7 simple solutions for managing your money

7 simple solutions for managing your money

These shortcuts to managing your finances are guaranteed to save you time and money.
By Kiplinger's Personal Finance Magazine

1. Trick yourself into saving
Don't know where your money goes? Simple solution: Trick yourself into spending less and saving more. Lynne Koplitz does stand-up comedy for a living, but her finances are no laughing matter. The showbiz life can be feast or famine, so Koplitz has to make her money last between gigs.

That's particularly challenging when you live in a high-cost city like New York. So Koplitz has come up with a whole repertoire of simple yet effective ways to manage her money. Each month, for example, she has her accountants give her a cash allowance, a throwback to habits she acquired while earning tips as a waitress. Then she divides her expenses into categories -- for clothes, for fun, even for her dog -- and puts money for each into an envelope.

Koplitz also tells her accountants to stash 5% of her income in a secret account. "I don't even want them to show me the money," she says. "When it's crunch time, I know it's there."

The more you make, the more you tend to spend, so Koplitz's savings tricks are appropriate even if your income is higher and less erratic. Not only does she toss spare change into jars -- keeping quarters separate from the smaller stuff to use in parking meters -- but she also puts dollar bills into a drawer. "Then you can grab a few singles to pay for takeout instead of breaking a bigger bill, which is the road to disaster," says Koplitz, who makes it a habit never to break a Benjamin.

To control her credit card debt, Koplitz carries just two cards -- one of them is American Express, which she must pay off each month -- and uses a "buddy system" by keeping other cards with her accountants. "If I want to use one, I have to tell them what I want to spend the money on, and they can ask if I really want to do this."

Koplitz also jots down expenses in a notebook and tallies them at the end of each week to see if she's over or under her budget estimates. She builds in more than she needs so that she has a cushion.

Tracking your spending might sound like work, but you don't have to do it forever. Nor do you have to record every penny. An easy alternative is to use your monthly credit- and debit-card statements to see where your money goes. Then you can plug the one or two areas where you're leaking cash, and probably come up with an extra $20 or more per week in savings. That's $1,000 a year -- and a grand is real money.

Other tricks to add to your own savings routine:

* Have your paycheck deposited directly to savings rather than to your checking account. You can transfer money to pay your bills, but you'll think twice about withdrawing additional cash.

* Make just one ATM withdrawal a week.

* Subtract credit-card purchases immediately from your checking account so you're not surprised when the bill arrives.

* When you pay off a loan or credit-card balance, add the amount to payments you're making to the next lender on your list, or send the money to a savings or investment account earmarked for a house, a vacation or a new car.

-- Janet Bodnar
2. Retire hassle-free
Frustrated because you're not saving enough for retirement? Simple solution: let someone else do it for you. Like many Americans, Amy Sadaune, vice-president of human resources for First Community Credit Union, in Houston, has her employer deposit a portion of her income into a 401(k) plan so she captures her company's generous matching contribution. But Sadaune doesn't stop there. She also takes advantage of the credit union's new Step Ahead program to boost her contribution by one percentage point a year automatically until she hits the legal maximum (it's $14,000 this year for people under age 50, an amount that will continue to rise). "I don't have to think about it," says Sadaune, 37, who hopes to retire in about 20 years.

Programs like Step Ahead, offered by Principal Financial, help employees overcome the twin nemeses of retirement saving: inertia and procrastination. Unlike traditional 401(k) plans, which rely on workers to make their own decisions, autopilot 401(k)s make all the critical choices. Eligible employees are enrolled in a plan automatically, and they automatically contribute a higher portion of their income each year. The money is invested for them in a suitably diversified portfolio, such as a life-cycle fund or a target-date retirement fund. Employees who want to make their own investment choices may do so.

If your company's retirement plan doesn't offer an autopilot option, you can still take some simple steps to make the most of your retirement savings:

* Sign up. Currently, 82% of eligible workers participate in their company's 401(k) plan. Account balances average less than $25,000.

