Yahoo Finance 13 Money Hacks to Turbocharge Your Investments
Who doesn't want more money?
Saving can be difficult, especially when it comes to learning how to extract insights and identify important financial trends. "Make a game out of saving," says Taylor Schulte, a certified financial planner and CEO for Define Financial in San Diego. "Set a time period of six months or a year and see how money each family member can save." Then pick a reward, such as whoever reaches their goal can help pick the next family vacation. Here are 13 other money hacks to turbocharge your investments.
Automate your investments.
It's easy to say, "Let's save at the end of the month." But, life gets in the way. Instead, automate your 401K or IRA contributions for the beginning of the month, so contributions happen automatically, says Matt Cosgriff, a certified financial planner for BerganKDV Wealth Management's Lifewise in Minneapolis. "Out of sight, out of mind is a good thing," Cosgriff says. He also suggests using online robo-advisors such as Betterment.com and Wealthfront.com, which help automate the process for low costs on low-account minimums that are popular with younger investors.
Save half your raise.
Be aware of lifestyle creep, where expenses rise in line with newly acquired income. "A lot of people get in the mindset, 'I just got a raise, I can spend that money,'" Cosgriff says. "Instead, save half of your raise to lock in your expenses." That can be done by bumping up your contribution manually or having it automatically escalate. Use some of the additional money to pay off high-interest debt. He also recommends reading the book, "Save More Tomorrow: A Simple Plan to Increase Retirement Saving."
Create a side hustle.
Finding a side business or revenue stream can help. "Rent out your apartment when you travel for Airbnb, start a blog, or sell some old stuff," Cosgriff says. "Creating that side income is hugely valuable. People tend to think of earning more money as linear, but in today's sharing economy there's a lot of opportunities to create a side hustle to compliment your current income." Just make sure it's something you love to do, says Douglas Boneparth, a partner at Longwave Financial in New York.
Brown-bag lunch.
So many people eat out, especially at lunch. "Bringing your own lunch can help save money by ensuring not spending the $4, $5 or $10 it costs for lunch," Cosgriff says. "Brown-bag it and save the difference." Use a brown-bag savings calculator. Save that lunch cash in a traditional saving account or IRA. "Over the course of a year that can add up pretty quickly," Cosgriff says.
Delete the retirement app from your phone.
"It seems counter-intuitive," Cosgriff says. But too many people begin to feel guilty and start constantly checking their balance for their 401(k) or IRA. "There's been research that the more people pay attention to their account, the worse they do," he says. "The rationale is the more you are constantly checking, the more your prone you are to short-term fluctuations, that may mean selling low and buying high." Instead, create an environment where you check the account every quarter to make sure things are OK.
Minimize investment fees and expenses.
Passive-fund fees are significantly lower than actively managed funds. "One of the best indicators of future success is how low you can keep your investment costs," Cosgriff says. "ETFs tend to be less expensive than mutual funds." In your 401(k) plan, it can be more difficult to manage these costs. Over time, lower-cost mutual funds tend to perform better than higher-cost funds since higher costs can minimize a portfolio's growth over long periods. Indexed investments are useful since they match the market instead of trying to beat it.
When in doubt, term insurance.
There's two types of insurance: term, which is a rental-style policy and typically offers low annual premiums, and whole life insurance which accumulates cash value and may be eligible for annual dividends. Both have a guaranteed payout amount. Whole insurance policies are very expensive and a lot of times you don't need that, Cosgriff says. "When in doubt go with term insurance, which protects your family at an appropriate price," he says.
Consider your hourly rate.
Before buying your next cell phone or concert tickets, think about how many hours you'll have to work to pay for something. "Really think about your hourly rate, and then compare everything you buy to that hourly rate," Cosgriff says. "We live in a task-list society. We don't always feel the pinch when we buy something."
Identify, quantify and prioritize specific goals.
Start by having an honest conversation with yourself. What are the great things in life you want? Identify your goals such as saving for retirement, buying a house or engagement ring, then prioritize them. Include the amount of money and time you want to get there. Be realistic and specific as possible. "If you say I want to have $2 million saved up by 35, you have a goal," Boneparth says. "You can try and problem-solve it."
Easily find a CFP.
The phrase "financial advisor" is a large umbrella term and includes certified financial planners, the extra certification is considered the highest in the industry and means that advisor is a fiduciary. That means CFPs must disclose conflicts of interest and have your best interest at hand. A good place to start is on Letsmakeaplan.org, says Boneparth, a CFP and contributing writer on the site that gives tips and helps investors find a CFP via their zip code.
Read the classics.
Rather than looking for the latest and greatest books on investing and finance, Schulte suggests going for more timeless books such as "The Intelligent Investor" by Benjamin Graham and Warren Buffett, first published in 1949. For those looking for a more recent read, try "The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money" by Carl Richards, which was published in 2012.
Don't spend money for 72 hours.
Try the "72-hour test," which challenges people to stop spending money for 72 hours. "Watch the movies you own, play the games you already have, eat the food you have," says Schulte about the theory that Richards champions in his book. "You'll find after 72 hours, that's pretty easy and maybe you can go another 72 hours and then a whole week. Whatever you think you might have spent, add it to one of your financial goals."
Master the art (and science) of cash flow.
"It's foundational to every other area of personal finance," Boneparth says. "It's required. You can't save unless you know what you can afford to save." Start by identifying what money is coming in and what is going out. What looks good on paper isn't always what happens in real life. "It takes time and discipline," Boneparth says. SCORE, a national nonprofit, offers a 12-month cash flow forecast template for small business entrepreneurs as well as a spreadsheet for families who want to monitor their expenses on a monthly basis.
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