What would it feel like to open your wallet and find hundreds of dollars you didn't know you had? What if your money multiplied like that month after month?
It's not magic or marketing hype -- it's simple money physics.
Like a slow leak in your tire, a pinprick in your financial life can turn into a massive money blowout if you ignore it for too long. Patching these holes while they're still manageable is the key to achieving wealth (and a clean driving record).
The problem is that it's easy to ignore the tiny cracks. We're busy -- there's the mortgage, credit cards, insurance, college savings, carpools, vacation plans, retirement accounts, work benefits, the kids, cat, guinea pig. So the little stuff is relegated to the back burner. We think:
- What's the harm in following the payment plan the lender has laid out?
- Why go to the trouble of moving your portfolio to a cheaper brokerage house just to save a couple of bucks per trade?
- Who cares how our 401(k) is paid out after we leave a job, as long as we take it with us?
Those three small, seemingly innocuous money issues -- everyday financial decisions that pop up regularly -- can end up costing thousands of dollars a year. Consider the following:
- It'll take you 10 years and cost you an additional $10,000 in interest alone on a $10,000 credit card balance if you pay only the minimum amount required.
- The difference between 10 trades at a full-service broker and 10 at an online discounter is more than $600. That's $600 of your money lining your broker's pocket, not multiplying in your portfolio.
- Say sayonara to 35% or more of your 401(k) balance to taxes (the early-withdrawal penalty plus ordinary income tax) if you cash it out instead of rolling it directly into an IRA.
See how easy it is for slow leaks to turn into a massive money gusher?
Caulk your cash leaks
Imagine those little leaks draining money from your bank account a dozen times over, month after month.
Now imagine having a repair kit at the ready every time a pressing personal finance issue arose. That's what we did when developing our new personal finance/beginning investing service, GreenLight.
Wanna know where your extra dough is hiding? Try looking ...
In your bank account. With interest rates rising, there's no need for your everyday money to languish in a low-rate checking account.
In your insurer's profit margins. You may be able to slash your insurance tab by deep-sixing three kinds of useless policies -- credit card insurance, life insurance for a child, and mortgage insurance.
In Uncle Sam's pocket. The retirement tax credit is one of the most beneficial tax breaks available for those who qualify. Shockingly, it's also one of the most overlooked -- even some tax pros miss it when completing their clients' returns.
Once you've done some digging (and started counting your "extra" cash), you'll probably be inspired to ask what else your money can do for you -- and what you can do to make it grow more.
Are any of these questions (which we answer in full in GreenLight) on your financial "to do" list?
- Where should I move my money as I get closer to retirement? Time to dial down your exposure to growth stocks and consider picking up some dividend-paying stocks. Utility companies, real estate investment trusts, and consumer staple companies such as Procter & Gamble
(NYSE:PG)can make for stable, rewarding, and inflation-resistant investments. Or if you're worried about the erosive affects of inflation, check out iShares Lehman TIPS Bond (NYSE:TIP)which follows the returns of inflation-protected U.S. Treasuries.
- How will I be able to afford to send my kid to college? It's never too early to start looking into ways to save for college. Six years is the average amount of time most parents spend saving for Junior's college costs. Saving slowly over time is much preferable to scrambling at the last minute.
- Is there an easier way to allocate my assets? One common mistake is that young people allocate far too much of their portfolio to bonds. For guidance, take a look at T. Rowe Price Retirement 2030
(FUND:TRRCX), which 8% of its assets in bonds, or Vanguard Target Retirement 2035 (FUND:VTTHX), with 23% in bonds.
- Could my short-term savings earn more? That's a good hunch. With interest rates rising, we've done your homework for you to find the best high-yield checking/savings accounts, Certificates of Deposit and money market accounts, and funds for your cash. (We pick the top places to park your cash in the September issue of GreenLight. A subscription includes access to all back issues and more.)
- What's a painless way to see some real everyday savings? Here's a simple trick for shaving 60% off your grocery bill: Leave your credit cards at home and pay in cash only. Yup. It's that easy. Studies show that the majority of grocery-store purchases are impulse buys, and folks tend to spend more (and more mindlessly) when they use plastic instead of cash.
Our No. 1 goal with GreenLight is to save you time and money -- to identify the big gushers in your plan and help you quickly plug the leaks. Our mandate with every issue is to unearth at least $450 you didn't even know you had.
Psst ... here's another $6,900
Our most recent issue doles out nearly $7,000 worth of money-making and money-saving secrets. Test-drive this issue for free for 30 days and find three simple steps for protecting your nest egg from being scrambled by market shakeups, courtesy of my co-advisor/conspirator Shannon Zimmerman. He also offers a primer on bond investing, and shares a few words on stock market rallies that may help investors sleep better at night (and can put more than $1,000 in your coffers).
I check in this month with pointers on how to buy just about anything for less (yes, a shopping story complete with my favorite websites!). I also get the chance to grill productivity guru and Getting Things Done author David Allen about the best way to tackle all the great financial "to dos" on our lists. Plus, I search for -- and find -- the scientific truth behind that age-old question, "Can money buy happiness?" (The answer may surprise you, by the way.)
Start counting your extra cash
When it comes to your finances, those seemingly undetectable cracks in your checking account, portfolio, bills, and rainy-day fund can seriously sideline your dreams. Let us help you patch them up.
Dayana Yochim gets giddy every time she finds a $5 bill in her coat pocket. She can hardly contain herself when she finds ideas for GreenLight thatnet readers fistfuls of cash. Dayana does not own shares of any company mentioned in this article. The Fool'sdisclosure policyis priceless.