Subsidized vs. Unsubsidized Loans

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

The federal direct loan program offers subsidized and unsubsidized loans to college students. A federal direct subsidized loan is a loan where the government pays the interest while the student is in school. A federal direct unsubsidized loan is one in which the student is responsible for paying all interest, receiving no additional federal aid.

What Is the Difference Between Subsidized and Unsubsidized Student Loans?

The main differences between federal direct subsidized and unsubsidized loans are the qualification criteria, the maximum limits and how the loan interest works.

A chart displaying the differences between subsidized and unsubsidized student loans.

Loan Qualifications

Subsidized: To qualify for a subsidized loan, you must be an undergraduate student who can demonstrate financial need based on the information you submit through the Free Application for Federal Student Aid (“FAFSA”).

Unsubsidized: Unsubsidized loans are available to both undergraduate and graduate students, and there is no requirement to demonstrate financial need.

Maximum Loan Limits

Subsidized: Your school will determine exactly how much you can borrow each year, but there are federal limits. These limits are based on what year of school you are in and whether you file as a dependent or an independent. Subsidized loan limits tend to be lower than unsubsidized limits. The aggregate limit for an independent student with subsidized loans is $23,000.

Unsubsidized: Unsubsidized loan limits tend to be higher than subsidized loan limits. The aggregate limit for an independent student with unsubsidized loans is $34,500.

How Interest Accrues

Subsidized: The U.S. Department of Education pays the interest for subsidized loans as long as the student is enrolled in school at least half-time. They will also pay the interest during your grace period—defined as the first six months after leaving school—and any period of deferment. This means that the amount of the loan will not grow once the student graduates, since the government has been paying the interest.

Unsubsidized: Whether you’re an undergraduate or a graduate student, you’re responsible for paying all of the interest during the entire life of your unsubsidized loan.

What Are the Similarities Between Subsidized and Unsubsidized Student Loans?

When it comes to interest rates, fees and the “maximum eligibility period”—the amount of time you’re able to take out loans—subsidized and unsubsidized loans are virtually the same.


On top of interest, you can expect to pay a small fee for both types of loans. This is approximately 1.06 percent of your total loan amount, and it is deducted from each loan disbursement. 

Both subsidized and unsubsidized student loans have a fee of 1.06% of the total loan amount.

Undergraduate Interest Rates

The interest rates for both subsidized and unsubsidized loans for undergraduate students are the same. Currently, the rate is at 2.75 percent for loans first disbursed from July 1st, 2020, to June 31st, 2021. The one exception is for direct unsubsidized loans for graduate students, which have an interest rate of 4.30 percent. 

Maximum Eligibility Period

For both loan types, the time in which you’re eligible for your loans is equal to 150 percent of the time of your program. For undergraduates pursuing a four-year bachelor’s degree, this means they will be eligible for their loans for six years. Those pursuing a two-year associate’s degree will be eligible for three years. This ensures that students can still receive loans even if they’re unable or choose not to graduate within the program’s time frame. 

How to Apply for Subsidized and Unsubsidized Loans

Once you’re ready to apply for a federal direct loan, fill out the FAFSA. Your school will send you a detailed report of what student aid you’re eligible for. Any grants or scholarships are free money, so make sure to accept them. They’ll also decide which loans you’re eligible for, the amount you can borrow each year and what loan type you can get—subsidized or unsubsidized. 

No matter what type of student loan you go for, it’s important to understand how they affect your credit so that you can set yourself up for financial success after graduation. With responsible, on-time payments, you’ll be well on your way to healthy credit for life.

Reviewed by Cynthia Thaxton, Lexington Law Firm Attorney. Written by Lexington Law.

Cynthia Thaxton has been with Lexington Law Firm since 2014. She attended The College of William and Mary in Williamsburg, Virginia where she graduated summa cum laude with a degree in International Relations and a minor in Arabic. Cynthia then attended law school at George Mason University School of Law, where she served as Senior Articles Editor of the George Mason Law Review and graduated cum laude. Cynthia is licensed to practice law in Utah and North Carolina.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.


Pros & Cons of Credit Cards

Pros & Cons of Credit CardsCredit cards are a great way to purchase the things you need now but want to pay for later. While it is possible for credit cards to be used to your advantage, irresponsible usage can negatively impact cardholders in a number of ways.

Whether you are a credit cardholder or plan to apply for one in the near future, it is important to know the pros and cons if you want to protect your financial health.

