similar calculation for your money-saving efforts?
Do you know roughly how much you save for each hour spent clipping coupons or perusing sale flyers? Maybe you should.
First of all, spending less money is like making more. In some ways, it's even better: If you make another $100, some of it will go to income taxes, but if you save $100 on the things you buy, you get to keep it all.
Second, you have a limited amount of time, so it matters how you spend it. If you have an hour to spare, you might spend it clipping coupons and save $5, or you might spend it shopping for a better auto insurance policy and save $100.
Who wouldn't prefer to make $100 per hour instead of $5 per hour?
Calculate Your Savings-Per-Hour Rate
If you spend two hours clipping and organizing coupons to save $20, you saved $10 per hour. Of course, in reality, it isn't always that simple.
You might spend hours changing bank accounts to save on fees, but the savings continue for years... so how do you calculate that?
Or you might be unsure how much time (and gas money) went into driving around to find the best prices on furniture.
Fortunately, you don't need to be that precise. You just need a rough estimate so you can do what saves you the most money for the time you spend. And generally, you will save the most money per hour if you...
Start With the Big Stuff
Carefully review your largest expenses and find ways to reduce them.
For example, I had already paid for our new homeowner's insurance when I realized I might get a discount if I bought my car insurance from the same company.
It took an hour to make a phone call and then go to my agent's office and fill out the paperwork. I got a refund of $131 on the home insurance and a savings of $58 per year on the car insurance.
That's a savings of $189 per hour!
Here are some of the other large expenses where you can maximize your savings per hour.
A New Home
Sure, you want what you want in a house. But find a way to pay less, and the savings can be huge.
If you find a house for $20,000 less than you planned to spend, you not only save that amount, you also pay less in interest and property taxes (and probably maintenance and utilities if the home is small).
Those savings may be impossible to calculate accurately since they continue and change. But if you're in that cheaper home for 10 years, you might save thousands, making it well worth spending an extra 100 hours to find the deal.
Refinancing your mortgage takes a lot of paperwork. But a refinance calculator indicates that if you go from 5% to 4.5% on a 30-year $100,000 loan, you'll save more than $10,000 in interest.
There are fees that reduce your savings, and you may not stay in the home for 30 years, so do the math (the calculator even shows how many months it takes to recover your new loan costs). For example, you might save $2,000 if you're in the home for another eight years -- making it worth the 10 hours it might take you to get the new loan.
Finding the cheapest homeowner insurance policy is a matter of getting online and picking up the phone.
I spent less than an hour on the phone and going to the insurance agent’s office to ask a few questions… and I got an home-auto discount that saved me $58 on car insurance and $131 annually on our homeowners policy. I saved almost $200, and that's just the first year.
See our list of ways to save on rent for help with this one.
If you knock $100 per month off your rent by spending more time to find the right place and you stay there for three years, you'll save $3,600 -- potentially worth the extra hours you’ll spend on your search.
This is another place where saving money can be as simple as getting online and making some phone calls. Spend an hour and you might find or negotiate a policy for $100 less.
There are various ways to find the cheapest car loans, and credit unions usually have the lowest interest rates. If you have an existing loan, you can refinance or find a way to pay off the loan early and stop paying any interest.
Either way, if you save a few hundred dollars in interest, it might be worth four or five hours of effort.
Car Operating Expenses
With a little planning and a bus pass you might also get rid of your car to save $2,500 or more per year.
Look for Automatically Recurring Savings
You'll notice that most of the big expenses above are not one-time expenditures. That means if you find a way to spend less for them, you keep saving money year after year.
This is also true of most household bills, like electricity, cable and heating.
Because the savings keep coming until your circumstances change, it's difficult to say just how much you'll save for your efforts. But in any case, here are some previous posts on The Penny Hoarder to help you reduce the regular expenses that will save you the most per hour for your efforts:
To maximize your savings per hour, find ways to automate savings on other purchases.
For example, label your rewards credit cards so you use the right one on each purchase. My business card pays 5% cash back at office supply stores, while another card pays 3% back on groceries and yet another pays 5% back on gas.
After organizing for a few minutes -- I put stickers on the cards to indicate what to use them for -- I now save a lot of money versus the default 1% back in points or cash that most credit cards offer.
You can also research stores in various categories (groceries, clothing, electronics) so you automatically go to the cheapest ones by default whenever you're not chasing a sale.
Carefully Consider Other Money-Saving Actions
Shopping sales is a great way to save money, and you might score a $100 savings for an hour of online research if you're buying a large item.
On the other hand, sale shopping is also a good way to spend money you didn't plan to (or need to) spend. So be sure you don't save so much money that you go broke.
You can’t fully automate all money-saving actions, like clipping coupons or using discounted gift cards. Most of the creative ways to cut your grocery budget fit this category as well. To keep saving money, you have to take the time to do these things over and over.
That's why you have to calculate your savings-per-hour rate.
For example, if you drive an extra 30 minutes to a cheaper store and save only $2 after the cost of extra gas, you're saving only $4 per hour. And if you don't buy many brand-name foods, clipping coupons might net you just a few bucks per hour.
That brings up an important question...
What Should Your Savings-Per-Hour Goal Be?
Focus on the big stuff to save the most per hour, even if that leaves you no time to implement intricate deal-stacking strategies to save a few bucks on household purchases.
But assuming you have the time to do a little of everything to save money, what should you have as a minimum savings-per-hour goal?
I aim for close to what I make working -- after taxes. Think of it this way; why spend an hour to save $4 if you can put in another hour on the job to make $15 more?
On the other hand, I enjoy some money-saving activities enough to work for a lower "savings wage."
For example, I get a kick out of finding a coupon to "stack" with a sale and a cash-back credit card to save $3 on a bag of cat food, even if it takes 20 minutes, netting me just $9 per hour in savings for my effort.
But that's just me -- you'll have to set your own goals for your savings-per-hour wage.
Your Turn: What have you done that netted you the highest savings-per-hour rate?
Steve Gillman is the author of "101 Weird Ways to Make Money" and creator of EveryWayToMakeMoney.com. He's been a repo-man, walking stick carver, search engine evaluator, house flipper, tram driver, process server, mock juror and roulette croupier, but of more than 100 ways he has made money, writing is his favorite (so far).