I recently came across an article discussing the “best” money advice when it comes to your personal finances, but some of these strategies require some outside the box strategies. Here are the 7 strategies outlined.
1. Open more credit cards – The article recommends opening more credit cards to spread out the debt and potentially improve your credit score. For example, if you have “one card with a $10K limit and $8K balance you utilization of the credit amounts to 80%, but if you open 5more cards with a $10K limit now your utilization is 16%”. While in the long run, this can improve your credit score slightly this can be very dangerous. The method I have learned is that if you open a credit card, you should be able to pay it off when the bill comes in. If you are considering the method of opening more cards I hope you are a disciplined person, because having more cards leaves you very tempted to spend more money.
2. Stop Avoiding Income Tax – You can fund your 401k and IRA with pre-tax money, but eventually you will have to pay tax when you withdraw from these accounts for retirement. Experts indicate that as people get closer to retirement today they “have no intention of retiring with far lower incomes than they currently enjoy” and that thanks to our national debt today, tax rates may not be as low as they are today. The article recommends investing some of your funds into a Roth account (investing after tax dollars that can be withdrawn tax free).
3. Skip the college fund – Look for other options when considering a college fund for your children. In can be difficult in today’s economy to save money in a college savings plan, and save for the emergency fund, and be able to pay for everyday living. Rather than putting your extra money in a college savings plan, the article recommends putting money into your retirement fund. You cannot borrow for retirement but you can borrow money for other things like college. Also, don’t forget your kids can contribute to their own college funds. Look for scholarships, they take a loan for their own education, and get a part time job.
4. Don’t Refinance – If you refinance your 30 year mortgage because you’re moving from 5% to 4% for another 30 years. Think again. Even though you may be saving in your payment keep in mind you will be starting over for another 30 years so in the long run you could pay more in interest because you are extending the time of the loan.
5. Don’t just ask you insurance agent for advice – Insurance agent = salesperson. Keep in mind if you ask your insurance agent for advice they can end up selling you more insurance than you need. Figure out the coverage you really need and then shop around like you normally would for a larger ticket item. It can’t hurt to see what other providers are offering and if you want to stay with your agent now you at least have some leverage.
6. Obsessed over a raise – Getting a raise can be great in these economic times, but keep in mind you have to pay tax on that raise. You may think a raise is going to help you lower your monthly expenses, but in the long run the best way to lower your expenses is cut costs through thing like coupons and eating in.
7. Pay more for your car – If you thinking about getting a car think twice about the loan you select. If you can afford to pay more on your monthly payment for a shorter timeframe at a lower interest rate, do it. According to this article you will end up saving money (est. $1K or more depending on the car) in the long run. Also be careful of leasing over buying. With a lease it may seems like a great deal but keep in mind you will probably end up going over your miles, you can be charged with additional fees, and most importantly you don’t own the car.
1. Open more credit cards – The article recommends opening more credit cards to spread out the debt and potentially improve your credit score. For example, if you have “one card with a $10K limit and $8K balance you utilization of the credit amounts to 80%, but if you open 5more cards with a $10K limit now your utilization is 16%”. While in the long run, this can improve your credit score slightly this can be very dangerous. The method I have learned is that if you open a credit card, you should be able to pay it off when the bill comes in. If you are considering the method of opening more cards I hope you are a disciplined person, because having more cards leaves you very tempted to spend more money.
2. Stop Avoiding Income Tax – You can fund your 401k and IRA with pre-tax money, but eventually you will have to pay tax when you withdraw from these accounts for retirement. Experts indicate that as people get closer to retirement today they “have no intention of retiring with far lower incomes than they currently enjoy” and that thanks to our national debt today, tax rates may not be as low as they are today. The article recommends investing some of your funds into a Roth account (investing after tax dollars that can be withdrawn tax free).
3. Skip the college fund – Look for other options when considering a college fund for your children. In can be difficult in today’s economy to save money in a college savings plan, and save for the emergency fund, and be able to pay for everyday living. Rather than putting your extra money in a college savings plan, the article recommends putting money into your retirement fund. You cannot borrow for retirement but you can borrow money for other things like college. Also, don’t forget your kids can contribute to their own college funds. Look for scholarships, they take a loan for their own education, and get a part time job.
4. Don’t Refinance – If you refinance your 30 year mortgage because you’re moving from 5% to 4% for another 30 years. Think again. Even though you may be saving in your payment keep in mind you will be starting over for another 30 years so in the long run you could pay more in interest because you are extending the time of the loan.
5. Don’t just ask you insurance agent for advice – Insurance agent = salesperson. Keep in mind if you ask your insurance agent for advice they can end up selling you more insurance than you need. Figure out the coverage you really need and then shop around like you normally would for a larger ticket item. It can’t hurt to see what other providers are offering and if you want to stay with your agent now you at least have some leverage.
6. Obsessed over a raise – Getting a raise can be great in these economic times, but keep in mind you have to pay tax on that raise. You may think a raise is going to help you lower your monthly expenses, but in the long run the best way to lower your expenses is cut costs through thing like coupons and eating in.
7. Pay more for your car – If you thinking about getting a car think twice about the loan you select. If you can afford to pay more on your monthly payment for a shorter timeframe at a lower interest rate, do it. According to this article you will end up saving money (est. $1K or more depending on the car) in the long run. Also be careful of leasing over buying. With a lease it may seems like a great deal but keep in mind you will probably end up going over your miles, you can be charged with additional fees, and most importantly you don’t own the car.
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