If you’re considering refinancing some or all of your student loans, you may wonder what comes next on your financial to-do list.
On June 3, President Biden signed the debt ceiling bill into law, ending the three-year federal student payment pause. Payments are expected to resume in October.
Refinancing student loans can often result in a lower monthly student debt payment, either due to a lower interest rate, a longer loan term, or both. A lower monthly payment can be a big relief to borrowers who are still reeling financially from the effects of Covid-19 and higher inflation.
Lower payments can also free up some of your income for other key financial goals. That’s what we’ll look at here.
What Happens When You Refi Student Loans?
Understanding what happens after a refinance is key to planning your next steps.
As mentioned above, when you refinance, you may find a more favorable interest rate or more flexible loan terms that will help reduce your monthly payment. The SoFi Student Loan Refinancing Calculator can help determine how much refinancing could save you.
Keep in mind, when you refinance a federal student loan into a private loan, you lose the benefits and protections that come with a federal loan, like deferment and public service-based loan forgiveness (PSLF).
What Is Your Next Financial Goal?
As you consider refinancing, it’s a good idea to keep your other financial goals in mind. How can refinancing student debt — and perhaps lowering the percentage of income dedicated to repayment — help you achieve those goals? Take a look at the following scenarios that might apply to you.
1. Pay Down High Interest Debt
Once your student loan debt is under control, turn your attention to any high-interest debt you may be carrying on credit cards. There are two common ways people approach paying down debt. Which one you choose depends on your financial situation.
• The Debt Avalanche. With this system, you start by paying your highest interest rate card first, with payments above the monthly minimum. You do this while still keeping up with minimum payments on any other debt. When you eliminate your highest rate debt first, you can more quickly lower your overall debt picture.
• The Debt Snowball. In this scenario, you pay off your debt in order of the smallest to the largest balances, regardless of interest rate. This way you see some of your smallest debts paid off quickly and get a psychological boost from doing so. As you pay off each debt, you assign the amount of the payment you were making on that balance to the next debt. Your debt repayment builds momentum, known as “the snowball effect.”
Recommended: Which Debt to Pay Off First: Student Loan or Credit Card?
2. Start an Emergency Fund
Having money saved for unexpected expenses is a vital part of financial wellness.
But saving for emergencies is a challenge for many Americans. According to Bankrate’s 2023 annual emergency fund report, less than half (43%) of U.S. adults could pay for an unexpected emergency expense from their savings.
Starting or boosting your emergency fund with money saved on student loan payments is a great way to help keep your budget intact and stay out of debt.
How much should you save in your emergency fund? At least three to six months of living expenses (or take-home pay) is the rule of thumb. That way, if you lose your job, have an accident, or get sick, you’re likely to have enough to see you through until your situation improves.
3. Increase Retirement Contributions
Are you putting as much as you can away for retirement? Starting early can pay off big down the line, thanks to the magic of compound interest — and the fact that earnings grow tax-free in most retirement accounts such as IRAs and 401(k)s.
If your employer offers a matching contribution benefit, upping your game may be even more important. This is free money. Whenever possible, contribute the amount necessary to qualify for the full match so you take the best advantage of this key benefit.
4. Save for the Next Stage of Life
Life goes on well after student loans. Now with less student debt burden, you’re probably looking at what’s next. That may mean buying a car, saving for a down payment on a home, starting a family, or expanding a business.
Careful budgeting means you can put the difference between your old student loan payment and your new one toward other important life goals.
Once you establish the goal you’re saving for, consider opening a high-yield savings account dedicated to that purpose. You’ll earn interest while your nest egg accumulates but still have liquidity so your money is available when you’re ready to pursue your goal.
5. Invest
Starting an investment account outside of retirement savings can be an important financial goal in and of itself. The reason? Long-term stock market returns consistently outperform many other types of investments. Over the past decade through March 2022, the average annual return for the Standard & Poor’s 500 Stock Index was 14.5%.
Returns vary, of course, depending on the years you are invested and the economic environment. But over the long haul, investing in stocks early — even small amounts — can pay off in the future.
Mutual funds and exchange traded funds (ETFs) are two easy ways to start investing. A mutual fund is a collective investment which pools funds from many investors to invest in stocks, bonds or other securities. ETFs work much the same way but unlike mutual funds, ETFs can be bought and sold like a stock as the price goes up or down during the day.
How to Pay Off Student Loans Ahead of Schedule
As we’ve seen, a refinance can help lower your monthly payments and perhaps bring some much-needed wiggle room to the rest of your finances.
That may motivate you to keep the momentum going and look at ways you can repay your remaining student debt faster. Here are two tried and true strategies.
Pay More Than the Monthly Amount
Your monthly payment amount isn’t set in stone. You can always pay more than the minimum amount, and in most cases you probably should. Payments over the minimum monthly amount owed are applied directly to the principal. So even a little bit extra can lower the amount of your loan and help you save on interest over the life of the loan.
Recommended: Why Making Minimum Student Loan Payments Isn’t Enough
Dedicate a Windfall to Student Loans
Another strategy for paying student debt faster: Whenever you get a windfall, use some or all of it to make a lump sum payment toward your student loan principal. Think tax refunds, cash gifts, work bonuses, or income from a side gig or inheritance.
What to Avoid After Refinancing Student Loans
After refinancing student loans, be careful not to fall into a common trap: It’s called “lifestyle creep,” and it happens when you spend all of your discretionary income instead of directing some of it to financial goals.
To avoid creep, mindfully adjust your budget to account for any increase in income — such as lower student loan payments. That way the money will be put to good use instead of being frittered away.
Recommended: Living Below Your Means: Tips and Benefits
The Takeaway
Refinancing your student loans may help you lower your monthly payments, freeing up funds to put toward other financial goals. You might choose to pay down high-interest credit card debt, boost your emergency fund or retirement account, or even pay off your student loans faster. With the end of the federal student loan payment pause in sight, now may be a good time to consider refinancing all or part of your student debt.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
Photo credit: iStock/RossHelen
SoFi Student Loan Refinance If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.
CLICK HERE for more information.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
With some bank CDs paying more than a 5% APY and some savings and money market accounts yielding around that figure too (as of June 2023), no one can blame investors if they’ve become tempted to keep a healthy chunk of their retirement savings in cash and cash equivalents. But if you’re not careful those high interest rates could end up losing your money in retirement.
Do you have questions about how to allocate the assets in your portfolio according to your goals? Speak with a financial advisor today.
Risks of Holding Cash
Keeping significant cash allocations can make sense to meet your short-term retirement income goals for a year or two, writes Amy Arnott, a certified financial analyst (CFA) and portfolio strategist for Morningstar Research Services. Beyond that time horizon, “Cash can be particularly detrimental to long-term investment goals such as retirement.”
Arnott gives this example: “A retiree who started saving $10,000 per year in 1993 and stashed everything in cash would have ended up with about $380,000 by the end of 2022, compared with about $1.5 million if the savings were invested in an all-equity portfolio or $1 million if invested in a balanced fund.”
One reason to be wary of higher-rate cash accounts is that those interest rates tend to move higher during periods of higher inflation. In today’s case, rates have been pushed up by the Federal Reserve’s decision to hike rates 10 times during the past 16 months to tamp down rising inflation. As the Fed raised its benchmark federal funds rate from 0.25% in early 2022 to 5.25% as of May 2023, it’s important to remember that inflation was running at an annual rate of 8.54% when the Fed got started.
Now that inflation has dropped to about 4%, bank savers can make a small bit of profit on high-yielding accounts – but that won’t last for long. In addition, the rates banks pay typically lag the rates set by the Fed, as they’ve done for most of the post-pandemic period, making any real gains after inflation a brief occurrence, at best. With inflation dropping, one-year CD rates are now higher than five-year rates, an indication that bankers expect the Fed to pause or even cut rates as the cost of living falls.
Reasons for Holding Cash
The reason financial planners advise their clients to invest in the stock market is because it’s nearly impossible to beat long-term inflation with cash. Historically, only stocks have demonstrated the capability to generate gains after inflation over any long period. As rates fall, cash is likely to return to its position as one of the least-loved types of assets in its traditional role as a financial “parking lot.” That is, a vehicle where investors stash cash for immediate or short-term needs. However, cash accounts can shine when used for the right purposes, including:
Emergency Funds
Whether it’s the minimum three-months of spending or a year or more, an emergency fund needs to be safe and readily available. Often CDs, savings and and money market accounts are ideal for this purpose.
