Money Hacks

Yesterday I mentioned a paycheck calculator from a random web site. But did you know that the IRS actually has a couple of great web-based tools? For example, you can use their withholding calculator to figure out exactly how much to have held back from your paycheck.

Why would you need such a calculator? Well, say for example you run a group of web sites that has begun to produce a not insignificant amount of income, and you’re worried of the tax implications. The withholding calculator can help you get things figure out. Or maybe you always end up owing tax at the end of the year. Or maybe you always get a refund. The withholding calculator can help you adjust things so this no longer occurs.

In order to use the tool, you’ll need to have some information handy, including a recent pay stub and last year’s tax return.

[Internal Revenue Service: IRS withholding calculator]

Ever wished you could find some way to play with the numbers that go into your paycheck? I have. Sometimes I want to know what would happen if I changed my withholding rate, or how my taxes would be affected if I got a raise.

Paycheckcity (a site for which I cannot vouch) has a handy paycheck calculator that lets you play with the numbers. You can select your state, the tax year for which you want to experiment, and then enter a variety of parameters to see what happens to your net pay.

[Paycheckcity.com: Paycheck calculator]

Last spring an AskMetafilter user wondered: At what point is a car not worth repairing?

My ten-year-old 130k-mile Saturn is showing its age pretty badly — leaking oil, disturbing noise coming from the front end, crumbling exhaust system. I’m having a tough time coming up with a satisfying way to determine if it makes financial sense to pay for the repairs or to just ditch the car and buy a new one (living carless isn’t an option, cool as it would be).

The discussion includes how to decide when to buy a new car, whether one should buy new or used, and the advantages (or disadvantages) of leasing. One poster invokes the Car Talk guys, who say: “It is always cheaper to keep driving your old car than it is to buy a new car.”

Consumerism Commentary has a great Quicken hack. Flexo explains how to track airline miles with the program. His method is to:

1. Enable support for multiple currencies
2. Add a custom currenct for the airline miles
3. Add your airline account
4. Hide the balance from your net worth

You can use this technique to track almost any rewards program you have that deals in “points” or “miles” and not real dollars.

[Consumerism Commentary: Quicken hack: How to track airline miles or points]

About.com has posted a list of ten ways to cut the cost of your homeowner’s insurance:

1. Raise your homeowners’ insurance deductible. Raising your deductible is an easy way to reduce your premium on any sort of insurance.
2. Combine your homeowners’ insurance and auto insurance policies. This is a common piece of advice for reducing auto insurance premiums. Most companies give a discount if you carry more than one type of coverage.
3. Ask about other homeowner’s insurance discounts. Some companies offer rate reductions for various pieces of safety equipment, for example.
4. Don’t buy homeowner’s insurance coverage you don’t need. If you don’t have jewelry, don’t protect against its loss.
5. Make your home a better insurance risk. We know that when we finish replacing the knob-and-tube wiring we can get a rate reduction. This gives us some motivation to finish!
6. Know what your homeowner’s insurance policy covers. It doesn’t hurt to read through the policy every couple of years to make sure you still have the coverage you need.
7. Keep your insurance coverages up-to-date. When you make changes, let your agent know.
8. Avoid risks that insurers shun. Trampolines? Swimming pools? Vicious dogs? These things can raise your rates.
9. Improve your credit score. It’s a controversial practice, but many insurers are tying rates to credit scores. They believe credit scores offer an indication of potential risk.
10. Shop around. If you’re unhappy with your current rates, get quotes from three other companies.

Most of these tips are common sense, and similar to “how to get cheaper car insurance” lists. But it’s a good list nonetheless.

