WHERE DOES FRUGALITY

cross the line between savvy and silly? For Lisa and Steve Carter, it might have been the six-minute showers.

With Steve jumping off the corporate treadmill and starting a new career as a blacksmith, the Portland, Ore., couple knew they'd need to build a bigger savings cushion. To get there, they sweated the small stuff. The Carters kept their house mostly dark, relying on a lightbulb or two at a time. They plotted shopping trips with the precision of NASA physicists, making sure they'd use the shortest possible route and the bare minimum of gasoline. Gone were the thrice-weekly dinners out. Forget about 80-channel cable. Hello to a kitchen timer next to the shower stall designed to cut back their hot-water bills.

And hello, as well, to a serious case of cheapskate's malaise. "If you're so vigilant about the day-to-day stuff, it really wears on you," says Lisa, a staffer at a local university. "You start to feel deprived." And for all their corner-cutting, the Carters weren't saving enough to justify their sense of sacrifice until they changed tactics and started thinking bigger.

Knowing that they'd soon move to a larger property to accommodate Steve's ironwork, the Carters replaced their 30-year home loan with a hybrid adjustable-rate mortgage (ARM) that cut their interest rate from 6.875% to 4.625%. The mortgage move shaved $468 a month off the Carters' home payment, saving more money than all their other penny-pinching put together.

Today the Carters still retain some of their money-saving habits: Steve loves to cook, for example, so restaurant visits remain rare. But the couple feels better knowing they're working smarter, not harder, to save. "It's much easier to focus on the big picture, knowing that little splurges won't derail our plans," says Lisa. "It's exciting to see your results grow. . . . Opening your utility bill and realizing it's $10 lower just isn't the same."

It's certainly possible to save money using all of those dreary commonsense tactics that fill the Sunday-paper advice columns choosing a brown-bag lunch over Au Bon Pain, buying clothes only on sale, clipping coupons and rolling loose change. But for most people in a consumer-centric culture, pinching pennies doesn't come naturally. Faced with schoolmarmish lectures about giving up our creature comforts, our ids rebel: We don't have the time to be frugal; we deserve a reward for our hard work; we want our HBO. If we do discipline ourselves, we may wind up like the Carters, waiting impatiently to see results. And like fad dieters, if we backslide by splurging on the things we've denied ourselves, we can wipe out our progress with one binge.

Fortunately, there's a saner way to save, and it boils down to one tip: Hunt for bigger game. In any given year, you'll spend tens or hundreds of times more on the big-ticket items in your budget your house, your car, your medical bills than on cappuccino and compact discs. It stands to reason that you'll find the biggest savings in those same places. "The small stuff matters, but I'm telling people more and more often, see if you can do one huge thing to cut your costs," says Mary Hunt, founder of the Cheapskate Monthly newsletter, which covers the small tips as well as the big ones. Dozens of financial planners we interviewed this spring sounded the same theme.

To put this approach to the test, we posed ourselves a challenge: How could a middle-to-upper-income household trim its expenses to set aside an extra $150,000 over 10 years on top of what they're already stashing in 401(k) plans, college-savings accounts and such? And could they do it without feeling like martyrs to miserliness?

To find out what those families were spending, we studied data on the expenditures of households with income of more than $75,000 per year. The data came from the federal Bureau of Labor Statistics' annual consumer-expenditure survey and from a similar study by Mendelsohn Media Research. We found that by focusing on the expenditures that make up the four cornerstones of a typical household's obligations home, cars, investments and insurance our family could come up with at least $137,500 in savings by making a few shrewd strategic moves. And that's a conservative figure; in each section, our "baseline savings" rounds down from the maximum available savings to account for those already spending less than average. From there, we got our family over the top by coming up with 14 other smaller and equally painless tips, on everything from travel to credit cards to even your home computer. Pick and choose from those and you'll easily save another $12,500.

It's a potentially terrific haul for not much work. Indeed, it's striking to see how many relatively simple tactics go unheeded by most consumers. Too bad for them, because saving the big bucks turns out to be a matter of doing some smart legwork before you make your biggest expenditures. It takes effort but not nearly as much effort as trying to nickel-and-dime your way to riches. And best of all, you won't have to give up your "Sopranos," your salon or your Starbucks.