Pros of Credit Cards

  • Build credit: Your credit card provider will report your monthly payments to the credit bureaus. The credit bureaus will use this payment information to calculate your credit score, so your credit card can potentially help you build credit and increase your credit score. However, if you want your credit card to have a positive impact on your credit, you’ll want to ensure you pay attention to the due date and how much you are paying on the balance due.

Click here to learn how credit cards affect your credit score

  • Earn rewards/points: Certain credit cards offer consumers rewards or points when they make purchases. For example, some credit card companies will offer cardholders 10 points for every $1 that is spent. Once a certain amount of points is reached, the cardholder can redeem the points for cash, gift cards, airline miles, hotel stays, and more.
  • Convenience: Not everyone has cash available to make their daily purchases. Like a debit card, a credit card is easily accessible when you need to pick up groceries from the store, coffee from your favorite cafe, or food for the family pet. You can also easily track those purchases and monitor your spending using the online account portal, which is something you can’t do with cash.
  • Cash advances: Cash advances are available to cardholders who want to use cash rather than their card. Cardholders should note that this access to cash does come at a price, so they should expect to pay interest on a cash advance.

Cons of Credit Cards

  • Increased debt: When you open a credit card account, you are adding to your debt. As you swipe your card for each purchase that you make, the amount you owe will steadily increase. For some people, as their debt increases, it becomes difficult for them to keep up with payments. Missing a credit card payment will ultimately affect them in other ways, including a decrease in your credit score, so maxing out your card isn’t always the best idea.
  • Fees: Credit cards have a number of fees associated with them. You have to be careful because while some fees can be easily avoided, there are fees you will be charged no matter how you decide to use your card. For example, most cardholders will be expected to pay an annual fee, which will vary depending on the credit card. However, late fees and over-limit fees can be avoided if you keep track of your card balance and payment due date. 
  • Interest: When your credit card bill comes due, part of the balance you owe may include interest, which is based on your credit score. Basically, if you purchase an item and do not pay the entire balance before the due date, you will have to pay interest for that purchase. This means that a purchase of $50 could end up costing you $75.

Although credit cards have a bad reputation, there is a right and wrong way to handle this responsibility. Proper management of your credit card is key if you want to get the most out of it. And even though there are some disadvantages to having a credit card, the good outweighs the bad when you use your card responsibly?


Why there’s no such thing as the ‘best’ credit card

Why there’s no such thing as the ‘best’ credit card – The Points Guy

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Editorial Note: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.


This L.A. Traditional was Once Home to Legendary Actor Burt Lancaster

If you’re nostalgic for the Golden Age of Hollywood and want to capture part of the charm of the period, here’s a little something to take you back: legendary actor Burt Lancaster’s family home in Beachwood Canyon.

Lancaster, a four-time nominee for the Academy Award for Best Actor (with one win under his belt), starred in many iconic roles throughout his 45-year career in film and television. He’s best know for his roles in The Killers (1946) starring alongside Ava Gardner, From Here to Eternity (1953), Elmer Gentry (1960), and Field of Dreams (1989). The American Film Institute ranks Lancaster as #19 of the greatest male stars of classic Hollywood cinema.

The actor lived in a four-bedroom, four-bath home on Beachwood Drive, built back in 1941 by one of the city’s premier architects, Max Maltzman. Known best for his grand, high-style Los Angeles apartments and hotels, Maltzman had a very distinctive style which he imprinted on Lancaster’s traditional-style home.

Burt Lancaster’s former home in Los Angeles. Image credit: The Agency

Luckily, Maltzman’s design has gone largely untouched throughout the years, with no major exterior updates being made. The interiors, however, have undergone significant changes, to bring the property up to modern standards.

Burt Lancaster’s former home in Los Angeles. Image credit: The Agency
Burt Lancaster’s former home in Los Angeles. Image credit: The Agency

The home is currently on the market for $2.399 million, with Josh Myler and Jeff Kohl of The Agency holding the listing.

With a total of 2,800 square feet of living space, the Beachwood Canyon home has a large master suite with fireplace, and two additional bedrooms that open to a screened porch with lush hillside views, all located on the second floor. There’s an additional bedroom on the ground floor that can be used as a home office or gym.

Burt Lancaster’s former home in Los Angeles. Image credit: The Agency

The updated interior features a spacious open plan with great flow for entertaining, with multiple French doors opening the rooms of the house to the sunny outside — where you’ll find a private fenced backyard with mature trees, terraced gardens, and plunge pool.