* Capture the match. Contribute at least enough to get your employer's matching contribution. The usual match is 50 cents on the dollar on the first 6% of your salary, but employees typically kick in just 5%, leaving free money on the table.

* Keep it simple. If you have the opportunity, invest in a target-date retirement fund. The closer your anticipated retirement, the more conservative the investments.

* Roll it over. With an account balance of at least $5,000, you have two choices if you quit or retire: Leave your money in your employer's plan or roll it into an IRA. In either case, your money will continue to grow. Balances of less than $5,000 will be rolled over automatically to an IRA. You won't be hit with a tax bill and an early-withdrawal penalty (if you're younger than 59½).

* Max out. Contribute the maximum amount to your 401(k), and you'll be among an elite group that includes only about 10% of workers.

* Play catch-up. If you are 50 or older, you can contribute an additional $4,000 to your 401(k) this year, for a maximum of $18,000. Next year, the limit for all workers increases to $15,000, plus $5,000 in catch-up contributions for those 50 and older.

-- Mary Beth Franklin
3. Invest the easy way
No time to monitor your investments? Simple solution: Put your money in index funds. Index funds are -- dare we say it? -- boring. But boring is beautiful for Erin and Jeffrey Hager, an Austin, Texas couple whose investment portfolio is filled with nothing but index funds. "We don't have time to look in the paper every morning to see what's going up and what's going down," says Erin, 35.

Many investors would do well to follow the Hagers' example. Over the past ten years, the Russell 3000 ($RUA.X), a broad-based stock index, has beaten 68% of all actively managed mutual funds. What's more, Standard & Poor's 500 index, ($INX) which is dominated by large companies, has surpassed 82% of all large-company funds.

You, too, stand a good chance of beating most actively managed funds if you stick with an indexing strategy. Instead of trying to outstrip the stock market, index funds aim to match it by mirroring one of a number of stock indexes that are used to gauge the market's performance. That means you don't have to worry that a successful fund manager will depart or lose his touch (as you might with a fund run by a star stock picker).

And index funds -- at least the good ones -- are cheap. Vanguard and Fidelity, whose index funds are among the least expensive, charge annual fees that generally range between 0.1% and 0.33%. That compares with more than 1% for most actively managed funds, plus a sales charge if you buy through a broker. What you save on expenses puts more money in your pocket.

Of course, you need to buy the right index funds.

* Start by putting 70% of your stock portfolio in Vanguard Total Stock Market fund (VTSMX), 800-635-1511, which tracks the entire U.S. stock market.

* Then invest 25% in Vanguard Total International (VGTSX), which covers the remainder of the globe.

* Earmark the final 5% to Vanguard REIT Index (VGSIX), which invests in high-yielding real estate investment trusts.

* Add a good tax-exempt bond fund, such as Fidelity Spartan Intermediate Municipal Income (FLTMX), 800-544-8544, and you're done.

That's pretty much how the Hagers invest. Jeffrey, 37, is a radio personality with KAMX in Austin. "He'll probably have to retire earlier than most people because nobody wants to hear a 65-year-old deejay," says Erin, who stays home with the couple's 3-year-old daughter, Raleigh. "So we have to do this right."

-- Steven T. Goldberg
4. Tame your paper tiger
Up to your neck in paperwork? Simple solution: Go online. Nearly one-third of U.S. consumers pay their bills online, says Judy Wicks of CheckFree, the leading provider of electronic-billing and -payment services. One online convert is Scott Love, a 29-year-old public-relations executive from Boston. Love often returned home to piles of bills after his frequent business trips, and he worried that his payments wouldn't arrive in time to avoid late-payment penalties. So when Love's bank, Citizens, offered free online bill-paying, he tried it, becoming one of the 87% of online bill-payers who get the service free. "If I can find a way to save time, I will," he says.

Now Love, a movie buff, can add the couple of hours a month he once spent at a dreary task to his leisure time and take in a new film or enjoy long weekends skiing or relaxing on Cape Cod. He has arranged for recurring bills, such as the car loan on his Nissan Pathfinder, to be paid automatically every month; other payments take just a few minutes to schedule. When he's on the road, Love logs on to keep up with his finances. "I hand-write about one check every three months," he says, "and that's maybe to somebody who comes to the door selling cookies."

