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How to save $5,000 in 2012--Take a look at where your money goes now; some strategies that can add up to major cash are painless -- or nearly so.

Source: - Feb 1, 2012

Saving $5,000 may seem like a tall order. But when you review your finances piece by piece, you may be surprised by how fast things add up. This year, why not make a New Year's resolution to meet that goal?

Where are you now?
Before you can begin to save, you need to understand what you're really spending. "People who don't know where their money is going aren't really able to start saving it effectively," says Tracy East, the director of outreach with the nonprofit Consumer Education Services.

People tend to underestimate their spending, so East recommends keeping track of where your dollars are flowing for at least 30 days. Last year, the average family spent slightly more than $48,000, according to the Bureau of Labor Statistics. Of the largest categories, about one-third went to housing, 15% to transportation and 12% to food.

And while those major areas are great places to start evaluating, it helps to examine every aspect of your finances if you're serious about saving $5,000. The categories below are all fine areas to begin trimming your costs.

Hang up your phone
One easy place to start hunting for savings is your phone service. Leah Ingram, the author of "Suddenly Frugal, How to Live Happier and Healthier for Less," says for years she had separate home, business and fax land lines. "It's really unnecessary for this day and age," she says.

She eventually switched to one land line, and eliminating the two other saved her $1,600 annually. That means that even if you have only one line to eliminate -- and many people are able to do this by relying solely on a cellphone -- you could still pocket $800 over the year.

East also suggests examining your television habits. If you don't make use of most channels, look for a smaller cable package. It's also possible to negotiate prices, particularly in markets with stiff competition. Her husband spent two hours on the phone with their cable provider and got their bill cut by $45 per month -- a savings of $540 per year.

Trim your utilities
There are countless ways to save on utilities. Not everyone feels confident enough to tackle a big project like installing an energy-efficient furnace, but even small upgrades, such as installing a programmable thermostat, can promptly earn savings, says Bob Harris, the CEO of WhiteFence. According to Energy Star, a programmable thermostat can save a homeowner up to $180 on utility bills each year.

Even if your new thermostat costs $100 -- and there are many available for much less than that -- you can make back that investment and save $80 the first year.

Eat well, save well
Food is a major expenditure -- whether you prefer dining out or eating in -- which means it's also a great place to find savings. June Walbert, a certified financial planner with USAA, notes that going out to lunch can easily cost $10 a day. But eating out only once and bringing a lunch to work or eating at home the rest of the week -- even if it costs $5 per day -- can produce a staggering savings of $1,560 a year.

Walbert also suggests buying generic and store-brand products, which often cost 30% less than name-brand items. If you spend the household average of $5,760 each year on premium brands, switching to store brands on only half of your items could save you $864 annually.

Finally, you can help your waistline as well as your wallet by substituting tap water for soda. If you normally spend $1.50 a day on soda, dropping that expense can shed $550 per year from your budget.

Revisit your insurance
Ingram says you shouldn't be afraid to switch insurance companies, even if your current company offered you a great deal a few years ago. The company that offered the best rates five years ago may not be the best choice today. reports that the difference between the highest and lowest quotes for car insurance amounts to $750 annually -- and that difference can increase if you earn a discount by keeping all of your insurance policies with one company.

Now what?
If you add up the potential savings above, you'll find they equal $5,134. And these savings hardly represent the total realm of possibilities. Once you begin looking, you'll find there's virtually no end to the potential savings in your budget.

Once you've started saving cash, you need to figure out where to sock it away. Walbert says your strategy should align with your goals. If you're building up emergency savings or aiming for a short-term goal, such as paying for a vacation, keep it in a savings account or short-term certificate of deposit.

If your goal is five or 10 years away, she recommends short- and intermediate-term bond funds, which are relatively low risk and typically earn more than savings accounts.

And if you're planning to save for 10 years or more, stocks and mutual funds are an option, she says, but with today's market volatility, "it depends on your tolerance for risk." After all, saving $5,000 may be less painful than it first seems, but it will hurt to see it diminished through poor investments.

Category: General Business