Burt Lancaster’s former home in Los Angeles. Image credit: The Agency
Burt Lancaster’s former home in Los Angeles. Image credit: The Agency

More celebrity homes

Elon Musk was Serious about Selling his Possessions, Lists Two Homes on ZillowMindy Kaling is Moving Into Frank Sinatra’s Beach House in Malibu, Known as Ol’ Blue Eyes’ “Happiest Place on Earth”
Dita Von Teese’s Quirky Los Angeles Home is Every Aspiring Diva’s Dream
The Story of the Opulent $120 Million Manor that Aaron Spelling Built in Holmby Hills


4 Side Hustles You Can Do While Working Full Time

From selling unwanted items online to launching a blog, there are side hustles you can start today.

A side hustle may just sound like extra work. Like coming home from your 9-to-5 job only to work another one (goodbye, free time). But a side hustle that generates income beyond your primary job doesn’t have to be a drain on your energy or time.

It’s easier than ever to find ways to make money on the side of your day job. As the side hustlers below show, it can be as easy as digging out forgotten treasures from the back of your closet.

Whether you’re looking to leverage a side gig to more quickly build wealth, or you’ve set out to increase your emergency fund or save for a specific financial goal, consider these four side hustles you can start today:

1. Sell unwanted items online

If you’re considering ways to make money side hustling, look no further than your own home. Chances are you have items lying around that you don’t actually use—books, toys, kitchen gadgets, exercise equipment, tech accessories, you name it—that sounded like a good idea at one point but are now just collecting dust. Selling unwanted items online is one of the easiest side hustles you can do while working full time.

Selling things you no longer want or need is a great side hustle you can start today.

“You can really sell anything on Craigslist and Kijiji. If it’s still in decent shape, there’s a buyer out there for items you’re no longer using,” says Tom Drake, founder of MapleMoney and no stranger to selling items online in his spare time.

Drake and his wife declutter their home and sell unwanted items online as often as they can. A recent focus was video games: Drake says he sold about $2,000 worth of video games that were sitting in his garage for over a decade. Based on his calculations, he expects to sell about $10,000 worth of unwanted items in 2018.

If you’re thinking about posting items online as a way to make money on the side, Drake says it’s easy to start. Listing items doesn’t take long, though he suggests taking a decent photo and writing a detailed description to make the item easier to find in search results and more likely to sell in a timely fashion.

PriceCharting, which documents prices for every video game ever made, to check value.

Outside of video games, Drake says you can find clothing at thrift stores, then list it for 30 to 50 percent off retail price to make a sale. For collectible items like coins, you can Google the item and add the term “price guide” to the search query. This type of information could come in handy as you build out your pricing structure. Don’t forget to explore e-commerce sites to gauge market rates for items.

3. Start an online store

Briana Ford is a search engine marketing campaign manager for a marketing company based in Dallas. Her way to make money side hustling is through three stores she runs on Shopify, an online e-commerce platform. She generates about $1,000 to $3,000 in total revenue each month.

Her stores Ciao Toots and Karma Outfitters sell phone covers and graphic tees, respectively. Her most popular store, PinLivingColor, sells ’90s memorabilia. She creates the designs through Printful, a printing service through Shopify, and uploads the photos to her store. When someone buys, say, a cell phone case, Printful prints the design on a case and sends it off to the customer. She took a weekend each to start her stores.

“We live in a day and age where you can literally have an idea in the morning and have your business launched in the evening. There is an audience and a customer for almost anything,” she says.

She also helps fellow African Americans start their own stores as a consultant via Startup Noire.

4. Launch a blog

Eric Rosenberg, founder of Personal Profitability, has tried side hustles from web coding to organizing flash mobs. He found a winning side hustle you can do while working full time with his blog.

Blogging is a great way to make money on the side.

“Personal Profitability led to freelance opportunities and eventually a full-time job. But it all started with weekends and evenings,” Rosenberg says.

He has tracked his online earnings publicly since 2012, when the blog earned him about $700 a month. In 2017 he had a six-figure business. Most of his income comes from writing services and website support, with some affiliate income, Rosenberg says.

Blogging is one of the side hustles you can start today, and it doesn’t necessarily cost much to get up and running. However, as the online income reports on Rosenberg’s blog show, it does require patience to make it really pay off.

Ways to make money side hustling: The possibilities are endless

These are just a few of the possibilities available to you as you explore ways to make money on the side of your primary career. As you compare the various side hustles you can start today, consider activities, skills or experiences that you’re passionate about. Enjoying and finding value in your side hustle may make the extra income and increased earning potential even more rewarding.