Short-Term Needs
In the bucket approach to retirement investing, assets are separated into long-term, medium-term and short-term buckets that align with when retirees will need that money. A year or two of living expenses in cash insulates them from market shocks and allows investors to ride out periods of stock volatility. It also mitigates sequence-of-returns risk, a problem that occurs when a period of poor market performance early in retirement creates larger-than-average portfolio losses, making future retirement withdrawals difficult to sustain.
Anticipated Spending
Savings for the down payment on a home, wedding costs or to pay upcoming college tuition bills shouldn’t be stuck in stocks. This is particularly true if that money will be needed in the next few years, when a market decline could leave money invested in stocks coming up short.
Buying Time to Think
An inheritance, lottery winnings, unexpected bonus or other unexpected windfall can be parked in an FDIC-insured bank CD or money market account. This throws off a bit of interest, while the recipient decides just how to invest or spend their bounty.
Bottom Line
Investors who need to hold some amount of their assets in cash should enjoy the temporarily higher-than-usual rates on bank CDs and money market accounts. Just remember that, as an investment, cash is strictly for covering anticipated short-term needs.
Tips on Investing
How much money to keep in cash, bonds and stocks can be a complicated balancing act that shifts widely from your working years to retirement. A financial advisor can help answer how to structure your holdings. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Fidelity recommends that you have 10 times your annual income saved for retirement by age 67. To find out if you’re on track, try SmartAsset’s retirement calculator. This will estimate how much you’ll have when the time comes to retire.
It’s been a long time since I wrote about investing at Get Rich Slowly. I haven’t abandoned the subject, but my mind has been on other things. Besides, I’ve been practicing what I preach. I’ve invested my money in low-cost index funds (and some bonds), and I never make a trade. Because I know it pays to ignore financial news, I have. Earlier this week, I peeked at my portfolio for the first time since May. You know what? It’s doing just fine — even without me checking the balance every day.
Although I haven’t been writing about investing, I’ve continued to further my personal education on the subject. Whenever the mail brings the latest issue of the AAII Journal — the publication of the American Association of Individual Investors — I read it. (The latest issue just arrived today!) I’ve also been reading books about investing. In fact, I’ve just begun David Swensen‘s highly-regarded Unconventional Success: A Fundamental Approach to Personal Investment; so far, it’s fantastic. Look for a review when I return from Europe.
And the other night, I had dinner with the Diehards.
Note: For those of you who aren’t familiar, Diehards (also called Bogleheads) are fans of indexed mutual funds — funds that track the movement of stock market indexes — as popularized by John Bogle, the founder and retired CEO of The Vanguard Group. These Diehards discuss investing in the Bogleheads investment forum. From my experience, they’re friendly, smart, and knowledgeable people.
I attended the first meeting of the Portland Diehards two years ago, but I’ve only managed to make it to one quarterly meeting since then. On Tuesday, I made it a priority to meet the group to talk about investing over Chinese food. There were six of us: J.D., Loren, Kris (not my Kris), Ron, Van, and Gary. We each brought different experience and perspectives to the table, which made for an interesting couple of hours talking about investing.
Spouses with different investment goals As we ate snow-pea chicken and hot-and-sour soup, we asked questions and shared advice.
For example, I asked how you should invest when you have a different risk profile from your partner. I, for example, am fairly risk tolerant; I’m willing to take chances in expectation of higher returns in the future. My wife, on the other hand, is not. She’d rather sock money into low-risk investments that also produce low yields.
Van suggested that we split the difference. That is, we should take half of our investment capital and invest it the way I want, and take half to invest the way my wife wants. So, if I want 80% in stocks and 20% in bonds, but she wants 40% in stocks and 60% in bonds, then we’d average that to a 60-40 split in favor of stocks. (Which, co-incidentally, is how my money is invested right now!)
Valuation, risk, and return The group spent some time discussing the concept of risk. Loren is near retirement, and seems tempted to chase investments that are currently offering high returns.
Gary — who offered lots of sage wisdom throughout the night — asked Loren, “What rate of return do you need on your investment to fund the rest of your life? That should determine where you put your money. If you need a 10% return on your money to fund your life, then you need to be in stocks. But if you only need 2%, why risk it?”
Gary also noted that it’s important to take valuations into account. That is, you shouldn’t just blindly buy a particular investment vehicle, whether that’s stocks, bonds, or commodities. Obviously, it’s impossible to know whether an investment is going to go up or down in the short term, but you can make a pretty good guess as to whether something is under- or over-valued in the long term.
As a prime example, gold would seem to be over-valued now, just as housing was five years ago. And a little less than two years ago, it was pretty clear that stocks were under-valued. Gary’s not saying you should chase whatever is tanking; he’s just saying that if you’ve been making regular investments in gold, for example, but the market seems high (like now), then maybe it makes sense to suspend your investments — or even to sell.
Tangent: The whole gold craze drives me nuts. Didn’t people learn anything from the housing and stock bubbles? What makes them think this is different? And the commercials on the radio? Puh-lease! Gold is high, so I should buy? Isn’t that the opposite of smart investing?
Do-it-yourself investing I thought it was fascinating to listen to Van, who is trying to educate herself so that she can direct her own investments. She’s new to this, and trying to learn as much as possible so that she can make her own decisions. “None of the financial advisors I’ve talked to really knows what’s going on either, so I might as well do it myself,” she says. She figures that she’d rather make her own mistakes than pay somebody else to make mistakes for her. So, she’s educating herself by reading books and coming to meetings like this Bogleheads gathering.
All of us agreed with her, I think, which probably isn’t surprising. Loren said, “No matter who you talk to for advice, never forget that you are the boss of your own money.” I agree with this 100%. In fact, in May I published a guest post at Boing Boing about the importance of DIY finance. (No need to look it up; I’ll be posting it here at GRS in a few weeks.)
Picking stocks — or not Van is especially interested in learning how to pick stocks. Ron, the chief Boglehead in our group, cautioned Van, saying that from his experience, the default position should be to start with (and perhaps stick with) index funds. His argument is that if you’re going to do anything other than:
Invest in the entire market
With the lowest possible fees
With the most reputable dealer
Then you need to be able to state your reasons for doing so. You might have good reasons for not sticking with this default, but if you don’t, and if you can’t state them, then why take chances.
Note: For the record, the default position would lead you to buying index funds through Vanguard. I vary from the default in that I buy index funds from Fidelity. Why? Because Vanguard doesn’t offer the type of retirement account I need for my business. I started there first, but they sent me to Fidelity.
Once again, Gary shared the wisdom of his experience. “I started investing by picking stocks myself,” he told Van. “When that didn’t work, I went to a full-service broker and paid him $400 a trade to pick stocks for me. That didn’t work either — and it cost more — so I went to a discount broker to get my fees down. But I still couldn’t match index funds. So, I gave up. I’d rather spend my time playing golf than picking stocks. Now I’m in index funds, in ETFs.”
Shared wisdom We talked about a few other topics, as well, but this post is already running long. I’ll skip the bits about certificates of deposit, investing in gold, and handling a windfall. But I do want to pass along a couple of quotes I liked:
“Always be a saver,” Kris said. She stressed that no matter what your life circumstances, if you make sure you’re a net saver — that you’re spending less than you’re earning — you’ll be fine. (Her advice reminded me of the “Always Be Closing” speech from Glenglarry Glen Ross. Maybe I should do a version with “Always Be Saving” — and less swearing!)
Gary is an advocate of boosting your income. “Your net worth doesn’t go up from your investments,” he said. “It goes up from your earning power.” His point is that you’re not going to get rich from the stock market — you’re better off developing your human capital and mining that for money. “If it’s important for you to accumulate a lot of money, you pretty much have to go into business for yourself,” Gary said.
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Meetings like this are invaluable. They’re a chance to exchange ideas with fellow investors, and to profit from their success and mistakes. I highly recommend finding a similar group in your area. There’s no need to be intimidated. It’s fine to show up and just listen if you feel like you don’t have anything to contribute. I feel lost a lot of the time, but the more often I do things like this, the less lost I become.
This may be because I take notes. I filled my ever-present notebook with four pages of scribbles, including books to borrow from the library, websites to visit, and concepts to consider. (And, of course, writing this article helps to reinforce much of what I learned.) I already have December’s meeting on my calendar. I’ll be back for more Chinese food and more convesation with the Diehards.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
The ripple effect of a financial mindset can be seen in every aspect of your life.
Think about it: If you are not mindful of how you spend and save money, then you will be in a constant struggle each and every month.
If you are simply someone who is struggling to make ends meet, there are many things we can do to save money. If you are trying desperately to reach financial freedom sooner, then you need these best money hacks to make it happen sooner.