The easiest way to pay your bills online is to use a safe, encrypted service -- offered by banks, credit unions, brokers and companies such as AOL, MSN, Quicken or Yahoo! -- that lets you pay as many of your bills as you can at one Web site. Often you can arrange for an e-mail reminder that a bill is due. The service can handle payments entirely electronically or it can generate a paper check, if necessary -- to pay the guy who mows your lawn, for example. If a payment is late, many bill-paying services will reimburse you for late fees up to a certain amount (sometimes as much as $50), as long as you've scheduled the payment within their guidelines.

To shed even more paperwork, you can arrange to receive bills and statements electronically. Sign up with e-billers on many services or at MyCheckFree.com.

Online bill-paying also helps Love keep his finances organized. "You have your records right there -- what you owe, past payments -- all on one site," he says.

Wells Fargo goes a step further: Its online-banking customers have access to My Spending Report, which they can use as a de facto budget. My Spending Report tracks online bill payments and Wells Fargo debit- and credit-card charges, and plugs them into one of 20 categories so that you can see how much you've spent on, say, groceries and restaurant meals.

And, of course, you can track your spending using Microsoft Money or Quicken. With Quicken 2006, once you pay a bill there's no need to print and file it. Instead, you can attach the bill electronically to the account from which you made your payment, so it's always at your fingertips.

-- Ronaleen R. Roha
5. Cut insurance costs
Paying too much for insurance? Simple solution: Shop online and switch policies. Ethan Roberts, who owns a catering business in Los Angeles, was skeptical about pitches from life-insurance companies offering super-low rates. To check them out, Roberts, 39, went to online insurance broker AccuQuote.com and typed in information about his medical history and activities.

Within minutes he received several companies' rate quotes. As a result, he bought a 20-year, $250,000 term-life policy from GE Capital, cutting his premium in half compared with the cost of a similar State Farm policy he purchased just a year and a half ago.

Roberts's experience isn't a fluke. Rates on term-life policies have plummeted over the past decade. In 1994, a healthy 40-year-old man would have paid at least $995 per year for a $500,000 term-life policy with a 20-year rate guarantee. Several companies offer the same policy today for less than $400, according to Byron Udell, chief executive officer of AccuQuote. "Overall, term-life prices remain at all-time lows," says Bob Bland, CEO of Insure.com.

Many big-name companies have jumped on the low-rate bandwagon. Even if you bought a policy just a few years ago, as long as you're healthy, you can probably find a much better rate or lock in the same premium for a longer period. You may also save on a policy purchased more recently if you neglected to shop around the first time.

That's the lesson Ethan Roberts learned. To buy his life insurance, he originally turned to the State Farm agent he works with for auto and homeowners coverage, without bothering to compare rates. But thanks to online-shopping sites, such as AccuQuote.com, Insure.com and InsWeb, it's easy to get price quotes (and arrange to purchase a policy) from dozens of companies. It may also be worth your while to get online price quotes for auto insurance. A number of insurers are changing the way they calculate premiums, which can mean substantial savings for low-risk drivers.

In the past, auto-insurance rates were based on a handful of variables, such as the type of car you own, your age and your driving record. Now companies are using advanced computing capabilities to look at dozens of variables.

Allstate, for example, went from seven pricing tiers to 384, says spokesman Michael Trevino. To determine premiums, the company uses many variables in your credit report, as well as the correlation between the type of car you drive and your potential liability. "We were able to lower rates by about 25% for people who are the best risks," says Trevino.

New pricing rules also mean that some high-risk drivers can get coverage from insurers that shunned them in the past. Premiums may be high, but at least you won't be turned down.

Some individuals who aren't the best risks under the new system (such as those with poor credit records) may do better with a company that hasn't changed the way it determines prices. Whatever your situation, you can shop more efficiently at Allstate.com, Progressive.com, StateFarm.com and InsWeb, which works with a number of insurance companies.