Forbearances Tick Up Again: Black Knight

The number of mortgages in active forbearance rose for the second week in a row, climbing by by 21,000 (+0.08) since last Tuesday, pushing the total back up above 2.7 million after falling below that threshold for the first time since last April earlier this month.

This week’s rise continues the trend of mid-month increases that have become commonplace since the recovery began.

Despite the weekly increase, the monthly rate of decline held steady at -2%, continuing the trend of very slow but steady improvement in the number of outstanding forbearance cases. Remember, monthly declines have been averaging less than 2% since early December.

According the McDash Flash daily mortgage performance data set, as of February 23, 2.7 million homeowners (5.1% of all mortgage-holders), remain in active forbearance. This includes 9.3% of FHA/VA, 3.2% of GSE and 5.2% of portfolio/private mortgages

Once again, portfolio-held and privately-securitized loans saw the largest increase in plans (+16,000 / +2.4%), followed FHA/VA loans, which saw active forbearance plans rise by 7,000 (+0.6%). As was the case last week, GSE loans were the only cohort to see any sort of decline (-2,000; -0.2%).

Some 160,000 forbearance plans are set to hit scheduled expiration points at the end of February.


Why the Racial Homeownership Gap Exists and How to Combat It

Homeownership is more than a mortgage. For a child, it also shapes their access to education, affects health, establishes a sense of community, enhances the chance of going to college, and promotes a happier family life. For adults, homeownership is one of the strongest tools American households use to build their wealth. Today, the average American homeowner has amassed $119,000 worth of equity in their home and that equity is increasing at a rate of about 4.8% a year. 

Read: Is a Home Equity Line of Credit the Right Choice?

As a wealth-builder, homeownership plays a more critical role for minorities than whites. During the last quarter-century, homeownership equity accounted for nearly half of all Black and Latino wealth, compared to about a quarter for white families’ wealth.

More than three-quarters of white households, 77.3%, own their own homes, and less than half, 44% of Black households own their own homes. The Black-white homeownership gap is 29.70 percentage points, 6.2 points greater than it was 52 years ago when the Fair Housing Act was signed.

black family touring a house to buy racial homeownership gap discriminationblack family touring a house to buy racial homeownership gap discrimination

Why Racial Homeownership Gaps Exist?

Outside factors such as affordable housing, gentrification, decreases in federal funding and programs for minorities, and discrimination in mortgage lending all directly affect the homeownership gaps amongst white, Black, and other minority households. Recent research by the Urban Institute found three correlating causes for the racial homeownership gap:

Black households are more likely to buy homes later in life than white households. The result is a lower level of equity when owners reach retirement age. Eighty-seven percent of white homeowners bought their first homes before age 35, compared with only 53% of Black homeowners. Not only are Black households less likely to buy their homes young, 18% of them never own a home before turning 60.

Black homeowners are less likely to sustain their homeownership. Among a sample of households that purchased their first home after age 44, 34% of Black homeowner households switched to rental housing, while only 9% of white households did so. Black families who sustained their homeownership carried more than $23,500 higher housing wealth into their 60s than Black households who moved from owning to renting during their lives.

racial homeownership gap discrimination graphicracial homeownership gap discrimination graphic

Black homebuyers purchase less expensive first homes while using more debt. The average first home purchased by Black homebuyers is valued at $127,000, compared with $139,000 for white homebuyers, yet Black homebuyers, on average, have higher mortgage debt ($90,000) than white homebuyers ($75,000). Higher mortgage debt not only lowers current and future wealth, but could make it harder to financially maintain homeownership long term.

How to Combat the Racial Homeownership Gap and Identify Discrimination in Homebuying

In order to lessen the racial homeownership gaps we see today, programs and guidance need to be created and readily available to minority communities. For example, the National Association of Real Estate Brokers created the Two Million New Black Homeowners Program with the intent of helping minimize the gap and protect against homeownership discrimination. And, the NAACP provides a Fair Lending Program to help Black homebuyers receive fair distribution of credit.

stylish Black man sitting in armchair and looking at camerastylish Black man sitting in armchair and looking at camera

Another way to combat the racial homeownership gap is to provide guidance to minorities looking to purchase the home and help them recognize the signs of potential discrimination in their homebuying journey. ConsumerAction, a website that helps consumers make informed decisions, created a downloadable document highlighting the different ways you can identify these discriminatory practices. In short, these are some things you can look for:

  • A developer or agent refuses to sell to someone based on their race. This also includes if the developer or agent doesn’t return your phone calls or ignores offers you put in on the home.
  • Lying about sale terms to place minority buyers out of the market. To protect yourself, always work with an agent you trust who can understand the terms and what the seller is ideally looking for before putting in an offer on the home.
  • An agent who steers clients to or from certain neighborhoods because of race. If you’re a white homebuyer and an agent tells you minorities live in the neighborhood as a way to deter you, then the proper reporting should be made to the Fair Housing Equal Opportunity office.
  • An agent failing to inform and show buyers all available listings in their desired area and price range. As a buyer, it’s your right to be able to view all the available properties that fall under your desired specifications. If an agent refuses to do so, discriminatory practices may be at play.
Portrait Of Couple Looking Over Back Yard FencePortrait Of Couple Looking Over Back Yard Fence

Discrimination can also come from mortgage lending and coverage practices, not just agents, landlords and developers. If you’ve found a home you love and you want to make an offer, or you’re in the process of getting pre-approved, then be sure you’re lender or insurance agent isn’t following the below practices:

  • Denial of a loan or insurance due to location of the home. Lenders and agents are not allowed to deny approval due to the location or neighborhood of your home.
  • Creating different terms and conditions on a loan because of race. Changes in the fees, points, and rates could all be identified as a change in the terms of a loan.
  • Receiving an artificially low appraisal on your property. If you’re a minority looking to sell your home, then make sure you’re not given an artificially low appraisal, get second opinions and compare the appraisal to your home’s current value.

Education is how buyers, sellers and renters can protect themselves from racial discrimination in the housing industry. For a full list of rights and obligations from the Fair Housing Act, you can visit the Fair Housing Equal Opportunity website. If you’ve experienced discriminatory practices during your buying, selling or renting journey, then you can file an official complaint online as well

Looking to Buy a Home?

If you’re looking to buy a home– or sell your current home in order to buy– then you can visit’s How To section which includes free, step-by-step guides on the entire buying, selling, or renting process.

Steve Cook is the editor of the Down Payment Report and provides public relations consulting services to leading companies and non-profits in residential real estate and housing finance. He has been vice president of public affairs for the National Association of Realtors, senior vice president of Edelman Worldwide and press secretary to two members of Congress.


Buying a home without a garage/driveway? Consider this…

If you’re looking to save some money by avoiding the purchase of a vehicle, you might be interested in buying a home without a garage or driveway. Great thinking, if you plan to live in a metropolis with lots of public transportation at your doorstep. If you’re not sure whether to buy a home with or without a garage or driveway, here are three considerations to keep in mind.

Buying a home: no driveway, no garage
How will you get from A to B?
This might seem obvious, but if you won’t have a vehicle, how will you get around? It can cost a small fortune to take cabs everywhere, so that’s not necessarily a good plan – unless of course you have a small fortune. Since the plan is to save money by not having a car, make sure your local transit system has adequate transportation to your job, the grocery store, and anywhere else you’ll be going on a regular basis.
Where will visitors park?
Just because you don’t have a vehicle, doesn’t mean visitors won’t be arriving that way. Think about who will be visiting—family, friends, others? If at all possible, try to choose a home that won’t have visitors parking 12 blocks away. Think about night-time safety, bad weather and those who may be disabled.  Before you buy, ask about nearby parking options.
What about resale of your home?
This is a biggie. Look around the neighbourhood. Do most of the homes in the area have garages and/or driveways? If so, you might have a tougher time selling your house later since many home buyers enjoy the convenience and storage space of a garage.

Choosing to buy a home without a garage or driveway is your prerogative. Do whatever makes sense for you and your situation. Thinking beyond your needs today, remember to consider these factors when looking for your hew home.

Check out more great home buying tips here!


To Spend, or to Cut? 4 Questions to Help You Avoid Unnecessary Expenses

Consider your material and emotional values to decide which expenses belong in your budget.

It’s a universal truth: For most people, budgets only have room for so much. Juggling the cost of that summer vacation you’ve been taking for 10 years with the pressing need to help pay your child’s college tuition, actually use your pricey gym membership or fix your faulty water heater is no easy feat. Sometimes, something’s got to give. But how do you decide which expenditures are worth making and which ones you should cut?

Eliminating unnecessary expenses may depend on your personal priorities.