Around here at Money Bliss, we spend a lot of time on our money mindset and setting goals.
Everyone is in a different season with their finances.
But, one thing is true… Most of us never learned proper money management.
Do you find yourself in a constant cycle of financial struggle? Do you feel like you are constantly trying to live up to unrealistic standards?
It is easy for people to feel that they are constantly broke, and in some cases this is true. But, it is also important to remember that there are ways in which you can make more money and start saving for your future.
Since changing money habits does not always come easy and often requires some serious changes in our mindset, we are here to support you to find the top money hacks.
Read on as we share 50+ ways you can start saving more money as well as making more money while also saving your sanity!
What are Money Hacks?
Money hacks are the ways in which people stretch their money.
These money hacks can come from a variety of sources, such as personal experience, family members or friends, and other individuals on social media.
Money hacks can come in many forms such as:
Simple money saving hacks
Ways to make money on the side
Strategies to make every dollar count
Thrifty ideas to be more frugal
Ideas to be more conscious of our waste
All in all, money hacks will help you to spend less money. Thus, saving more money.
As you will learn at Money Bliss, saving money opens up doors of opportunities
Best Money Hacks
Money hacks are ways to build long-term wealth.
Even though most of the hacks for money include quick saving wins, over the long term, you will actually start a snowball effect of more money in your bank account.
Sometimes, it can be difficult to find the motivation to save money, but these 7 best real money hacks will help you reset your financial mindset and start saving!
The best money hacks are the overarching big picture concepts that you must master for long-term success.
1. Think Big
Open up your mind.
One way to reset your financial mindset is by opening yourself up to new ways of thinking about spending and saving.
Too often, we are focused on what is directly in front of us instead of thinking about the big picture.
A great way to think big with your finances is to decide how you want to live life with intention.
2. Habit of Saving Money
Get back in the habit of saving.
If you have been beyond your means or barely scraping by, the best way to get back on track is by saving at least 20% of your income.
This may seem a little ludicrous. However, by prioritizing saving first, you will be pleasantly surprised how well you live off the rest.
In this post, there will be so many simple and easy ways to start saving today.
3. Make a Plan for Your Money
Create a spending plan (aka that dreaded word budget).
Creating an outline for what you want and need will help you to make smarter decisions about your spending.
This concept has been made too difficult over the years.
The bottom line is you want to spend less than you make. So, make a plan for that to happen today.
4. Make Money on the Side
This one is huge!
Personally, making extra money has been a priority for the last 5 years. We spent many years trying to cut our expenses and hating our inability to actually spend less as a growing family. So, we changed our focus to finding ways to make more money instead.
Start a side hustle. If you are not making enough to live comfortably, start a side hustle! Use your unique skill set to make extra cash.
Pick up a second job or ask for more hours.
There are plenty of ways to make money fast.
5. Invest in Stock Market
This means a way to make money or increase your net worth. AKA make your money work for you.
Too many times, the concept of investing is big and scary. The thought of starting is way too overwhelming. So you put it off until next week or next month. Then, a couple of years go by and you have not invested your money.
That is the biggest financial mistake you can make.
Start small by investing in an index fund. Each month consistently add more money.
If you want to learn to trade stocks, then you must enroll in the best investing course I have found.
Read my in-depth investing course review.
6. Pay Off Debt
Ugh… debt is the cash flow killer.
You are unable to make forward progress if you are straddled by debt.
Figure out how to pay off debt ASAP.
When calculating how long it will take to pay off high-interest debt, you should consider paying the highest interest rate first. Here is the best debt payoff app available.
7. Watch Your Spending
Be mindful of your spending.
This is a great practice that many people need to start doing again, regardless of how much money or how little money they have.
Every few months, you need to evaluate your spending to see if it matches up with your values.
As you can imagine there are many money hacks that can help you save, but the list above is the money hacks that will make the biggest difference the quickest. Below we have many more money hacks for you to explore.
Hacks for Saving Money
Money app hacks are small, quick, and easy ways to improve your finances.
They can range from things like automating your budget or creating a money jar that pays for itself, to more complex solutions like changing your tax withholding or moving money around to get a higher return.
Honestly, there are so many life hacks for saving money.
8. Automatic Savings
This is a practice of automatically transferring money from your checking account into your savings account on a regular basis.
It is best to set a transfer amount and stick to it.
Since it is easier to save your money before you spend it, you must save as much money as possible in order for this strategy to be effective.
9. Financial goals
A financial goal is a long-term, quantifiable expectation for how much money you want to have, or what you plan on doing with your money. Your goals can be as simple as saving for the down payment on a house or as involved as saving for retirement.
Our financial goals allow us to set specific, numerical targets that help us achieve our desired lifestyle in a more concrete way.
You must set smart financial goals.
10. What brings you joy?
At the end of the day, it is important to remember that life is all about finding what brings you joy.
The question is open-ended, but your money must line up with what brings you joy.
Spend a few minutes and stew on the question.
11. Build an emergency savings fund
Building an emergency savings fund is a great idea if you are in the habit of saving money and want to make sure that you have some money saved up when times get rough.
If you are struggling to save, there are a few ways you can increase your savings.
For example, you might be able to set up automatic transfers from your checking account into an investment account. You should also make sure that you have a way to save money outside of your checking account.
Saving cash in a jar or saving up coins are ideas for some people.
12. Invest spare change
If you go shopping and buy something, most stores will give you change. If you use a debit or credit card, you can do the same thing with help of a popular app!
Simple money hack: investing your spare change.
In order to invest your spare change in an account, you can open one for as little as $5. Acorns then automatically invest the money from your checking account and into a savings acorn account.
As the round-up feature continues to add upon each purchase, it is a good idea to invest in this app so that you can save more dollars!
13. Challenge Yourself to Save
If you are looking to save money, it is best to set up a budget that includes challenging yourself.
A great way to do this is with the no spend challenge.
A no-buy is when you decide to simply not make any purchases for a certain amount of time.
A no-spend is when someone decides to not spend any money in a certain period of time.
When you are struggling with spending too much money and want to reset your wallet, then give up spending money. Period.
14. Join a buy nothing group
The buy nothing groups are a growing movement that started in order to help people cut their ecological footprint, save money, and break free of consumerism.
This is a great way to find things you need as well as declutter your house.
15. Negotiate everything
The key to successful negotiation is preparation.
Research the company’s past sales, price changes, and discounts offered in order to get a better understanding of what you’re negotiating for.
Don’t be afraid to negotiate.
What is the worst thing that can happen when someone says no!?!
16. Refinance Your Mortgage
It is never too late to refinance your mortgage.
In fact, it might be a good idea if you’re in the market for a new home or refinancing your loan on an existing property.
You must weigh the costs of refinancing to how much you will save over the time period of the loan.
Ask around for mortgage broker recommendations and get at least two quotes.
17. Downsize your Home
Downsize your home is the term for reducing a residence in size. This can be done by either moving to an apartment or buying a smaller house. There are many benefits of downsizing, including living a more affordable lifestyle and having less upkeep.
Downsizers use their homes as investments and save money on rent or mortgage payments.
18. Cut the cord
With the internet becoming accessible to everyone, people have started cutting their cable and watching shows online. People can save up to $500 a year by cutting cable from their bills.
Cut the cable & stop watching TV!
19. Learn about Finances
Ask for help.
If you are struggling, there is no shame in asking for assistance from your friends or family members.
The goal is to get ahead with money and not keep digging further into a hole.
Check out any of our courses to help you.
20. Save for What You Want
Decide what you want most and work towards it with the money you have now, instead of waiting for a windfall or a large inheritance.
This may mean setting aside $200 a month.
For example, as a reminder of your long-term goal of buying a beach property, you may buy something you would hang in the new place. Every time you see it, you will be reminded of what you are saving towards.
Budget Hacks
Financial hacks are not unusual.
Since it is so easy to overspend, you must know a few budgeting hacks ahead of time.
21. Need vs Want
A want is a desire for something, while a need is something that fulfills the requirement of your body like food or shelter.
When you think about buying something, ask yourself if it is a want or a need.
By uncovering needs vs wants, you are quickly able to find ways to spend less and save more.
22. Avoid Temptation
To avoid temptation, it is important to maintain a healthy amount of physical and emotional distance from the things that tempt you.
Sometimes, spending triggers are easy to avoid but other times they’re not.
However, people should always be aware of their temptations and try to stay away from them because it will lead to unnecessary debt or stress in the long run.
23. Practice the 30-day rule
Many people wonder what’s the 30 day rule with money…
The 30-day rule is the principle that states that you should practice a new habit or stop an old habit for at least thirty days before expecting success.
