Use the Web to save $8,000 a year

This article was originally published by MSN Money on Monday, Jan. 31, 2011.

Smart shoppers use the Internet to save a bundle through comparison sites, coupons and online services. Just be sure you're not wasting time and money to save a buck.

By Katherine Reynolds Lewis

Savvy Internet users can save nearly $8,000 a year through smarter shopping, online discounts and Web-based services such as bill paying, according to a report compiled for the Internet Innovation Alliance.

Gale Swanson, 53, can attest to the value of an Internet connection. Since her children gave her a computer in 2009, her Web usage has saved her more than $5,000 on gifts, entertainment, food and travel purchased through the Internet -- and ended her weekly trips to Big Lots and Wal-Mart.

"Because I'm on a fixed income and a budget, I have to make sure I don't spend my money frivolously," said Swanson, a retired office manager in Van Nuys, Calif. "The ease of being able to find things that are discounted is great."


Recently, she saved $340 on auto insurance by comparison shopping for a cheaper policy than her previous $980 annual cost. In buying holiday gifts, she scored a $100 pocket video camera for just $15, a $40 pirate costume for $3.25, a pair of $312 diamond earrings for $70 and a $70 Brother fax machine for $10, all shipped directly to the recipients -- the last two for free.

That's $763.75 in savings even before you count the gas and the time she would have burned through by shopping in brick-and-mortar stores, not to mention the hassle and cost of shipping the gifts to her family. "A lot of times you spend more on postage than the toy itself," Swanson said.

But online savings go beyond retail shopping. In its report, the Internet Innovation Alliance identified the top 10 areas where a high-speed Internet connection saves you money, and used government data on the average consumer's spending to calculate a total savings of $7,707 a year. The categories and the savings are:

-- Entertainment, $2,747, including advance movie, concert and sports tickets.
-- Travel, $1,532, by comparison shopping for transportation and accommodations.
-- Housing, $974, through sites that aggregate listing and sales or rental information.
-- Food, $965, thanks to grocery coupon sites and stores.
-- Clothing, $640, through retail portals.
-- Automotive, $438, via sites that offer car-buying deals.
-- Newspapers, $193, because most newspapers offer content free online.
-- Gasoline, $95, through sites that map the cheapest nearby places to fill your tank.
-- Nonprescription drugs, $76, from pharmacies' online presences and general retail outlets.
-- Bill pay, $47, saving the cost of mailing monthly bills or paying by phone.

"Broadband is a great technology for penny pinchers. It gives smart shoppers the tools to save large amounts of money," said Bruce Mehlman, a co-chairman of the alliance, a coalition promoting universal broadband access whose members include companies such as AT&T and Corning and business groups like the National Black Chamber of Commerce. "But it requires discipline. It's a bit like a treadmill. If you have one, it can really help you get in shape. If you hang your clothes on it, not so much."

Follow the strategies below to nab the best Internet discounts, without getting carried away and buying items you don't need or can't afford, simply because they are good deals. "You could definitely go broke saving money," Swanson warned.

Shop with purpose
The biggest challenge of the Internet is also its greatest strength: the unlimited depth of information and variety of sites wanting to separate you from your hard-earned cash. Clever consumers have learned to enter the fray with a specific list of items and a fixed amount of money to spend.

Pattie Simone, an entrepreneur in the New York City area, recently wanted a coffeepot that would grind beans immediately before brewing the coffee, a $250 item. But instead of snapping up the first one she saw discounted by 10%, she kept looking until she found one for barely $80.

"You have to be very careful about still maintaining a focus about what your budget is," said Simone, 54. "The biggest risk is spending too much money."

You can find great deals on restaurant meals -- often paying $2 for a $25 gift certificate on Restaurant.com -- but beware of letting them expire before you use them (in some states, gift certificates never expire). Instead, look for discounts immediately before you plan to go out to eat, Simone advised. Similarly, if your weekly grocery shopping always includes certain items, sign up with a coupon site to receive discounts on those purchases you are going to make on a routine basis.

When in doubt, wait. "Forcing yourself to take a deep breath and wait an hour before clicking purchase is a smart way to separate the great deals from the impulse purchases," Mehlman said.

Target the best discounts
Another pitfall of the Internet is getting sucked into an endless trail of enticing websites, only to look up and find that four hours have passed and you still haven't found the deal you want.

That's why Steven Zussino, of Victoria, British Columbia, puts RSS feeds from his favorite coupon and retail sites into a reader that lets him quickly and easily check for new offers. "It prevents me from wandering; that's what gets people in trouble," said Zussino, 33, the founder of GroceryAlerts.ca., a coupon website for Canadian shoppers.

Through trial and error, he's learned which sites and online communities reliably share valuable discounts and which are time-wasters. To avoid temptation, Swanson uses a separate e-mail account for coupon sites and offers from her favorite retailers, and she checks it only when she intends to make a purchase.

Protect yourself from scams
To avoid getting scammed, patronize merchants that have good reputations according to ratings sites such as Yelp, Angie's List and Bizrate. Check whether the merchants offer money-back protections and guarantees.

Simone bought an accessory to attach her video camera to a lamppost or other stationary item. But the attachment that arrived didn't work. Because she purchased it through eBay, the site refunded her money in full.

To relieve the frustration of expired or nonfunctional coupon codes, CouponCabin tests all its coupons three times a week and guarantees certain coupons will work, said Jackie Warrick, the website's chief savings officer. "If they don't work, we'll buy you dinner," she said.

Take your financial life online
One of the easiest ways to save money is by comparison shopping for financial services.

Zussino shaved a half-point from the rate on his home mortgage, thanks to online quotes. That's the equivalent of tens of thousands of dollars over the life of the loan. "Over 35 years, it adds up to quite a lot," he said.

Shruti Majithia, 29, a software professional in St. Paul, Minn., was paying $188 a month for auto insurance that she found through an in-person agent relationship. But after she went online for comparison quotes, she ended up paying $90 a month for a better coverage package.

"If you buy it online, they have so many discounts for you," said Majithia, who was able to lower the price from the initial quote by agreeing to accept paperless statements and through a student discount.

Combine online and offline resources
You can also use online resources to find better deals in the real world. You can bring Web coupons to a brick-and-mortar store or simply educate yourself to negotiate a better deal.

A few years ago, Hunter Johnson comparison shopped for a 60-inch high-definition television using the Internet. He eventually found an offer nearly $300 less than what was available in the physical store, and Best Buy agreed to match that price -- along with 0% financing for two years. (Johnson paid it off on time to avoid finance charges.)

Recently, Johnson used Zillow.com to understand property values in the Dallas neighborhoods where he wanted to live. When a duplex came on the market at $310,000, he quickly saw that a similar unit had sold earlier in the year for $263,000. After six rounds of offers, he purchased the property he wanted for $265,000.

"If I would've gone in without information, I wouldn't have gotten it," said Johnson, 26. The list price was more than the upper end of his target price range -- so he wouldn't even have looked at the property if he hadn't known the true market value.

Indeed, the Internet Innovation Alliance found that price comparison was only one benefit of online shopping. Consumers save when they access deeper markets, often through sites that aggregate many different marketplaces, said Nicholas J. Delgado, the principal and chief wealth officer at Dignitas, which performed the study for the alliance. "It's not a marketplace controlled by one broker -- it's an aggregation of these various markets."