[About.com: Ten ways to cut your homeowner's insurance premiums, via Lifehacker]

Liz Pulliam Weston at MSN Money recently asked her readers for money hacks. She picked 12 cool money tricks to publish. My favorite? Getting stores to give you interest-free loans:

Warning: This is an expert hack, recommended only for folks who have good money management skills. I’ll let a Your Money message board poster with the handle of “sneakers” explain how it works:

“Whenever I buy a big ticket item, I make sure I have the cash to pay for it. Then I wait for store financing offers — same-as-cash or deferred interest for an extended period. I opt for the financing, put the cash in a (certificate of deposit) that matures just before the end of the promotional period, and pay it off before the deferred interest becomes due. It’s like a free loan from the stores and I can earn interest while I enjoy the item!”

Obviously, this hack works ONLY if you keep your mitts off the invested money and if you pay the bill before it comes due; otherwise, you could pay a truckload of finance charges.

This is beyond my skill level at the moment, but I admire the guts it takes!

Money Hacks reader Mia left a comment in how Much Should You Save for Retirement discussing other rules-of-thumb she’s learned. She pointed me to an article called “Rate yourself using debt-to-income ratio”.

The article suggests that “healthy families” should strive to:

• Save 12% of their income every year. A 30-year-old should have 10% of her income amassed in savings. A 35-year-old should have 90%. At 40, she should have 1.7x her income saved. At 50 this should be 3x income, and at 60 it should be 8.8x income.
• Add up all of your debt, including mortgage and student loans. At age 30, your debt should only be 1.7 times your income. This number should drop as you age. At 45, it should be equal to your income. By age 65, you should have no debt.

These ratios are fine, but they seem awfully ambitious, especially with regard to debt. I’m nearly 38. Should I be worried that our family’s debt is more than twice our income? What if it’s mostly mortgage debt?

[Rate yourself using debt-to-income ratio]

Every year before we moved into a dorm room in college, we went over a comprehensive inventory list with our resident assistant. We checked to make sure everything was present and in working order. If, at the end of the year, we left the room damaged, we were charged for repairs.

This same principle can be used to your advantage of you rent your home or apartment. Most rental properties require a security deposit to protect against tenants leaving a building with damage. But not every landlord requires a pre-move-in inventory.

A quick-and-easy way to protect yourself against the loss of your security deposit is to thoroughly document your rental before you move in and after you move out. Bring a friend and a digital camera. (A video camera is better. If possible, bring the landlord too.) Move from room-to-room photographing and documenting everything. If there are any major problems, put them in writing and have your landlord sign to acknowledge the situation.

These precautions aren’t foolproof, but they can help bolster your case if a dispute does arise.

More information here and here.

The March 2007 issue of Money magazine has a sidebar that gives a rule of thumb for determining how much you should have saved for retirement. The information is geared toward Boomers, though, and so the start age is 45. Still, it should give you a rough ideas of where you should be.

In other words, if your income is $50,000/year, you should have about $300,000 saved at age 50.

I’m not sure how these numbers were derived, so it’s hard to say how to determine guidelines for folks younger than 45. I know that I hope to have 2x my income saved by the time I’m 40, but I feel like I’m a little behind the curve.

Here are two tips from a reader for making the most of selling on craigslist. Stephen writes:

A lot of people offer free stoves, stackable washer/dryers, and other large appliances simply because they don’t want to move them. If you watch, you’ll notice these from time-to-time in your neighborhood. These can be resold for around $100 to $150 on Craigslist the next day.

Also, if you have something you just want gone, post it in the free section but ad “or highest bidder”. We’ve found that people will offer payment for an item we just wanted gone.  We had a very large shed in our backyard we just wanted to get rid of, and when a guy said “I’ll give you 100 for it” we bumped him 20 spaces and said come get it.  He did, that day.

Got a tip? Send it in!

There are a couple solid approaches to rational stock-market investing. The easiest, of course, is to stick your money into mutual funds. Another approach, however, is to pursue value investing, a method practiced by big names like Benjamin Graham and Warren Buffet.

Value investing is the technique advocated by Phil Town in his recent book Rule #1 (my review at GRS). In plain English, value investing involves buying good companies at a discount price. Obviously there’s a lot of meaning in that one sentence — what’s a “good company”? what’s a “discount price”? — but this isn’t the place to explain the concept fully.