When it comes to your money, it means to wait thirty days before making big purchases or changes.
24. Keep a Budget Binder
A budget binder is an important tool that helps people keep track of their finances.
The binder can help people plan out their finances by providing a place to record expenses and income.
Keeping a budget binder is an effective way to track your spending and keep yourself accountable.
By keeping it, you can easily plan for future expenses in advance as well as see what money could be saved or spent on different items over time.
25. Get a spend tracker and use it regularly
Track your spending for 30 days. It can be a good idea to track your spending for at least a month to get an idea of what you’re spending and where.
A spending tracker is a tool that helps people keep track of how much they are spending on a certain item. It is important to use this tool regularly in order to be able to see patterns in your spending.
Then, review your spending. Share it with a trusted friend or family member to come up with some goals to reduce expenses in order to save money.
26. Create a budget
Create a budget, and follow it.
When you schedule your spending, make sure to leave room for savings. This is the easiest way to ensure that you can stick to your budget.
Find more budgeting resources on our site.
27. Pay Bills on Time
This should be a simple statement that we all know. However, life can throw curveballs.
Try to pay your bills on time and in full every month, and make sure all of your bills are paid each month.
This will show lenders that you are responsible and that you are taking care of your credit. Plus you don’t rack up those pesky late fees and high interest rates.
28. Avoid Missed Payments
Don’t miss any payments, and pay off your balances each month to avoid paying high interest rates or fees on late or missed payments.
Read again… do not miss paying your bills.
29. Reconcile Your Checking Account
Balance your checkbook monthly. Okay, no one really uses a checkbook anymore, but you can still do this with pen and paper.
Even better, use Quicken as a simple way to balance your checking account. Read my Quicken review.
This is a great way to check for being charged too much or find a subscription you don’t use anymore.
30. Avoid Summer Budget Busters
Avoid spending money for the summer by just being conscious of your spending and reviewing what is different than the norm.
It is too easy to get into the trap of spending money because the weather is warm.
31. Review your Credit Card Statements
If you’re like most people, you probably review your credit card statements once every six months.
What’s the best way to go about reviewing them?
It depends on how often you use your credit card, how much debt you have, and what your credit score is. You should review your statements at least once a year if you’re carrying a balance on your credit cards.
If you use your credit card, then you should review your statements at least monthly.
32. Use the Cents Plan Formula
While the 50/30/20 budgeting rule is popular, our method of budgeting your money will be more helpful.
Learn how to divide your income into various categories.
Check out the Cents Plan Formula.
33. Use Cash
Use cash instead of credit cards to spend, which will make it easier to limit yourself to how much you can spend.
The envelope system helps you save money by only spending from one designated cash stash each month and withdrawing a set amount for different types of expenses (like groceries).
34. Spending Freeze
Implement a spending freeze, which helps you get used to not buying things for an allotted time so that when the freeze is over, it’s easier to buy what you want.
You will be surprised how much random online shopping you do.
Begin your spending freeze now.
35. Use a Budgeting App
Use your bank’s budgeting tools, like Quicken, which can help you track how much money is coming in and out of your account.
This is the simplest way to manage your money wisely.
Using a money app or a personal finance website can help you to stay organized and get more creative about your budgeting.
Check out this list of the best budgeting apps available.
Hacks to Make Money
Hacks to make money are a list of ways to generate income for yourself. Many ways to make money include blogging, affiliate marketing, or day trading. These money making hacks are great, but they can take more time and energy invested.
36. Use cash back apps
Cash back reward apps like Ibotta are a way to get extra money for your purchases.
They take some time getting used to and you only have access to partner stores that offer cash-back offers. It only takes a few seconds to make some extra cash.
Check out the best cash back apps available.
37. Ask for a Raise
A raise is an increase in pay for a job, labor, or service.
If you are concerned about asking for a raise, then you are missing out on lost money.
Your boss may be receptive to it, then try negotiating more money. Not only will this be good for your career, but also the relationship between you two can improve as well.
38. Get a side hustle
A side hustle is an additional job or career, usually, one that requires only a small amount of time and effort.
For example, someone who wants to work on the weekends might start a side hustle as a bartender.
Side hustles are a form of entrepreneurship that allows you to earn money and do little tasks. They are not difficult or time-consuming, but they can still help you make extra cash on the side.
Pick one of the best gig economy jobs.
39. Rent out a part of your home
A part of your home is often a room, which can be rented out on Airbnb.
Airbnb is the largest and most successful company in the world that lets people rent their extra space or properties. They are a well-known company that provides an easy way for people to make money from their extra space.
Use Neighbor to lend out your space in your home.
40. Declutter: sell your junk for cash
Decluttering is the act of getting rid of excess or unnecessary items.
In order to declutter, you must be willing to give up something that has been a part of your life for a long time. It is important to remember that decluttering does not have to be a quick or easy process.
Then, sell your stuff on Facebook Marketplace, Nextdoor, eBay, etc.
Learn more at Flea Market Flippers.
41. Earn Money While Watching TV
Although it is not a fast way to get rich, this can be used as a side hustle.
It’s better to use the money earned from watching TV or something else that takes up your time for other things like bills and groceries.
Survey platforms are online sites that allow people to earn money while watching TV.
The survey platform will send surveys through the mail or email, and then they can choose whether they want to take the survey for a set reward amount or if they would like cash back on their purchase.
One of these options is MyPoints, which allows users to earn points by completing tasks such as taking surveys and shopping online at specific retailers.
Others include:
42. Maximize Your Income
Find ways to increase the amount of money you bring in, whether that’s through a side hustle, increasing hours at work, or asking for a raise.
In today’s society, there are plenty of ways to make more money.
Only you put a limit on what you are capable of earning.
43. Build Your Credit
Building your credit can be a long process, but it’s worth the effort. If you’re trying to establish or improve your credit score, here are some tips that might help:
Try to keep your credit utilization rate below 30% at all times.
Do not open too many new lines of credit in a short period of time.
Pay your bills on time.
This will help you avoid damaging your credit score.
Hacks for Free Money
Hacks for free money are a form of fraud wherein the perpetrator solicits payment via PayPal, credit card, or other methods in exchange for access to what they promise will be a legitimate business opportunity.
Hacking free money is a way to make more cash, fund your financial goals, or help you pay off debt. There are lots of ways that people hack their finances and use cash back apps for some extra income.
Other options include signing up for bank bonuses or credit card bonuses.
Honestly, real free money hacks are more likely to be scams. So, beware when searching online.
Money Hacks in the Kitchen
You can save the most money by looking at what you eat.
Typically, people waste over 25% of their grocery budget and throw out food. Would you willingly throw out $250 a month? Probably not.
So, learn how to stretch your money for food.
44. Start meal planning
Meal planning is a money-saving strategy that can help in the long run. It’s also important to eat healthily and reduce food waste when meal planning.
But planning ahead will help save on the grocery budget, and it’s not too late to start now.
Start meal planning by deciding what you want to eat for each day. Then, make a list.
45. Say no to prepackaged foods
Packing your lunch for work or school can be time-consuming, especially if you have a family.
Some people prefer to buy prepackaged foods because they save time, but this is not always the best option.
A better choice is to make your own food at home and pack it for lunch, which you can then eat in peace without worrying about what other people might be saying about the food you packed.
46. Eat at home
Eating at home is a way to save money. It may be uncomfortable for those who do not enjoy cooking as it requires extra effort and time.
Instead of getting food at restaurants, consider cooking your favorite meals at home.
You can save money and time by eating the same meal over and over again.
Learn about the frugal home must haves.
47. Grow your own herbs and food
The most common methods of gardening include container gardening, hydroponics, and both indoor and outdoor gardening.
Many people are growing their own herbs and food for the satisfaction of being able to eat something that was grown with their hands.
48. Take your lunch
If you are interested in saving money, consider taking your lunch. This will save you up to $1,000 a year on work lunches and make it easier to meet the recommended daily intake of fruits and vegetables as well.
“Take your lunch” is an invitation to eat at home. There are many benefits of eating out less often, such as saving money and gaining more control over food choices.
Travel Hacks to Save Money
The following are travel hacks that can help you save money on your next trip.
Some of these hacks include traveling during weekdays, using public transportation, staying at hostels and Airbnb instead of hotels, and using a travel credit card.
49. Use foreign websites for lower prices abroad
Foreign websites are websites that have been created by people from other countries, and they sell products in the language of their country. These websites often offer lower prices on products than what is offered in the United States.
If you’re traveling abroad and need to find a place to stay, there are plenty of websites that can help. A few websites have deals on places where travelers often stay while they travel internationally.