House and Home
Baseline Savings: $30,000 over 10 years
Mortgage it's French for "death pledge." When you become a homeowner, you make one of life's biggest financial commitments. In 2002 and 2003, some 20 million homeowners made that pledge much less onerous, arranging refinancings that have already saved them $48 billion. With interest rates creeping higher, fewer homeowners have much to gain from a traditional refi. But a little creativity can still wring big savings out of your home payment and there's more than one way to shrink that beast.

When Greg Weyandt looked for alternatives to the 6.5%, 30-year fixed-rate mortgage on his home in Birmingham, Ala., significant savings seemed elusive until he found out about LIBOR loans, an option that most mortgage brokers can arrange. While typical mortgages are tied to American banks' prime rates, a LIBOR (London Interbank Offered Rate) loan is tied to banks in Europe where a slower recovery has meant lower rates. That's why getting a LIBOR slashed Weyandt's interest rate to 3.875%. The drawback to a LIBOR: The rate is reset every month, and there's a chance that a homeowner's rates can spike. "But we're saving so much, it was worth the risk," says Weyandt. If rates go crazy, he plans to jump back to a fixed-rate mortgage, but if they don't, he could save $30,000 over 10 years.

Like many refinancing strategies, the LIBOR works best for people in the earliest years of their mortgage: You benefit most from low rates in those years, when your payments predominantly go to interest rather than equity. But for people who plan to hold on to their home for 10 years or less and 72% of homeowners flip their homes that quickly the hybrid ARM can be the more attractive option. The payments on typical ARMs float with interest rates, but hybrids let you lock in a fixed rate for the first three to 10 years of the loan that is higher than that on a traditional ARM, but lower than that on a 30-year fixed-rate mortgage.

When they realized they were falling short of their retirement-savings goals, Paul and Jane Brandes took an ARM against their sea of troubles. By switching from a 30-year fixed mortgage to a hybrid ARM, fixed for seven years at 4.9%, they cut their house payments by $800 a month. "We're not great savers," insists Paul, but the Brandeses look great on paper: They're taking their $9,600 a year in savings and plowing it into their daughters' educations and their retirement plans.

If there aren't any moves in your future, you don't have to reinvent the wheel to save money on your home. Closing costs on a refinancing can hover between 1.5 and 2% as much as $5,400 on a $300,000 loan but by renegotiating a lower rate with your current lender, instead of hunting elsewhere, you can considerably shrink them. And the investment of one extra payment a year can slash the total cost of your mortgage. On a $300,000, 30-year mortgage at interest of 6.875%, the strategy could retire your mortgage 10 years early, saving almost $59,000 in interest charges. The most painless way to do it: Boost every month's payment by one-twelfth.

Hot Wheels

Baseline Savings: $40,000 over 10 years

Which costs more, your car or your house? Sounds like a no-brainer, unless you're driving a Lamborghini. But it's not so simple. According to the American Automobile Association, it costs 56 cents per mile to own and operate a new car. Assuming you spend about 60 years of your life behind the wheel, logging a modest 15,000 miles a year, you'll amass 900,000 miles and will pay $504,000 for the privilege. If you consider that the average family will own two cars at any given time, the lifetime tab will surpass the million-dollar mark and there's nothing like the word "million" to sharpen the mind when hunting for savings.

There's one sure-fire way to trim that bill: Choose used. As Nancy Castleman, co-founder of GoodAdvicePress.com, points out, lower fuel efficiency of today's bigger cars and faster depreciation can make new cars even more expensive to operate. But to many drivers, this advice is about as welcome as a broccoli-only diet. Barely half of the country's upper-income households currently drive a preowned auto; many drivers would rather emulate Milton Stephanides, the patriarch of the Pulitzer-winning novel "Middlesex," who celebrates his prosperity by buying a new Cadillac every year. It's hard to resist the thrill of driving the newest machine on the block or the Proustian joy of starting every day with that new-car smell.

But buying preowned doesn't mean giving up luxury. The way Mary Lou Katz figures it, she's driving at least $50,000 worth of car and she bought it for under $10,000. The 45-year-old Pasadena attorney lovingly describes her Infiniti Q45 as "a beautiful sedan, with that gorgeous pearly white paint job you only see on high-end cars." It just happens to be a 1994 model, not a 2004 (premium sticker price, $61,600). Katz found the seller on eBay and paid $6,500 cash for the car, then invested about $3,000 in maintenance work. The car has 107,000 miles on it, but Katz isn't afraid of the wear and tear: "These days, you've got to figure any decent car will give you 200,000 miles."

