Money Hacks

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]

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.

“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]

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!