50. Stay for free or get paid to house sit abroad
A house sitter is someone who looks after someone’s property for a certain amount of time in exchange for the promise of payment.
House sitting is typically offered by homeowners to travelers and others who are looking to stay in a particular location for an extended period of time.
The main types of house sitting include:
– full-time house sitters, who are responsible for all aspects of the house and who are typically paid a monthly salary,
– part-time house sitters, who may be responsible for taking care of one or more specific tasks such as gardening or handling the mail
51. Hide your search
To avoid being taken advantage of by airlines, it is best to open a new incognito or private window between searches.
This will make sure that you are not tricked into buying tickets that may be significantly more expensive than they need to be.
Airlines use cookies in your browser to make you believe the prices are going up and up.
Money App Hacks
Money app hacks are ways that people have figured out to make their money work for them in terms of saving and spending. These apps offer different features, such as budgeting, tracking your spending, and saving money.
If you want a simple way to save money, then any of these money apps are designed to find excessive spending.
52. Billshark
This is a legitimate way to save money on monthly bills. Billshark offers you the opportunity to save up to 25% each month (when compared with regular bill payments).
All of this can be done for you by BillShark team, and there are no fees involved!
Try Billshark for free!
53. Trim
Review your spending habits to find what you can cut out, like subscriptions.
Find other ways to save by looking for ways to reduce costly bank fees or getting a discount on your cell phone plan. By using Trim, you are saving money and improving your financial health.
Sign up with Trim now.
54. Truebill
Truebill can help you to track your spending, save money and get a clear picture of your financial life.
This helps you identify services that you are no longer using but continue to pay for. It will help save money by automatically negotiating prices with your service providers and receiving a refund of the money going to waste, which is free money.
Get started with Truebill.
Which Life Money Hacks Can You Start?
This is a lot to take in, but don’t worry.
Take the time to read through each suggestion and consider how you can implement it into your life.
The more hacks you try out, the closer you’ll get to a healthy financial mindset.
These are the life hacks to save money I have found to work for me and my family in order to reset our financial mindsets and grow our net worth.
Everyone will find their niche and what will work best for them.
Personally, you need to figure out how do I make more money. That will make the biggest impact the fastest.
What have you done with your money lately?
Know someone else that needs this, too? Then, please share!!
“Wanna see something neat?” Kris asked the other night. She was holding the year-end statement from her work-based retirement plan.
“Sure,” I said. “Show me the money.”
She handed the statement to me. “Look at my account balance,” she said. “Look how it’s grown. It went down a little bit in 2008, but because I kept contributing, the balance has gone crazy during the last two years.”
Kris’s retirement account took a hit in 2008, but rebounded in 2009 and 2010.
“How do you earn such great returns?” I asked. “I’ll bet readers at Get Rich Slowly would love to hear.”
“Well, it’s not just investment returns,” Kris said. “A lot of that growth is because I save so much. I max out the allowable contribution in this account. I started by contributing 8% of my gross [pre-tax] pay. When I got my raise the next year, I bumped that to something like 10%. Then 12% with the next raise. And so on.”
“What percentage do you contribute now?” I asked.
“I’m not sure,” she said. “Last year, I did the max, which is $16,500 a year. I’d contribute more, if they’d let me, but they don’t, so I just invest it elsewhere. Like my Roth IRA and my mutual funds.” (All of Kris’s investments are in mutual funds, but she calls one particular account her “mutual funds”.)
Kris smiled. “Pretty cool, huh?” she said. Yes. Yes, it is. Pretty cool, my savvy wife.
There are a number of great lessons here — including the wisdom of sticking with an investment plan even during a down market — but one in particular stands out. Kris’ experience highlights the most important piece of the retirement savings puzzle: The number-one factor in determining how much you’ll have at retirement is the amount you save. Please re-read that sentence, because it’s not really as obvious as it may sound.
The economy, your choice of funds, your tax bracket — all of these play a role in your final retirement balance, but none of them is as important as how much you’ve actually set aside. All of the compounding in the world won’t help you if you never save any money. But if you consistently save as much as you can, you’ll be better able to weather market downturns — and take advantage of bull markets like the one we’ve enjoyed the past two years. The more you save now, the more you’ll have when you need it.
The National Economy vs. Your Personal Economy
Last January, Get Rich Slowly and MoneyRates asked readers of both sites for their opinion about the current state of the economy. Over 1200 people responded. This January, we asked the same question and received nearly 2100 answers. The results are certainly un-scientific, but they’re interesting:
Where do you think the economy sits right now?
Strong growth. Full steam ahead! 2010: 2%, 2011: 3%
On solid ground and growing some, thank goodness. 2010: 15%, 2011: 26%
Stagnant. Not growing, but at least not getting worse. 2010: 43%, 2011: 39%
Not horrible, but looks like it’s going downhill. 2010: 20%, 2011: 17%
Free falling. I’m bracing for the worst. 2010: 21%, 2011: 15%
Regardless of the state of the national economy, it’s important to remember that ultimately, you are responsible for your personal economy. When times are flush, you need to set something aside for the future – be it through a retirement savings plan, savings account, or other method. Then, when things turn dark and dismal, you’ll be better shielded from the slings and arrows life hurls your direction. My wife, for example, has done a fine job of ignoring the world at large while trying to improve her own situation.
It’s been a while since I stressed this point, so let me repeat what I’ve said before. A strong personal economy is built on personal-finance fundamentals such as these:
Clear financial goals
An adequate emergency fund
Limited use of debt
The practice of thrift
Smart investing for the future
The national economic situation will affect our personal financial decisions to some degree. When unemployment soars, it’s important to maintain an adequate emergency fund and to limit your use of debt. When the stock market is down, you need to understand your investment objectives, and how these relate to your risk tolerance and your investment timeline. (And when the stock market is up — as it is now — you need to ask the same questions.)
Ultimately, all you can control are your personal finances. Take matters into your own hands: Save for retirement today.
USA Today has just published what might be the most irresponsible piece of financial journalism I’ve seen in the past five years of writing Get Rich Slowly. It embodies everything that’s wrong with the popular perception of stock-market investing.
Author Adam Shell touts a hot trading trend: Stocks jump on the first day of the month. Shell writes:
Stock investors looking for a trading pattern that all but guarantees a profit need look no further than the first trading day of a new month.
Everyone knows stocks trade in recurring seasonal patterns, with the best gains coming in the three-month period from November thru January. Then there’s the annual Santa Claus rally at year-end. Not to mention the January Effect, where small-fry stocks post fatter returns than big-company stocks in the first month of the new year.
But one of the biggest winning trades in 2010 has been Day 1 of a new month.
There are so many things wrong here. For example:
There’s the notion that investing is all about timing the market, about finding “hot” times to get in and out.
The second paragraph includes not only the “everyone knows” bit (I would never allow a staff writer or guest author to say “everyone knows” about anything on this blog, especially for something like this), but also the list of patterns, the last two of which are actually contained in the first!
How does one buy on the last day of the month and sell on the first without losing a small fortune in trading fees? And what exactly do you buy? An index fund? Specific stocks?
Not to mention the author used the word “thru”…and the editor let it thru.
The sort of “investing” promoted in this article isn’t investing at all — it’s gambling. I know plenty of people (including me!) who have lost money trying to find silly “get rich quick” shortcuts like this.
Tangent: Plus I made the mistake of reading the comments on this article. Want to know why comments on Get Rich Slowly are moderated? Look no further than the discussions at USA Today, where the worst in public discourse is on constant display.
Because any fool with a spreadsheet can go hunting for meaningless patterns in stock market data, I decided to be that fool. I downloaded all of the data for 2010, and I ran my own analysis. Guess what? The first trading day of the month isn’t the only day that boasts just two losses in 2010.
The 8th trading day of the month has nine gains out of eleven! That must mean something! (And working backward, the 15th-to-last trading day of each month also has nine gains out of eleven.) But would you ever make it a rule to invest on the 8th trading day (or 15th-to-last trading day) of the month? Of course not.
If you want to avoid losses, though, you’d better watch out for the 10th and the 16th trading days of each month. They’ve only posted gains three out of eleven times in 2010. (Both the last and 2nd-to-last trading days of the month do as poorly.) But again, would you actually use this info for investing purposes? I doubt it.
In reality, anyone with enough time can go searching for patterns in past stock-market data. Lots of people have done so. But nobody I know has ever found a pattern that works going forward — except for buying the entire market and waiting a few decades.