Figuring out when to spend and when to cut—and how to avoid unnecessary expenses—depends on your personal priorities. But the following four questions will help you weigh each spending decision and choose the best option for you:

1. Is it more than you need?

During a recent family budget meeting at Rosemarie Groner’s house, the hot topic was … wait for it … paper towels. Every week the personal finance blogger’s family sits down to review how they can reduce unnecessary expenses. When their giant pile of paper towels came under scrutiny, Groner, whose blog is called The Busy Budgeter, admits they were skeptical of the wisdom and sanitation of reducing their use of paper towels. They worried about the risk of spreading salmonella and other germs, for one thing.

cut back in other areas to reduce unnecessary expenses. Travel provides the opportunity to explore different places and cultures, experience personal growth and reflection and create long-lasting memories with loved ones—all worthy outcomes.

Let’s say it’s not travel you’re pondering in your quest to avoid unnecessary expenses, but the generous line item in your budget for events like concerts, plays or museum visits. Can these things get expensive? Sure. But you may decide that the enrichment of the arts is valuable enough to continue this spending.

Investing in your education can pay off in the long run, so don't assume it's a cost you can cut to avoid unnecessary expenses.

Likewise, an investment in your education—earning a degree or taking a few classes to boost your credentials and increase your earning potential—might also be a worthwhile expenditure. In 2016, for example, the median weekly earnings for workers with a master’s degree were $1,380, compared to $1,156 for those whose education topped out with a bachelor’s degree, according to the U.S. Bureau of Labor Statistics—a difference of more than 19 percent. Professional degree earners had a nearly 51 percent pay advantage over those at the bachelor’s level.

3. When’s the last time you used it?

While some experiences are special enough that you wouldn’t want to miss out on them, there might be others you rarely use even though you’re continuing to pay for them. When eliminating unnecessary expenses, watch out for automatically renewable charges on gym memberships, magazine subscriptions and retail subscription services (including for fashion, cosmetics and food preparation kits) that continue even when you no longer want them.

Ditching a gym membership you don't use is one way to reduce unnecessary expenses.

That’s a favorite hack for eliminating unnecessary expenses from Sami Cone, a Nashville-based speaker, author and finance blogger. Cone, who discusses money-saving tips on her website and hosts a radio show called Family Money Minute, recommends putting a reminder on your calendar at either the beginning or end of each month to check your statements for expendable services and subscriptions.

Similar to those subscriptions you haven’t used in ages, are there items you purchase by habit that you or your family no longer want or need? A useful way to avoid unnecessary expenses is to take your spending off autopilot. Possible signs you need to do this stat include: You’re paying for music and dance lessons your children skip more often than they attend; you buy extra phone and data services you never use or premium cable channels you never watch; you’re frequently replacing dietary supplements and cooking spices that have lingered on the shelves past their expiration dates.

4. Will you save later by spending now?

Sometimes the best way to reduce unnecessary expenses in the long run is to invest in what seems like a big expenditure now. Upgrading your home’s heating, ventilation and air conditioning system to a more energy-efficient model, for example, might be a smart way to splurge because it can save you money on your utility bills. According to the U.S. Department of Energy’s Energy Star program, replacing a central AC unit that is more than 12 years old with an Energy Star-certified AC unit could trim your cooling bill by 30 percent.

Another example of a major expenditure that can pay off later is investing in quality home furnishings instead of choosing bargain goods. The higher-end products may save you more in the long run because they are often more durable so you won’t have to replace them as soon. Making healthier, if more expensive, food choices now can also potentially help you avoid medical costs related to illnesses like diabetes, high blood pressure and heart disease.

Stay motivated to reduce unnecessary expenses

Having a specific financial goal in mind when you set your spending priorities is an important source of motivation when you’re trying to avoid unnecessary expenses. Groner says her family is now out of debt after paying off more than $30,000 from credit cards and car loans with the help of their frugal spending habits.

Stay motivated by keeping track of how far you've come since you first started eliminating unnecessary expenses.

“In the beginning, when we were first trying to reduce our expenses, the reward was the relief to sleep at night without worrying about living paycheck to paycheck,” Groner says. “We kept going even after we left the paycheck-to-paycheck cycle because then budgeting became fun. It wasn’t about deprivation anymore. It was about laying out a path to get whatever we want in life.”

Cone, whose family used plans for a Disney vacation as an incentive to reduce unnecessary expenses, says it’s important to choose an objective that everyone in the family can get excited about. That way, when eliminating unnecessary expenses starts to pinch, you can remind them: “We’re saying ‘no’ now, so we can say ‘yes’ later,” she says.