The other day, I opened an envelope that looked like another credit card bill. I sighed to myself as I ripped through the paper, resigned myself, and prepared to write another check. But surprise -- it wasn't a bill. It was a check. For more than $100. From my credit card company! Specifically, from my Fool Visa card.
That's right -- as you probably know, some credit cards offer you cash rebates on your purchases, and our Fool card is one of those. I hadn't thought much about it, as I merrily charged my way through the past year (paying the bills off in full each month, of course, like a good Fool). So getting that chunk of change back felt like a nice gift.
That made me wonder about what other sources of free money (or seemingly free money) exist. I decided to make a list.
When employers match some of your contributions to your 401(k) plan, that's free money. Imagine that your company matches 25% of your contributions up to $6,000 per year. If so, you should aim to contribute at least $6,000 to your account to grab as many free dollars as possible -- in this case, $1,500. That's not chicken feed.
Your home can be another source of free money, in a sense. If you bought your lovely hut for $200,000 and 10 years later it's now worth $300,000, you're worth $100,000 more, just from your home. It may not qualify as entirely free money on some counts (yes, you probably did have to take out a mortgage on it), but it represents real value that you didn't do much to receive. For most of us, it can take a long time to increase our net worth by $100,000 through any other means.
Then there are dividends. You buy a stock, ideally one in a strong, growing company, and wait for it to reward you through price appreciation. Perhaps, for example, your shares of Chevron (NYSE: CVX ) have gained 180% in value since you bought them a decade ago. That's terrific -- if you'd bought 200 shares for around $4,400, they'd be worth more than $12,000. But that's not all. The company also pays a dividend. And over that decade, you'd have raked in around $13.50 per share in dividends for a total of $2,700. (If you'd reinvested that free money into additional shares of Chevron stock, those new shares would also be spitting out more free money to you). Some brokerages will reinvest dividends for you, so check with yours.
Dividends are compelling. There are many times when a terrific company hits a lull, stockwise, for a while. You may not see much price appreciation when a company is in a lull, and you may even see price declines -- but as long as the company is generally healthy, you're likely to continue receiving dividends. (Coca-Cola (NYSE: KO ) and Pfizer (NYSE: PFE ) have been largely flat or down over the past few years, but they still offer dividend yields of 2.9% and 3.9%, respectively.)
If, like many people, you don't have the time or energy to chase individual stocks, find a few outstanding mutual funds, some of which generate income.
Your friendly local bank is also a source of free money. Simply let it safeguard some of your hard-earned greenbacks, and it will pay you for the privilege with interest. Current interest rates aren't very enticing, but that's not always the case. In the 1970s, banks offered CDs with interest rates topping 12%. Plunk in $5,000 and you'd get $600 in free money.
Don't resign yourself to low rates today, though. Shop around. I recently found, for example, that Countrywide Financial's (NYSE: CFC ) bank was offering two-year CDs with annual percentage yields of 5.25%, while Capital One (NYSE: COF ) was offering 4.3% and E*Trade's (NYSE: ET ) bank was offering 5.3%.
IRA tax benefits
If you're not familiar with the Roth IRA, you should spend some time getting to know it. In a nutshell, it allows you to invest post-tax dollars and later withdraw funds from the account, tax-free! That's a lot like free money. Imagine that you invest in some stocks or funds in your Roth IRA and they increase in value over the years by 200%, or $30,000. If you withdraw that money when you're eligible to do so penalty-free, you won't have to pay taxes on that $30,000 gain. If the tax rate for capital gains at the time is 15%, you'd be saving $4,500.
While tax deductions are exciting, reducing the income on which you're ultimately taxed, tax credits are much more exciting, reducing your tax obligation dollar-for-dollar. For example, imagine that you have the option of taking a $1,000 deduction or a $1,000 credit. If you're in a 25% tax bracket, that deduction will save you $250. But the credit will reduce your total tax bill by $1,000. Spend some time learning about various tax rules and you may discover that you can grab a lot of sort-of free money from Uncle Sam.
Another source of free money is the humble coupon. If you have one that will knock $1.00 off the box of Lucky Charms that you were going to buy, and others that will save $0.35, $0.50, $0.75, or more off of everyday purchases, you'll soon save a decent chunk of change. If you can't be bothered with coupons, just try to buy what you need when it's on sale.
When shopping online, head over to websites such as dealcatcher.com, and you'll find coupons and discounts that you can take use at retailers such as Amazon.com, Overstock.com, and Best Buy.
Almost as good as free money is free advice on how to make more money. Take advantage of our exclusive teleseminarwith Motley Fool co-founders David and Tom Gardner. They'll tell you when tobuy and sellstocks in this uncertain market.
This article was originally published on June 22, 2005. It has been updated.
Longtime Fool contributor SelenaMaranjianowns shares of Amazon.com, Coca-Cola, and Pfizer.For more about Selena, viewher bio and her profile. Coca-Cola and Pfizer are Motley Fool Inside Value picks; Amazon and Best Buy are Stock Advisor recommendations. The Motley Fool isFools writing for Fools.