The popularity of leases in the late 1990s and the flood of sales incentives in the post-9/11 era have brought a glut of "gently used" cars into the secondary market, making used-car lots look like new-car dealerships. Internet rating services and manufacturer certification programs have helped consumers educate themselves and dodge shady deals. And generous warranty terms mean that many used cars still have some coverage.

Crunch the numbers on resale value and "the case for buying used cars gets even better," explains Lakewood, Wash., financial planner Ben Jennings, "because most of the depreciation happens on somebody else's dime, in the first four years of [the car's] life." But that depreciation is greater than any decline in the car's performance, so you get a lot of car for a lot less.

Say you're eyeing Lexus's high-end midsize sedan, the GS 300. New it would cost $43,000, but this spring you could snag a 2001 model from a dealer for around $27,500 a savings of more than $15,000. And the Lexus holds its value unusually well: When we checked the prices of 2004 and 2001 versions of five luxury sedans, the average difference was more than $20,000. You won't clear the entire savings when you trade in an older car, you'll get less money than with a newer model. But if the cars you fancy range between $35,000 and $55,000, you can reasonably expect to save about $10,000 per car by making like a racetrack bettor and sticking with the three-year-olds. Consider that a middle- to upper-income family could buy four to six cars over the next 10 years, and you're netting at least $40,000 in savings.

If you can't bring yourself to become a used-car buyer, you can cut the costs of ownership significantly by becoming a used-car seller and sidestepping the dealer. The same vehicle glut that makes the market attractive for used-car buyers has made it harder for consumers to get top dollar on trade-ins, says Philip Reed, author of Edmunds.com's Strategies for Smart Car Buyers. But drivers can earn around $2,000 more per resale by selling their cars themselves, with the help of eBay and other online markets.

Investing Paying Less to Play
Baseline Savings: $25,500 over 10 years
We typically think of saving and spending as two opposing habits, pitted in a tug-of-war over our money: To save more, you simply spend less. But where you save can be just as important as how much you put away-and focusing on mutual funds and brokerages that keep their fees and expenses low can add thousands to your nest egg.

Obvious advice? Sure. Standard practice for investors? Unfortunately, no. Index funds, among the cheapest vehicles for capturing the growth of the broader market, account for only 11% of domestic stock-fund assets, according to Morningstar. Load funds, whose sales commissions can devour big chunks of your principal, make up 57% of the fund market, an increase from 51% in 1994 even though they've underperformed no-load funds by nearly two percentage points a year over that stretch.

These loads and fees aren't necessarily arbitrary: They represent what investors are willing to pay for professional advice. When Gerry Jackson began investing outside of his 401(k) plan a few years ago, the Aurora, Colo., engineer was looking for guidance, and he didn't balk at the 1.5% of assets charged by his financial adviser. The adviser in turn put Jackson in an annuity, a variable universal life policy and various mutual funds each with annual expenses approaching 2%.

But as the market slide of 2001 and 2002 sent his investments avalanching, Jackson says, "I saw how much fees of 3%-plus were hurting my performance. I realized I couldn't afford to hang on." Jackson moved his money to a self-directed account at Charles Schwab, where he invests in stock and bond index funds whose fees average about 0.3%. He expects to put about $20,000 a year in those funds and at that rate, the difference in fees and expenses between those investments and his adviser's plan will save him at least $6,000 over 10 years.

It's entirely possible to construct a portfolio made up exclusively of index and actively managed no-load funds. But if you're tempted by some of the very attractive load funds, keep in mind that a typical front-end load of 4.75% would strip $2,375 out of a $50,000 initial investment. "You're in a hole from the very beginning," notes Jim Holtzman of Pittsburgh's Legend Financial Advisors. "You spend your first few months as an investor just trying to break even." Worse still, if you want to put more money in the fund, you'll typically pay the load on each new contribution. Just remember: Loads represent the money paid to a salesperson to pitch and sell a fund to you; if you're doing your own research and selecting your own funds, there's no reason to pay one.