This is the place to share a fine source for beginning your quest for undervalued stocks. Every month in Money magazine, Michael Sivy shares his list of “blue-chip growth stocks for the long run”. This list is also available online. Sivy writes:

If there is any way to beat the market over the long run, it consists of following the strongest, most secure stocks and trying to scoop them up when they are measurably undervalued. There are surprisingly few such stocks that you need to follow on an on-going basis — we’ve come up with 70, which you can track in the table below.

What are the defining characteristics of these great growth stocks? Size is certainly part of it, and almost all of the stocks on the core list have market capitalizations and total revenues that top $5 billion a year. We also looked for companies with diverse product lines and dominant positions in their industries. As for growth, we sought companies that are capable of returning a steady 11 percent to 12 percent a year through a combination of earnings gains and yield.

I’m a big fan of index funds. But I also allocate a little money with which to invest in individual stocks. When I’m looking to find a new one, I start with the Sivy 70.

Americans spend a mind-boggling $10 billion a year on bottled water products. That’s insane! Much bottled water is simply drawn from municipal water systems, the same as the drinking water from your kitchen sink. And even the water that isn’t drawn from the tap has no added nutritional benefit.

Bottled water is more expensive than gasoline, and costs hundreds of times more than tap water.

I’ll admit that I indulge in bottled water from time-to-time. A case of the stuff from Costco runs about $0.25 a bottle, and these bottles can be reused for a l-o-n-g time. Because I’m trying to cut soda from my diet, I’ve taken up Talking Rain, which is a carbonated water flavored with “natural essences”. I know this is an expensive indulgence, but it’s a good transitional beverage while I wean myself from stuff with sugar.

Maybe a year from now I’ll be able to subsist on only tap water.

How much should you have invested in the stock market? According to Money magazine, the rule-of-thumb has changed.

One hundred minus your age used to be the rule, and in fact the basic concept still makes sense: As you get closer to retirement (and go beyond it), you want to increase the percentage of stable fixed-income investments in your portfolio and cut back on higher-returning yet riskier stocks. But the old formula now appears to be overly conservative.

Today’s longer life spans mean you have to keep your money growing to last through a far longer retirement than previous generations enjoyed. Plus, it’s less likely than it would have been in the past that you will have a pension making a big contribution to your retirement income. What would be a better guide? Subtract your age from 120. That more aggressive formula should help you maintain your living standard through your retirement years.

I am nearly 38 years old. According to this formula, I should be 82% invested in stocks. (According to the old formula, I should be 62% invested in stocks. I agree — that seems conservative.) My concern is that while this formula seems to work fine for younger people, it’s rather aggressive for people in retirement. Even a person at age 70 would have 50% of her portfolio in stocks using the new rule-of-thumb. I think 30% seems much more reasonable.

[Money: Five rules of thumb]

Do you have a roommate? A partner? A friend to whom you’ve loaned money? Buxfer is a fantastic web-based tool for anyone in a situation with shared expenses. The site’s programmers write:

As graduate students, having food almost always meant eating out with a bunch of fellow sufferers somewhere on Craig Street. With such a high rate of accumulating bills, our memories and scraps of paper were just not enough. So we wrote a small simple script to keep track of our debts. And boy, did we love it! Well, we thought maybe the others would find this useful too.

You can learn more about Buxfer by:

• Taking a tour of the site
• Reading the blog with updates on developments
• Viewing the FAQ to get into the nitty-gritty

Where was this when I was in college? (Oh, right — the whole internet thing hadn’t come of age yet.)

“I have $500 extra in my checkbook,” my wife told me the other night.

“What do you mean?” I asked.

She explained that for the past 2-1/2 years, she’s been rounding every transaction up to the next dollar. If she spends $49.74 at the grocery store, she enters this in her checkbook as $50. If she spends $21.23 on gas, she enters it as $22. As a result, she saves an average of 50 cents every time she performs a financial transaction. She’s made roughly 1000 transactions since she started this, and now has $500 more in the account than her checkbook register shows.

