Coffee/Muffin mornings:

I'm guilty of this? I have to have my morning coffee (the office coffee is not very good) but at least I've learned to cut back on muffins and donuts. At $3.00/day over course of a month you are looking at a potential saving $60.

Lunch:

I finally stopped being lazy and started preparing my own lunch. Not only is it expensive but also fast food is not entirely healthy either. If you save on average $5/day that adds up to $100 for month.

Sales patterns:

In my experience, Christmas merchandise is discounted 50% or more a day or two before Christmas and following Christmas.

Also consider buying seasonal products (boots, winter/summer clothing) as seasons change. At times it might be difficult to find your exact size or colour but luckily that's usually not case. We're talking savings of 40-60% and sometimes even more.

Case in point, I bought a leather jacket from Eddie Bauer last spring which was regularly priced at $498, and which was reduced to $199 and then further reduced by 30% during their annual spring sale. What made deal even sweeter was that I had a $75 gift certificate, which I earned through MyPoints.com. Not a bad deal and one, which I'm proud of because I don't really have shoppers luck. As much as I like a deal, I can never find exactly what I'm looking for... maybe I'm too picky.

Something else I noticed where I live, gas prices are usually at their lowest Thursday through Monday and by Monday afternoon gas prices go up 5 - 8 cents per liter. However, pay attention to price patterns and news in gas industry to have an understanding about where gas prices are heading and how it might affect you.

Month end recap:

By end of month, depending on your lifestyle choices and spending habits, you just might end up with an extra $50, $100 or more that you thought you never had. You can do it without depriving yourself and without a noticeable difference in your day-to-day life.

It's a balance between living for today and planning for future. It's not always easy but it's worth it!

Think of these little sacrifices as an investment, which will reap you multiple rewards many times over.

It can also be argued that when you invest in an actively managed mutual fund, you are paying a professional to research and pick winning stocks. You are not paying them 2 or 3 percent a year to park your holdings in cash. If that were case, you would be better off putting your money in your savings account. It really depends on market conditions and fund's investment philosophy and how it matches with your investment goals.

Another common thought is why shoot for an average return when you can try and beat market. Well, it is very difficult even for seasoned money managers to consistently beat index year over year.

Taxes are another aspect of investing that needs to be considered carefully. Every time an active fund manager sells a profitable stock, a taxable capital gain is triggered. Anytime some of an investment is taxed away, magic of compounding is compromised. Index funds on other hand are considered tax efficient investments because very few stocks are bought and sold and therefore few capital gains are distributed to investors. You choose when to sell your investments and therefore have a bit more control over tax consequences. Index investing was once only available to institutional investors who take tax deferral seriously.

Indexing is a strategy that can be applied in many different ways. It is an efficient and low cost way to investment across various markets and asset classes. You can build a core holding of index funds and add a well managed mutual fund that enhances your portfolio's return.

What appeals to me about indexing is that I can have a broad basket of stocks that moves lockstep with market so at very least I am guaranteed a market return. In addition, I can purchase individual stocks or other mutual funds that will add value and enhance my overall rate of return.

Do index funds fit in your portfolio? This is something you need to determine based on your investment goals and philosophy. Over long term index funds should provide competitive returns relative to actively managed mutual funds while keeping your costs down.