-- Kimberly Lankford
6. Boost your dividends
Need more income? Simple solution: Buy stocks that pay dividends. Labeled positively quaint by many investors in the late 1990s, dividends are again finding favor because they provide cash you can count on in a market fraught with uncertainty. And the low, 15% tax rate on dividend income doesn't hurt, either. "What attracts us to dividends is the stability of the cash they generate," says Scott Davis, 42, a General Electric sales executive who lives in Davis, Calif.

Scott and his wife, Toni, purchased a portfolio of dividend-paying stocks the easy way, through iShares Dow Jones Select Dividend Index (DVY). This exchange-traded fund invests in 100 of the market's highest-dividend-paying stocks. To qualify, a company must have not cut its dividend in any of the past five years and must pay out 60% or less of its earnings in dividends -- assurance that the payments won't leave the company strapped for cash.

The fund invests mainly in large companies. It kicks out any stock that eliminates or significantly cuts its dividend, and it excludes real estate investment trusts, most of which aren't eligible for the 15% tax rate. The result is a package of conservative stocks dominated by banks and electric utilities. The fund's top holdings are Altria (MO, news, msgs), FPL Group (FPL, news, msgs) and DTE Energy (DTE, news, msgs). Expenses are a low 0.40% annually, and the yield is 3.3%.

Stocks that pay dividends produce better returns, on average, than those that don't. That's because before a company starts paying a dividend, it must be confident that it will continue to generate healthy earnings. "The case for dividend-paying stocks is a powerful one," says Jerry Tweddell, an investment adviser in Sonora, Calif., who manages the Davises' money.

-- Steven T. Goldberg
7. Give yourself a reward
Confused about which credit card offers the best rebate? Simple solution: Take the cash. It couldn't be easier. With a cash rebate, you get either a check in the mail or a credit on your statement, so you don't have to weigh the relative benefits of airline miles versus a new flat-screen TV. To find the best deals, we simplified the process by assuming that you spend $33 on gas each week, $100 a week on groceries and $1,000 per month on other purchases.

Tops is the Citi Dividend Platinum Select card (at www.citibank.com). It charges 11.74% and offers rebates of 5% on purchases at supermarkets, drugstores and gas stations and 1% on everything else. But Citi caps its annual rebate at $300, which you would reach in about eight months under our scenario (at that point you could switch to another card). Exempt from the cap are goods bought through Citi's Dividend Merchant Network, which includes more than 200 retailers, catalogs and Internet sites. Those purchases earn rebates between 5% and 7%.

Next up is the National City Everyday Rewards Elite Visa card (at www.nationalcity.com), on which our yearlong spending spree would earn a rebate of $270. National City is unique in bundling restaurants with grocery stores in a single category, with rebates of 2%. With an interest rate of 10.49%, the card rebates 4% on gas, 3% on movies and up to 1% on everything else. There are spending caps in some categories.

The American Express Blue Cash card (at www.americanexpress.com) carries an interest rate of 11.24%. It gives you up to 5% on groceries, gas and drugstore purchases, and up to 1.5% on the rest of your charges, up to a maximum expenditure of $50,000. Total rebate in our example: $266.

The Capital One No Hassle Cash card (at www.capitalone.com) offers a rebate of up to 3% on gas and groceries and 1% on everything else you buy, with no dollar limit and a relatively modest 9.9% interest rate. You would earn an annual reward of $237 in our scenario.

The Chase Free Cash Rewards Platinum Visa card (at www.bankone.com), which carries an interest rate of 11.99%, gives you one point for every dollar spent on purchases (with a $60,000 spending cap). And it has an interesting twist: a one-point bonus for every dollar you pay in interest. Each time you accrue 2,500 points, you receive a check for $25. Without the interest bonus, you'd be eligible for a rebate of $189, so the card is more attractive for card users who often carry a balance.

-- Joan Goldwasser
http://articles.moneycentral.msn.com/SavingandDebt/SaveMoney/7simpleSolutionsForManagingYourMoney.aspx?page=all