The 3 Ultimate Tricks to Living Well While Spending Less

• Live large, just not in a big house. The standard rule of thumb for how much house you can afford is 28% of gross monthly income.

But who says you have to spend all 28%? Using this rule, a person making $80,000 could afford a $1,900 mortgage. Based on a 30-year loan at 4.25%, that puts the price at around $375,000. But if you dialed that back to 23% of income, you’d lower your payment to $1,500. Invest the savings at a modest 5%, and you’d have an added $333,000 over the life of the loan.

Also, who says you have to use a 30-year loan? Planner Ron Rogé prefers 15-year mortgages because of the “hundreds of thousands of dollars” in potential savings. Using the 28% example, a 15-year loan at 3.5% would save you $168,000 in interest over a 30-year loan at 4.25%. And once the loan is paid, you’re free to invest $1,900 a month for the next 15 years, netting another $500,000.

Debra Cohen, 48, found another way to save. Rather than move to a $1.3 million, 3,200-square-foot home in 2007, the small-business owner and her husband gradually added features to their 2,300-square-foot, $650,000 Long Island home, including a home office. They spent more than $150,000 renovating. But by staying they paid off their mortgage three years ago and saved $400,000 over the past decade.

• Make the most of what you spend. One way to keep a lid on spending—on things like cars or the latest tech toys—is to maximize the satisfaction you derive from the purchases you do make.

A recent Journal of Consumer Psychology paper found that people experience much deeper satisfaction when they buy “experiences” like vacations rather than things like furniture or clothing. That’s in part because we’re happiest when we’re spending time with people we love. So if you plan to spend part of that raise, think about a family trip to Hawaii rather than buying that luxury car.

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