Small savings can add up to reduce the length and cost of your mortgage

With wages growing faster than inflation over the past year, you’d assume that Aussie households are bringing in more than they need to live.

But spending is also getting away from many people. According to the Australian Bureau of Statistics, one in seven Australian households is spending more than it earns.

There is a cliché from the older generations: a penny saved is as good as a penny earned. But where can you cut your costs? I suggest you start with the largest item in your household budget, and for most readers that will be your cost of housing: rent, mortgage and maintenance.

You can refinance into a cheaper mortgage, but you could also find several small household savings and put them into your mortgage in a monthly payment. You can save thousands.

Think about a family with an average $350,000, 30-year mortgage, paying a variable interest rate of 6.44%. If you contribute $20 per month extra you can take nearly a year – and $15,000 in payments – off that mortgage.

Of course, in order to have extra money to put into the mortgage, you need to find savings.

These needn’t be complicated: if you work in the city, chances are you’re spending around $12 on a sandwich and a drink for lunch every day. If you pack a lunch just twice a week, you save $24, or $96 a month.

I used our monthly repayment calculator on ybr.com.au and found that on an average 350,000, 30-year mortgage with an average 6.82% variable rate, putting the cost of two lunches per week into that mortgage equates to a savings of $65,500 and takes 42 months off the loan.

Cutting just one cup of take-away coffee at $3.20 per day is a $69 in savings per month. If you put this into your mortgage you’d reduce your home loan by 32 months, saving you $50,532.

What about your phone costs? Many people have mobile phones but they also have a land line. Do you need both? And do you need that size of download on your internet plan? It’s not impossible to save $50 a month between internet and phone.

Other opportunities to save are out there: shop for packaged holidays rather than buying air fares and hotel rooms separately; reduce your dining out from twice to once a week and you could be saving $300 a month; have either cable TV or DVD rentals; time your petrol fill-up for the cheapest days and buy groceries at the lowest-cost supermarket, even if it means bringing your own shopping bags.

Just about any household can find $200 a month in savings: if you put this into your mortgage each month, you save $112,602 and reduce the term of your $300,000 loan by about seven years.

This is not the stuff of financial masterminds – it’s about cutting small costs in your household so you can reduce the biggest cost of all.