Note: This whole story reminds of the film Pi, which is about a math whiz who goes crazy trying to find patterns in the stock market. (It’s a strange movie, but the soundtrack is great music to program computers by…)
Sarcasm aside, I’m not denying that the first trading day of the month has produced the biggest gains in 2010. (The Dow Jones Industrial Average has gained an average of 82.9 points on the first day of the month; there’s only one other trading day averaging over 44 points.) In fact, Shell points out this is an ongoing pattern:
The 2011 edition of the Stock Trader’s Almanac notes that in the 13-year period ended May 2010, the Dow “gained more points on the first trading days of all months than all the other days combined.”
But this isn’t an investment strategy. It’s gambling, pure and simple, and for USA Today to run this article as anything other than entertainment is irresponsible.
This probably sounds strange coming from a guy who has been anti-budget all his life. Besides, haven’t I paid off all my debt? Don’t I have a positive cash-flow of over $1,000 per month? Yes, these things are true. But I’ve noticed something troubling: I’ve begun to experience that lifestyle inflation I’m always warning others about.
Lifestyle inflation is the natural tendency to increase our spending as our incomes increase. When we get a raise at work, we’re likely to spend more at home. A little lifestyle inflation is fine. But there’s a real danger of becoming too comfortable with increased spending. Once we become accustomed to a certain lifestyle, it’s difficult to cut back.
Cracks in the Foundation
On our flight home from Orlando, Kris and I talked about my spending. It has increased in recent months. Some of this is deliberate. I’ve made a conscious decision to allow myself to spend more money on Wants. I can afford it. The trouble is that I’ve begun to spend indiscriminately again, and I’m afraid that’s a slippery slope. I’ll buy random magazines at the grocery store, or pick up a game for the Wii that I’m only half interested in.
I’m certainly not spending beyond my means, but I’ve begun to make more impulse purchases. I want to correct this now — before it becomes a problem. In the past, I’ve used a spending plan to help me meet my goals, and more recently I’ve been following the broad outlines of Elizabeth Warren’s balanced money formula:
But sometimes broad outlines aren’t enough. In this case, Kris suggested that a budget might help curb my impulsiveness, and I think she’s right. With a budget, I can set specific goals. I can focus on the things I really want instead of just spending on random things that appeal to me in the moment.
So, I’ve decided to create a budget. Not a comprehensive budget — my Income, Needs, and Saving are all fine — but a budget for my Wants. I want to exercise discipline in this area so that I’m spending on things that are actually important to me instead of random stuff, stuff that ultimately turns into clutter.
Blueprint for Success
To start, I reviewed my discretionary spending from last year and compared it to the totals from the first four months of 2009. This is where tracking every penny you spend can prove valuable. By comparing my past spending to my present spending, I’m able to detect trends. It’s very clear, for example, that I am again spending too much on dining out. Time to cut back.
Next, I thought about my goals. What is it that I really want to do? Lately, travel appeals to me. Kris and I both would like to take a vacation to Europe in 2010. To make that happen, I need to save. This gives me a medium-term goal to save toward.
Finally, I allocated a specific amount of money toward my monthly Wants. Remember, because I’m self-employed, I have an irregular income that passes through my business account first. If I pull out $2500 per month (after taxes) to act as personal income, that gives me $750 to spend on my passions. That should be plenty.
Note:Based on my Income, Needs, and Saving, I can afford to allocate $750 for Wants. This might seem high to some GRS readers. It would have seemed high to me once, too. But because I’ve paid off my consumer debt, I have $750 per month to spend on the things that make me happy.
Building the Budget
After collecting the data and setting my goals, I made a first pass at a budget. This is what I’ll use for June and July:
Books: $50/month
Comic Books: $50/month
Entertainment: $50/month
Clothing: $50/month
Charity: $50/month
Dining Out: $200/month
Vacation 2010: $200/month (plus small windfalls)
Miscellaneous: $100/month
Obviously, you might make different choices. I know that many GRS readers are avid contributors to charity, for example, and I suspect few of you budget for comic books! These are the allocations that seem to make sense for me and my situation. I’m sure that I’ll make changes to this budget as I work with it in the real world.
Actually, I have a lot of questions about how a budget should work in the real world. Because I’m a budgeting novice, I could use some help. I’m hoping that you experienced budgeters can answer some of my questions:
How often do you re-evaluate your budget? Do you make monthly adjustments? Quarterly? Yearly?
If you go over budget for a month, what do you do? Do you make immediate adjustments? Or do you simply try to correct things the following month?
What if I go under budget in a category? Does that mean I get to carry that money into the next month? Can I use it for a different Want category? (Perhaps sweep anything extra into the Vacation fund?) Or does does that money go to Saving instead? Or should I donate it to charity?
How do you track your spending against the budget? If I used the envelope system, I’d allocate the actual cash to each account before-hand. But what if I don’t want to have that much cash around the house? Is there a good way to keep track of current spending in each category? Should I carry a notecard with my monthly spending on it? (That seems to be what Bargain Babe recommends.)
Do you try to further reduce spending on these categories? For example, should I try to drop my budget for Dining Out even more?
This is a strange new world for me. Over the past year, I’ve been pursuing more and more advanced personal finance subjects and concepts. Yet here I am, in better financial shape than ever, about to implement a basic skill I’ve never mastered before. That’s okay. I believe it’s important to continue focusing on the fundamentals even as we tackle more advanced topics.
My Discretionary Spending: Bits and Pieces
I want to talk about a couple of my spending habits. One is a worrisome trend, and one is a thing I’m doing right.
Food for Thought
Long-time readers know that Kris and I love to dine out. It’s one of those things we’re willing to spend on. We cut corners in other areas of our lives so that we can afford to make this happen. Still, I’ve been concerned about my restaurant spending for the past couple of years. It seems a tad excessive.
How’d I do last year? Well, my grocery spending dropped, but my restaurant spending went up again — a lot. Here’s a look at five years of data:
In 2005, we spent $1423.39 to dine out 100 times, for an average cost of $14.23 per meal.
In 2006, we spent $1869.58 to dine out 108 times, for an average cost of $17.31 per meal.
In 2007, we spent $2051.93 to dine out 84 times, for an average cost of $24.43 per meal.
In 2008, we spent $2628.08 to dine out 77 times, for an average cost of $34.14 per meal.
In 2009, we spent $3443.61 to dine out 69 times, for an average cost of $49.91 per meal.
Holy cats! Will you look at those numbers? We’re only dining out about half two-thirds as often as we were in 2006, but we’re spending nearly three times as much per meal. At the current rate of spending growth, we’ll be spending $300 per meal in 2015! Since I can afford our current spending — I’m not living beyond my means — the real question is: Am I getting my money’s worth? I’m not sure that I am.
If I’m honest, I have to admit that I don’t like the idea that we’re paying $50 per meal. I’d much rather return to our former habit: Dining out more often, but spending less each time. To that end, I’ve been brainstorming ways we can work to cut costs:
We could do a better job of looking for discounts. We have an Entertainment book, and the local paper often features specials at local restaurants. We should take advantage of both of these. We used to do this, but have fallen out of the habit (primarily because we’ve become so used to eating at the same places again and again).
We need to find more cheap places to eat. Half the fun of going out is just going out. Sure, we love the fancy restaurants, but we used to be happy with Dairy Queen. (This is lifestyle inflation in action!) The real problem is that the cheap places I know and love (Cha Cha Cha and Imperial Garden) aren’t Kris’ favorites. We need to find cheap places we both like.
When we do eat in the same old haunts, we need to make an effort to reduce our spending. It’s okay to have an appetizer, entree, dessert, and drink all in the same meal now and then, but we could save money by cutting one or two of these from the mix each time we dine out.
Finally, we should invite friends to our home for dinner more often. As soon as the book is done (getting close!), I’m going to make a habit of inviting one family to dine with us every couple of weeks. We used to do this a lot, but have fallen out of the habit. It’s fun and frugal to have folks over for dinner.
So, that’s one part of my financial life that still needs work. Next, let’s look at something I’m doing right.
Tangent: Portlanders, help me out. What are your favorite cheap places to eat around town? Bonus points for inner southeast, West of 39th from Hawthorne south to Oregon City.
A Waning of Want
Here’s something that amazes me: We’re twelve days into the year and I haven’t spent anything yet on personal expenses. I haven’t even felt the urge. I’ve bought gas for the Mini and groceries for home, and Kris and I went out to lunch last Friday, but I haven’t spent a dime on gadgets or books or games or toys or magazines.
“Big deal,” you might say. “That’s how it should be.” You’re right. But for me, this is a big deal. All my life, I’ve had the uncontrollable urge to buy Stuff. It used to be that I couldn’t go more than a day or two without buying something. Even while writing this blog, that’s been the case. (I’ve just learned to channel my desires into smaller, cheaper things.) Now, as last, I seem to have licked it.
