When it comes to personal finances, there really isn’t a silver bullet for success. Much like exercising, or even dieting, it usually comes down to making small adjustments which compound into larger effects.
It’s the tortoise, not the hare, who usually wins when it comes to financial planning. In the spirit of “slow and steady wins the race,” I’d like to share my Big Six financial planning tips – all based on minimum effort with the potential for great gain.
The Big Six:
1. Grey Charges – Ever sign up for a free subscription, but forgot to cancel it when it wasn’t “free” anymore? Recently, I learned from a client there’s a name for this stuff – the Grey Charge. In the world of one click signups and our credit card being attached to everything, this is super easy to miss; and it’s costing us more than $14 billion a year! In preparation for writing this, I checked my credit cards. Sure enough, Apple was charging me for three things I had no idea about. My kids signed up for some app and it was costing me $32.18 per month. That equates to $386.16 a year back in my pocket for college savings!
2. Credit Card Points – Many people charge everything now. If you are one, doesn’t it make sense to maximize those charges? It’s simple, yet very effective. At worst, I get 2% cash back on everything I purchase! I use the Citi Double Cash card whenever I can. The way I see it, if I charge $20,000 a year, that’s a free $400 to me (for doing nothing).
3. Bi-Weekly Mortgage – There are big savings when you pay your mortgage bi-weekly (i.e. two times a month). For starters, paying bi-weekly will result in you making an extra mortgage payment every year. (Come on, Andrew. Does making an extra mortgage payment a year have that big of an impact?) Well, yes. If you had a $400,000, thirty-year mortgage at 4% interest rate, this results in saving $45,106.63 over the course of the mortgage. Therefore, you’ll pay off that mortgage in 25.9 years. That’s right; in this example, one extra payment saved you almost $50,000!
4. Property & Casualty Insurance – We all get stuck paying these premiums every year. (Unfortunately, every year they seem to go up a little more.) Generally, you’ll also start to lose promotional discounts. Most of the time it goes unnoticed, but it’s a real easy fix. To take advantage of the newest savings, it comes down to knowing who and what to ask for. You’ll be astonished at what you find! Call up your agent and ask them to do a “rerate” on your policy. In a lot of instances, this leads to hundreds of dollars of savings a year.
5. Auto Increase – Most 401(k) plans have an automatic increase option. This entails increasing your contribution rate into your 401(k) automatically by 1% a year. This simple increase, combined with your annual raises, snowballs into a substantial nest egg! Even when you hit the IRS maximum ($19,000 in 2019 if under 50), I’d suggest starting a brokerage investment account and continue practicing this method. You likely won’t miss it and your finances will be grateful.
6. Annual Payments – It seems so simple to pay for things monthly. I get it. There’s less discipline to pay monthly and it “feels” like it costs less. Many places (such as insurances, subscriptions, etc.,) incentivize paying annually. Why not check your monthly costs and see if the providers offer a discount to pay in-full annually. You’ll be quite surprised by the savings! These providers have less administrative fees by collecting annually. Additionally, some places charge a 15%-30% interest fee by paying monthly. Often times we don’t realize (or care) as this may only equate to a $40 difference per year. These things add up, so why not save those dollars instead?
It’s the little things that matter.
I recognize these are all case-by-case scenarios. Not everything I mentioned is relevant to you. That said, I’m certain most of us could benefit from one (or more) of these simple strategies. The sooner you get started, the longer you can let these planning tips help. It may not make a world of difference. But if it could help you to retire even one year earlier, wouldn’t that be worth it?
If any of these seem like something you’d like to discuss further, by all means send me an email. I’m always happy to chat.
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