Money Management for Tough Economic Times

"Good Morning America" financial contributor Mellody Hobson gives you the skinny on what the Federal Reserve's rate cut means to you and your wallet. Get tips on how to get your finances in order in these difficult economic times and find out what you can do in your daily life to save big bucks annually.

First, is the Fed rate cut going to help?

It will definitely not hurt, but it is not going to be a major lifesaver for consumers either. The Fed has been cutting rates at an aggressive clip — the most significant in 25 years and the seventh cut since September. While the extra ¼ point drop will result in a dip that may translate into lower interest rates on mortgages, credit cards and automobiles, it will not be significant enough to help already strapped consumers pay off their piling bills. I also am hearing that the Fed may now take a breather and leave rates where they are and wait to see how consumers respond.


So, if yesterday's Fed movement is not the answer, what is? What can people do to save money right now?

First and foremost, now is the time to trade in your credit cards for cash. I know I have said this in the past, but paying cash or using a debt card will force you to keep track of everything you are buying to the dollar. Not only do I want you to use cash, but I want you to write down everything you are spending money on — every day. Some of my hotbed expenses are:

Smoking. No butts about it. At about $5 a pack, a smoker who smokes a pack a day is spending about $35 a week which adds up to about $1,820 a year. Over ten years, that is $33,762 — not including the extra health costs. If you ever needed a reason to quit, blame it on today's economy.

Drink from the tap. A bottle of water runs about $2, so if you drink just one bottle a day every week it will set you back $56 a month or about $2,900 a year.

While I am an advocate of cash over credit, it pains me to hear that the average American withdraws $60 from an ATM four times a month. Not only is that too many trips to the ATM, but many of those visits are to ATMs that charge between $1.50 to $3.00 if the ATM does not belong to your bank. That can add up to $144 a year in wasted money.

In addition to the low-hanging fruit per se of giving up bottled water and smoking, what else can people do?

One of the main areas where people spend a significant amount of money is on their health care. First, do not assume that prescriptions prices are the same everywhere — they are not. Often, the cost of your prescription drugs may vary from large retailer to the local drugstore. Shop around and always ask for a generic substitute if it is available. Second, do not be afraid to negotiate the cost of your medical care with your provider. According to a survey by Harris Interactive, 2/3 of adults who negotiate with their doctor, dentist or hospital were successful in paying less than the original bill. If you can afford to, ask if you can pay cash. Paying cash for services often reduces the cost by as much as 10 percent. Finally, check your bills carefully or have someone you trust be your second pair of eyes. As many as eight in 10 hospital bills have an error. You would never check out of a hotel without seeing the exact cost of your stay — so don't do that at a hospital.

How about gas? How can you reduce your expenses?

With gas averaging $3.60 a gallon these days, the obvious answer is to take public transportation as much as possible. Even if it takes a bit longer to get to where you need to go, it may be worth it to your bottom line. If you must drive, there are a few easy ways to ensure you are getting the most for your gas money.

Observe speed limits. Gas mileage decreases rapidly above 60 miles per hour. As a general rule of thumb, it costs over $0.20 more per gallon for each 5 mph above 60 mph, so be mindful of the speedometer.

Empty your trunk. For every 100 pounds of excess weight in your trunk, your car loses 1-2 percent of fuel economy, which translates into $0.04 to $0.07 more per gallon.

Keep your tires filled. Bald tires are not only a driving hazard, but they burn more fuel. Keeping your tires properly inflated is an easy way to improve your gas mileage by more than 3 percent, which translates into a savings of $0.12 per gallon.

Keep your car properly tuned. Keeping your car in good condition can significantly impact your gas mileage as a poorly tuned engine burns more gas. Be sure to check and replace the air filter regularly, which can improve fuel economy by up to 10% which equals approximately $0.36 per gallon.

What can people do to limit their food expenses?

Overall, food prices rose about 4 percent last year, but many of our regular food staples — like eggs, beef and certain fruits and vegetables — were up much more. In fact, the price of eggs jumped 24 percent about $1.75 a year ago to about $2.17 today. To keep your food expenditures as low as possible, simple things like eating in; comparison shopping between supermarkets and brands; using coupons; and even changing your diet can make a difference. Also, as much as possible, you may want to buy locally grown and in-season produce, usually available at produce stands and farmer's markets. Not only might the prices be a bit lower than in your supermarket, but they are also often negotiable. In New York City alone, there are nearly 50 farmer's markets selling produce, meats, baked goods, condiments and more — all produced within the region.