I still want things — no question! — but I’ve become very good at ignoring the wants and moving on. How?
Sometimes, I just put down the thing I want, turn off my brain, and walk away. I force myself to stop thinking about it. (Usually by thinking about something else — like our upcoming trip to Europe, and how I need to save for that instead.)
If I still want the thing when I get home, I put it on my Amazon wish-list. For whatever reason, that’s often enough to satisfy the strange inner workings of my mind. I feel comforted knowing I’ve let myself put it on a list where I won’t forget it.
I’m very good about using the 30-day rule to control my impulse spending. My Amazon wish-list plays a role in that, but so does my mountain of index cards. (My life wouldn’t be complete without index cards.) I have a handful of cards on my desk filled with notes about the things I want. It’s amazing how many times I sort through this stack and end up throwing cards away because I no longer want the item I’ve written down.
These techniques help me deal with desire. They don’t quell it completely — nor would I want them to — but they do keep it in check. That last rule is probably the most effective. By delaying purchases 30 days, I don’t feel like I’m denying myself. I can still buy what I want if I want it 30 days later, but I’m not just giving in to impulse spending. (When 30 days rolls around and I do still want something, it actually feels pretty good to be able to buy it.)
My current spending moratorium isn’t permanent, and I know that. In fact, the new Dick Tracy anthology comes out tomorrow, so if nothing else, I’ll be shelling over $25 for that.
Remember: there’s nothing inherently wrong with spending money on things that bring you joy. Problems arise when you finance these purchases with debt. If you’re meeting your other financial goals and have money left over, it’s good to indulge your interests and passions. Just make sure you’re getting value for the dollars you spend.
A Look Back to Previous Years
I believe there are two components to building wealth:
Reducing costs
Boosting income
Doing one or the other can help you meet your goals, but to really succeed, you must do both. My goal has been to create a significant positive monthly cash flow. I’ve managed to do this. But as my income increases, so does the temptation to spend more. Have I been able to fight the urge? It’s time for the annual review of my largest sources of discretionary spending:
Although I use comics as a prop for laughs at Get Rich Slowly, I’ve genuinely struggled with my spending on them in the past. Not this year. I made vast improvements in 2008, actually spending less on comics than I had planned. There are two reasons for this. First, I’ve narrowed my focus, collecting only those titles I most desire. I’m also making an effort to read all of the books I’ve bought but never finished. These two changes have helped me to spend less on this hobby.
At one time, I spent over $200 a month on books. Now I spend less than $40. I’m content with this number, especially since many of these are for our monthly book group. One reason my inclination to buy books has decreased is that I’m able to purchase personal-finance books through Get Rich Slowly, the business. (Plus authors and publishers send them to me for free.) This gives me a never-ending source of reading material, and makes me less inclined to spend time in a bookstore. And again, I’m trying to read books I own but have never finished.
Entertainment (2005: $478.81, 2006: $543.55, 2007: $1094.83, 2008: $897.91)
This number isn’t as bad as it seems. It includes two Decemberists concerts for me and Kris, and it also includes some of our television viewing. (Remember that Kris and I cut back to basic cable, and now we watch TV through Netflix and through the iTunes Music Store.) There’s also a one-time $236 event here that ought to have been a business expense. I’m not unhappy with my spending on Entertainment.
Many personal finance writers view pets as an unnecessary expense. To me, $35 a month to keep four cats is a bargain. It only costs me about a quarter a day for each animal, and they bring much more joy to my life than that. If Kris would let me, I’d be the “crazy cat lady” on the block. (Are there “crazy cat gentlemen”?) Note that our actual pet expenses are greater. Kris pays for their food, and that’s not reflected in these numbers
This includes wine, liquor, pipe tobacco, poker nights, etc. I don’t smoke regularly, but I do smoke a pipe maybe a dozen times a year. Most of this expense is for alcohol at dinner parties and social gatherings. My alcohol consumption did increase during 2008, which is a concern, but that’s not the reason for the increased spending. For the first time ever, we bought a couple of cases of wine. This will actually reduce the “wages of sin” in the long run, but it bumped the number for 2008.
Although this report is interesting, there are problems with my methodology. For example, I’ve included my grocery spending above (although it’s not really discretionary), but have not included spending on exercise equipment (which is discretionary). Also, Kris pays for much of our grocery shopping. Because we keep separate accounts, her share of that expense isn’t reflected in these numbers.
In order to be consistent from year-to-year, however, I’ve elected to continue reporting the same expenses in the same ways. You’ll have to take my word that the figures here are representative of my spending as a whole. This annual report is sort of like tracking a stock market index, I guess. It doesn’t reveal nuances, but it’s still a useful indicator of the Big Picture.
So despite cutting back on the areas that are really important to me — books and comics — my spending increased. And most of that increase came from dining out.
How did you do on your spending goals last year? Are there areas where you wish you spent less? If so, what strategies do you use to keep yourself in check?
What exactly is the Dow Jones Industrial Average, the mythic number that punctuates each day’s stock market report? I’ve always wondered. Now, with the Dow crossing 12,000, I decided to roll up my sleeves and delve into what that 12,000 really means. Why should I care — and why should you?
When the Dow is at 12,000, that’s not 12,000 dollars, obviously; nor does the Dow reflect the performance of 12,000 companies (the index only reflects 30 companies) — nor does the 12,000 have anything to do with the number of shares traded each day on the stock exchange (that’s in the millions).
To wax philosophic, the Dow is at once larger than the sum of its parts — and less. To understand the Dow is to gain entry into a vital part of the investing world. In short, it’s all about indexes. (Or indices, if you prefer.)
Let’s step back in time for a quick dip into the history of the Dow, which dates back to the 1880s. If you’re not a history buff, skip to the next section.
A short, geeky bit about the Dow’s origins In 1884, journalist Charles Dow compiled a list of eleven U.S. companies, and by averaging their stock prices came up with the Dow Jones Averages (with his colleague Edward Jones — not that Edward Jones).
In 1896, he revised the original list of companies, nine of which were railroads, to now comprise twelve companies that reflected the leading industries in America. You can read more detail here. It was a nifty idea: Select the top U.S. companies that reflected key industries, and average their stock prices each day as a gauge of how the market was performing overall. In other words, if six of the companies’ stocks were trading at $30 per share, and the other six were trading at $40 per share, the Dow Jones Industrial Average for that day in 1896 would have been about 35.
Needless to say, the concept of having such an index to represent the market’s value stuck. Messrs. Dow and Jones went on to create other indexes (as well as founding the Wall Street Journal, which you may have heard of).
Getting back to what the Dow is, and why we should care… Today, the Dow is comprised of 30 large-cap companies — those with market capitalizations of $10 billion or more. As back in 1896, these companies are meant to reflect American industry (you can read the list here), but the Dow is no longer calculated strictly as an average, but a scaled average.
But what the heck is a scaled average?
Here’s what the 12,000 means: the DIJA is calculated now by adding up the daily stock price of each of the 30 companies, and then dividing it by a fractional amount known as the divisor, which takes into account stock splits and other adjustments. Today the divisor is about 0.132129493.
The result is a somewhat arbitrary number — about 12,000 right now — that serves as a sort of barometer for the economy.
Why does the Dow loom so large? On one hand, the Dow is still considered a bellwether for American commerce. But because the Dow is price-weighted — i.e., a company trading at $50 per share would make up five times more of the index than a company trading at $10 — that doesn’t necessarily reflect companies’ actual market values.
Plus, there are thousands of public companies in America, and you could argue that the performance of just 30 might not be the best gauge of the economy’s health — and in fact people do make this argument, which is one reason the S&P 500 is seen as a better benchmark than the Dow.
But what’s the S&P 500? I’m glad you asked. The S&P 500 is Standard & Poor’s index of the top 500 companies in America; it’s another stock market index. And in case you can’t smell where this is going, yes, there are now more indexes than there are sandwich possibilities in a deli.
So when you hear about index funds — a very popular investment product these days, especially among Get Rich Slowly readers — the next question you should ask is: “Which index is that fund tracking?”
There are many indexes that capture the performance of specific market sectors, whether it’s small-cap companies or bonds foreign stocks or foreign small-cap bond stocks (kidding!). In this useful Money Magazine article, one expert quips that people are just creating indexes in order to sell new mutual funds that track those indexes. I wouldn’t be surprised.
Certainly, if Mr. Dow were alive today he’d be shocked by how far and wide his original concept has spread.