How much can you save dodging these nickel-and-dime fees? Let's assume that, like Jackson, you're putting aside $20,000 a year in mutual funds. Invest 40%, or $8,000 a year, in index funds instead of diversified stock funds and you're saving about $1,080 over 10 years in management fees the difference between the average index-fund fee, around 0.25%, and the 1.6% expense ratio at the average actively managed fund. Steer the whole portfolio away from front-load funds and you're saving roughly 5% in commissions as much as $10,000 over 10 years. Assuming that you invest the savings and earn 8% a year after fees, you'll increase your nest egg by about $17,000 over 10 years far from chump change.

When it comes to picking stocks, your full-service broker may be a great source of advice. But you'll be better off bypassing him when trading shares. Making 15 trades a year, you'd pay, on average, $1,100 in commissions at a full-service broker, compared with only $255 at the average discount brokerage so taking the discount route could save you $8,450 over 10 years. That's enough to pick up a couple of those Berkshire Hathaway shares you've been coveting B shares, that is.

The Insurance Safety Net

Baseline Savings: $42,000 over 10 years

In a sense, your insurance and your savings strategy go hand in hand your life, health and property coverage are designed to keep you from having to drain your savings to cope with accidents, sickness and death. But with the average upper-income household paying around $4,900 a year in premiums, the coverage itself is a serious financial commitment and an arena for finding serious savings.

That goes double for life insurance, where many policyholders overpay. The majority of life policies in force today double as savings plans: "Permanent life" products combine insurance with a small investment account. But while these policies have some tax advantages, they're an expensive way to actually insure your family against your death. According to a recent survey of insurance industry sales, permanent products cost anywhere from six to nine times more per $1,000 of coverage than ordinary term life (which doesn't include a savings element). For a healthy male in his mid-40s, the difference in annual premiums between a 30-year term policy and a midrange permanent life policy is about $2,600, or $26,000 over 10 years.

That's one reason Don Claussen of Hendersonville, Tenn., took a hard look at his insurance bill two years ago, when he began considering a career change. The former software programmer and his wife, Jill, were paying $5,800 a year in premiums on permanent-life insurance; by switching to term, they cut their annual bill by $2,800. "It means we have to have more discipline about saving elsewhere," says Don, now 53, "but [switching coverage] also gives us the cash flow to have more options." Just remember: Switching policies midstream doesn't always pay off. The Claussens had held their permanent policies long enough to avoid surrender charges, fees that can take a big bite out of any savings you build up; if you're already committed to such a policy, it's worth holding until the fees expire.

Your health-insurance premiums are less likely to be under your control, especially if you belong to an employer-sponsored plan. But one insurance loophole offers serious savings savings that most of your peers are passing up. Flexible spending accounts (FSAs) let employees put aside pretax dollars to cover uninsured health care expenses including the cost of meeting your health plan's deductible. In 2003, 80% of large employers offered health care spending accounts, but only 17% of eligible employees took part in them.

Most folks are scared away by the "use it or lose it" rules that require FSA users to use all their stored money by the end of the calendar year. "People just don't want to leave money on the table," says financial planner Jim Holtzman. But given that the average upper-income household runs up $1,700 a year in out-of-pocket medical expenses, an FSA-using family would probably find plenty of use for the set-aside money. Assuming you pay around 30% of your income in state and federal taxes, channeling $1,700 through an FSA would shave your tax bill by $510 a year; contributing and using $3,000 would save you $900. Think of it: You can profit from your nearsightedness and tooth decay. The savings scenario should get rosier next year, when more companies will offer a similar plan, the health savings account (HSA), that will let users carry over their savings from year to year and job to job.

Protecting your property is just as expensive as insuring your life and limbs, but it doesn't have to cost an arm and a leg. Maintaining a higher-than-average deductible on your house and car say, $1,000 instead of the usual $250 or $500 is one of the most reliable ways to reduce your premium. Upper-income consumers pay around $2,400 a year for home and auto insurance, but higher deductibles can cut those premiums by 15 to 25% annually. Consolidating both policies with the same insurer can shave another 10% off the bill. The total savings: as much as $8,400 over 10 years.

There's another advantage to the insure-it-yourself strategy. "Insurance companies are getting pretty picky about who they cover," says newsletter editor Mary Hunt. If you constantly bill your insurers for relatively small repairs, she explains, "pretty soon they'll jack your premiums through the roof." The message: If you can resign yourself to opening your own wallet to pay for that scratched rear-view mirror, you'll save thousands in the long run. And after visiting the auto shop, you'll be able to relax, guiltlessly, with cable-on-demand and a mocha Frappuccino.