When she reconciles her accounts, she merely double-checks to make sure all transactions are present — she doesn’t actually reconcile totals.

I’m not sure I could ever do this — it would make me tense — but my wife finds great satisfaction in having this buffer.

While researching other topics, I found a four-year-old Motley Fool article on saving. I particularly liked their advice to pay debts forever, but to make yourself the payee.

Many of us have some kind of monthly loan payment, whether it be a school loan, a car loan, credit card debt, a mortgage, or all of the above. The day will come when you send in your final payment. But unless that debt has been debilitating, you’ve been doing fine while making those monthly payments. So, keep it up. Except, instead of sending a check to the lender, send the check to a savings, brokerage, or mutual fund account. You’ve increased your net worth by paying off the debt; now, keep up the good work by building up your assets.

Clever and effective.

[Motley Fool: Seven savings tricks]

Lifehacker points to Coupon Chief, a source for online coupons and coupon codes. The site also highlights discounts and specials around the web.

Here at Coupon Chief, we strive to provide a one stop coupon deal and discount resource for our Web site visitors. Our focus on customer support and providing up to date coupon codes and promotional deals and discounts is unparalleled in the online shopping e-commerce industry. You can be assured we are always on the lookout for the latest deals and offers from our extensive list of web merchants. We are constantly adding new merchants and coupon codes, promotion codes, and offers, so come back and visit us again and again for all your online shopping purchases!

Links from Coupon Chief are embedded with affiliate codes, but that seems like a worthwhile way to support them. If you’re opposed to affiliate programs, simply research the coupon codes and then enter the appropriate link manually.

Jason writes with a time-tested money hack, but one many people are prone to forget:

Go through your monthly bills. Eliminate/reduce ones that you don’t need. Take the amount of money that you would save on a monthly basis and add it to your monthly savings deposit. I live paycheck-to-paycheck, and literally have less than $15 in my savings account. But I was able to figure a way to have about $40 that I automatically deposit just by reducing a few monthly bills (getting the slower speed cable internet, canceling a music subscription service, etc). Seems small, but it’s sure better than nothing!

Though these amounts seem small, he’s off to an awesome start. He’s making exactly the right choices to set himself up for financial success. Congratulations, Jason!

While organizing the list of 24 Craigslist tips, tricks, and resources at Get Rich Slowly, I stumbled upon an interesting page that highlights gift card strategies: how to best acquire or dispose of them.

This page offers a wealth of sound, practical information regarding gift cards, including information on:

• Why you should beware of bank gift cards
• Gift card traps
• Best and worst deals
• How to buy a gift card at below face value
• How to dispose of a gift card you don’t want

The author lists four web sites where you can buy and sell gift cards: Craigslist, Cardavenue, Gift Card Buy Back, and Swapagift.com.

[The Skill Pool: Gift card strategies: how to best acquire and dispose of them]

The best-known money hack of all time is simply to pay yourself first. Every time you receive money, set aside a portion (many people set aside 10%) for personal investment. Put this money into a savings account, a certificate of deposit, or some other form of investment. Never touch it. Do this on a regular basis and you will accumulate wealth.

The key to this hack is to actually set the money aside before you can spend it. In order for this to work, you must make it a priority to literally pay yourself first.

In The Automatic Millionaire, David Bach details how to remove all temptation by making this saving forced. Chapter three is entitled “Learn to Pay Yourself First”. Chapter four is “Now Make It Automatic”. The entire book offers advice to make this happen.

One of the easiest ways to begin to pay yourself first is to take advantage of a salary increase. The next time you get a raise, don’t give in to lifestyle inflation. Instead, take that pay increase and sock all of it into savings. Think of this as a gift, a free chance to implement this money hack.

Many of us know this hack. Many of us preach it. But how many actually put it into practice?

[Read more at Get Rich Slowly — Pep talk: Pay yourself first]