Lately, I’ve heard a lot of buzz about how peer-to-peer (P2P) lending is a great alternative for investors who feel burned by the stock market. Proponents of peer-to-peer lending say it’s a smart way to get a good return on your money without the risk of a failing economy. But before you pull up stakes in your index funds and hightail it for the nearest P2P lending site, let’s take a closer look at the pros and cons.
Note: Over the weekend, Trent at The Simple Dollar also offered his thoughts on peer-to-peer lending.
A Brief Intro to Peer-to-Peer Lending
In its oldest, simplest form, peer-to-peer lending is what happens when you loan your mom money to start her new hairdressing business, or borrow funds from a friend for a down payment on your new truck. You’re making or taking the loan based on your relationship with the person, which counts for more than their credit rating or collateral.
Sometimes loans to friends and family work out well, but often they don’t. They’ve funded many dreams, but they’re also famous for breaking apart families and friendships that have stood the test of decades. An old saying goes, “Never loan money to friends. You’ll lose your money and your friends.”
In its modern incarnation, peer-to-peer lending has gone online, where it’s become a big business. Third-party websites match lenders to borrowers, in an attempt to make both parties feel more at ease.
Borrowers at peer-to-peer lending sites get better interest rates and loan terms than they would from a commercial bank. The lending sites will only work with you if your credit score is in the mid-600s or higher, but the terms you’ll be offered are better than most banks.
As a lender, you get to know something about the borrower before you lend your money, which builds trust and feels good. But if the loan doesn’t work out and you lose your cash, at least you don’t have to face the deadbeat over Thanksgiving dinner every year for the rest of time.
Peer-to-peer lending has gained a lot of attention because of its purportedly fabulous returns. Lending Club is advertising investor rates of return in the 9% range. Prosper says their returns are slightly over 10%. That’s an order of magnitude better than the return I’m getting on my savings account. Where can I sign up?
The Complete Idiot’s Guide to Peer-to-Peer Lending
To learn more about peer-to-peer lending, I recently interviewed Beverly Harzog, co-author of The Complete Idiot’s Guide To Peer-to-Peer Lending. She had some words of caution before I chase after this pot of gold. Peer-to-peer lending can be great, she said, but it’s not without pitfalls.
“It’s very risky. It’s like investing in the stock market. Everybody may have great intentions, but when you’re lending this money, you have to be prepared to lose it,” Harzog said.
Her bottom line: Don’t invest any money you can’t afford to lose. This might be a good investment, but it’s not an a sure-fire way to make a mint. It’s an at-risk investment just like stocks.
Unlike in the stock market, you’re funding loans. The borrowers have a legal commitment to pay you back at the interest rate you agreed to. If they don’t, the website that set up the loan will pursue your funds through a collection agency. In theory, this should make these investments more secure than stocks, but Herzog warns that you can still lose your money.
To combat that, she suggests lenders diversify their risks, just as they would with stocks. Don’t put $1,000 into one loan. Put $100 into 10 different loans. It’s unlikely they’ll all default, and you’ll earn a nice rate on most of your money that way. You can also choose to only partially fund a loan; when several people fund a single loan, everyone shoulders a bit of risk instead of one person taking it all.
As another incentive, you’ll earn the warm cozy feel that comes from directly helping others. Harzog says this feeling of reaching out and helping is what draws many investors into peer-to-peer lending.
“There’s an element of people helping people that’s just so appealing,” Harzog said. “It’s a very feel-good thing.”
If you want to try peer-to-peer lending, Harzog strongly recommends sticking with the big sites like Lending Club and Prosper. You can start out as a lender at Lending Club for as little as $100. That’s a low bar to entry for new investors. Harzog has seen a lot of smaller sites come and go, while the big ones now have enough gravity to stick around.
Creative Uses for Cash
There are some smaller sites worth noting, though. Some people are putting the basic concept of peer-to-peer lending to incredibly creative uses.
Some sites, like Green Note and People Capital specialize in funding student loans.
At sites like Kiva, you can help women in the developing world start their own businesses.
At Kickstarter.com, you can give money to creative projects ranging from film products to entrepreneurial gadgets. Kickstarter is more about donations than loans, but many of the Kickstarter projects offer a small return in the form of copies of the creative work produced, or your own personal widget when they get made.
These creative sites might not offer the returns a big site like Lending Club does, but they’re fun, interesting uses of the concept. They let you participate for very little money. You can take $25 to Kiva or Kickstarter and invest it in someone’s new business. And at Kickstarter, you’ll get a funky wristwatch or a new folk album, depending on what you invested in. (J.D. helped fund Kind of Bloop, an 8-bit Miles Davis tribute album.)
At this point, I’m intrigued enough by peer-to-peer lending that I’d like to try it. There’s just one catch: I can’t. At least, I can’t play with the big fish. Both Lending Club and Prosper are only available to lenders in certain states, and I don’t live in one of the eligible areas.
Have you tried peer-to-peer lending? What was your experience like? Are you tempted to try it? If not, what holds you back?
Most people want to know their families will have a secure financial future. When you start planning for how you’ll care for your family years from now, it’s likely that you will consider a variety of options. Life insurance should be among the possibilities you study.
Life insurance protects your assets and offers you a chance to help keep your family in a comfortable lifestyle after you’re gone, or even assist a grandchild with paying for a college education. Depending on the life insurance you choose, you could even draw cash from the policy in the event of an emergency or a promising opportunity.
There are two basic types of life insurance: term life and whole life. People value the two for different reasons, and they offer diverse benefits. Each of them has a different set of advantages and disadvantages that you have to weigh. Here’s a little more about the differences.
Term Life Insurance
Term life insurance is life insurance for a set amount of time, or term (10, 20 or 30 years). If you die before this time is up, your beneficiaries will be paid the face value of your policy. This investment option comes at a lower premium cost because the cash value of the policy does not increase with time, and is often more in tune with a person’s budgetary restrictions.
Whole Life Insurance
A whole life policy lasts for as long as you live. Your beneficiaries will receive a payout equivalent to the value of the policy you purchased, plus interest and other cash-deferred amounts. Life insurance rates are more expensive for whole life insurance policies, but the returns can be much greater if you have the time and financial resources to devote to building this resource. You can also use the savings you build here for other purposes if you choose, and while you are still alive.
What should you choose?
The right form of life insurance depends on your needs and goals for your future. Those with money available to spend might benefit from a whole life policy and the effects it can have on their estate planning. Term life policies are a little more flexible if your budget changes, or if you have other changes you encounter with the passing of time.
Term life insurance is going to be the cheaper of the two options, but is cheaper always better?. These policies will save you money, but don’t have the added benefits of accumulating cash value. One thing that most financial experts will tell you is to buy a term insurance policy and then invest all the money that you save, this may work in a lot of cases, but it’s not always the best option.
Whole life insurance provides more of an “investment option” with its cash-value benefit. With these policies, the plan builds up value inside of it that you can use later to borrow against if you need it. You could use this money in case of an emergency or to invest me money. A lot of people like to use whole life policies as an investment because the money grows in the policy tax-deferred. Meaning that you won’t pay taxes on the interest. This is a great way to avoid paying more taxes than you need.
The best advantage to a whole life insurance policy, is the fact that your loved ones will see the return on your investment. Sure, you get put money into the stock market and hope that your children see the money in the future, but you never know what is going to happen to those investments. Life insurance is one of the few investments that you can be positive that someone will see the return on.
Ultimately, you may find that a financial adviser or other professional will be best suited to help you choose the right policy to help fulfill your goals. A trained individual will know how to look at your needs, assets, and other factors to appropriately counsel you as you map out your future. They will be able to help you decide between investing what you save, or paying a little extra for a whole life policy and use the cash value.
Regardless of which type of life insurance you buy, it’s vital that you purchase a policy. These policies are not only a good investment, but a safety net that you can’t afford to not have. And could your family afford for you not to purchase a life insurance policy? An accident could leave them paying off many expenses in your name.
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Would your spouse be able to pay the mortgage? What about the car payments and the student loans? If you sit down and think about it, there are thousands of dollars of debt that you would leave behind. The idea of leaving your family with a stack of bills they can’t pay for is terrifying. This is why the benefit of life insurance is so important. It allows your survivors to quickly pay down debts and takes some stress out of the grieving process.
One way to look at life insurance is as an investment to your loved ones. Sure, you might not see a ton of return on your premiums, but your family will. For your family, this is one of the best purchases that you can make, regardless of what type you buy.
In most cases, life insurance policies are more affordable than most applicants think. Depending on the size of the policy, your age, and your health you can easily fit a policy into your budget.