AP From countries like Austria to universities like Rutgers, more and more organizations are defaulting to the “default option.”
The “default option” is an arbitrary way to opt you into a decision — in an unobtrusive manner — that you probably should make, but you don’t always make.
Austria made organ donation the default (forcing citizens to opt out if they wish to refrain), and now have 99 percent of the population set up to donate after their death. Rutgers University changed its schools’ default printer options to “print on front and back,” reducing paper consumption by 55 million sheets over the next four years.
Hey, That Was Easy
The printer default savings is easy enough to replicate at home. If your printer offers a “print on front and back” setting, make that the default to instantly cut down on your paper costs. Switch the default to print in “mono” and “draft mode,” you’ll simultaneously stretch the life of your printer ink.
Granted, you won’t cut your paper use by millions of sheets like Rutgers. But every little bit adds up.
According to EPA estimates, the average office worker prints 10,000 sheets of paper a year. If we assume the average family prints roughly half that, double-sided printing will stretch the life of a box of paper to two years. Experts estimate that printing in draft mode saves an average of 10 percent on the cost of a cartridge. Still assuming the average family prints 5,000 sheets of paper a year, this move will also save you roughly $29 a year on the cost of the most popular cartridge sold on Amazon.com.
That might seem like pocket change, but using the same “default” logic elsewhere in your life can have a tremendous impact on your own finances.
The Windfall from Forced Retirement Savings
One change that is becoming increasingly popular is automatic enrollment in your employer’s 401(k) plan. For whatever reason, the majority of new hires fail to sign up for what is easily one of their most valuable employee benefits. This lack of participation ultimately leaves people grossly underfunded and ill-prepared for retirement.
But a growing number of companies (56 percent of all U.S. employers — up from just 14 percent in 2003) now automatically enroll new hires in their 401(k) plan. Even a relatively small payroll deduction, such as 3 percent of the new hire’s salary, could add up to tens of thousands by the time retirement rolls around.
If your company doesn’t offer a 401(k) plan, you could force yourself into a similar behavior by setting up an automatic deduction from your paychecks that gets deposited straight into an IRA account.
Biweekly Payments Equals Big Savings on Big Loans
A simple change in how frequently you make payments on your large loans (mortgages, car loans, etc.) can add up to serious savings over time. If, like many people, you get paid every two weeks, in most months, you’ll bring home two paychecks. But a couple of times a year, you’ll enjoy a month with three. You can look at that “bonus” check as a short-term windfall, or as a long-term opportunity.
Putting your loans on a biweekly payment plan simply means that you are synching up your loan payments with your paychecks. Instead of making your current single payment each month, you make a payment of half that amount every two weeks. That will result in you making 26 “half” payments — thus 13 full payments — in a year, reducing your debt by an extra month’s worth annually, often without any significant shift in your budget.
As an example, on a $100,000 mortgage with a fixed rate of 6.5 percent, you pay $127,544 in interest over the lifetime on the loan by making once-monthly payments. By making biweekly payments, you’ll only pay $97,215 in interest over the loan’s lifetime. That’s almost $30,000 — a nearly 25 percent savings on interest!
Look for Other Ways to Automate Your Money
As you start to put these behaviors into practice, you’ll start to discover other “defaults” of your own — whether it’s setting up automatic payments for utility bills so you never incur a late fee, or using various smartphone apps to ensure you get the best deal on big purchases.