Oran Hall | Little things that make a financial difference

Have you ever noticed how a little money earned here or spent there amounts to much over time?

Choosing to save by curtailing spending or earning more is key to a strong financial future if done regularly over many years because it unleashes the power of compounding.

Saving is powerful as it increases wealth through compounding. Spending also uses the power of compounding, just that it does so in a negative way. Appreciating this is key to the understanding of how wealth can grow or evaporate.

One simple way to save which is open to most of us is paying bills on time. Let us take utility bills, as an example. There is a sum of $250, which is at play with each bill, a reward or a penalty, which makes a difference of $500 depending on how it is handled.

Paying a $1,000 bill early is rewarded with a credit of $250, making the amount due $750. Paying late attracts a charge of $250, making the amount payable $1,250. What is the difference? $500. This is $6,000 for a year for one bill. For three bills, the extra cost is $18,000 per year.

Considering that we live in an economy in which the sellers of goods and services are not allowed to collude, but to determine their own prices, consumers often have many options when spending. Prices for the same good or service often vary, sometimes significantly. Have you ever noticed? Let me cite some examples.

When I agreed recently to a certain medical procedure, I decided to check around rather than readily use the services of the recommended facility. I obtained prices from six facilities. The highest price was 240 per cent more than the lowest, for the very same procedure. I eliminated the two least costly ones after considering several other issues, and ran from the most expensive one. What it cost me in terms of my time and the telephone calls faded against the savings that accrued to me.

It makes sense to compare the prices of other services – life and general insurance premiums, for example. Beyond the premiums, it is important to see what the service provider is offering for the premium dollar. What appears on the surface to be cheaper could be dearer. Taking time and effort to make decisions can be beneficial, but be careful to note that the comparison is fair. It is not reasonable to compare two things that are not very similar.

There are other examples. Motor vehicle parts also vary significantly, and, of course, attention has to be paid to quality in the decision-making process. Groceries cannot be omitted. Nor agricultural produce. Time can sometimes pose a challenge to shopping around, and some people place a high value on conveniences, so they are prepared to turn a blind eye to higher prices.

Discounts matter. Membership is some organisations give members the opportunity to get discounts from participating suppliers of goods and services. The rate of the discounts differs, sometime significantly, but even small discounts make a difference. Bear in mind also that some businesses and organisations give senior citizen discounts, as well.

Some employers offer non-cash benefits which add up. Many years ago, at a new place of employment, a colleague mentioned to me that there were benefits that no one would tell me about. He was right. To his credit, though, he mentioned a few to me. Know and take full advantage of employment benefits without abusing them. They are not generally hidden and provide opportunities to save.

Buying non-perishable goods in bulk, if you can afford to, is one way to make additional savings, if what might appear to be extra items does not lead to waste or the increased usage of the items.

Hidden spending can be costly, particularly so because it is not obvious. Here are some examples: leaving the lights on when they are not being used, running taps, refrigerator doors not being closed fully and constantly opening of the said doors, long and unnecessary telephone calls, items purchased but not used, add-ons and attachments to items that contribute little to their usefulness, and paying more for items that can be sourced for less or for which there are cheaper, but comparable alternatives.

Energy efficiency should rank highly in decision-making considering that so much of what we use is driven by some sort of energy. Manual power is largely in the rearview mirror. The time taken to read about the features of items and their use of energy, where possible, is not wasted time. It can be money-saving.

Small savings do add up, making more available to earn investment income, thereby providing additional means to attain meaningful goals.

Oran A. Hall, author of Understanding Investments and principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel. finviser.jm@gmail.com