365 Ways to Live Cheap (6 page)
56. I
F
Y
OU
D
O
O
VERDRAFT FOR THE
F
IRST
T
IME
, A
SK FOR THE
F
EE TO
B
E
W
AIVED
Everyone makes a mistake once in a while; sometimes that little mistake can result in an overdraft. If you’re a regular customer, this is a fee that should easily be waived if you handle it appropriately. First, make sure that you have sufficient funds in the account to fully cover the overdraft check (and any others that may be outstanding). Then, call the bank’s customer support line, confess your mistake, and ask that the fee be waived. If they say no, do not get upset. Ask to speak to a supervisor. If that person won’t waive it, try the same procedure at your local branch office. Start by asking the teller, then moving up to the supervisor if you hear a negative answer. Be polite, dress well, and don’t get angry if you still hear a negative answer. Quite often, one of the four people you talk to will waive your fee, and like that, you’ve saved yourself $35. Variations on this approach work well for any kind of fee.
57. O
PEN
U
P A 401(K) OR 403(B)
N
OW
If your workplace offers you a 401(k) or 403(b) retirement plan and you haven’t signed up, do it now. Don’t wait another second to do so—it can save you far more money in the long run by starting now than by putting it off. A few pointers:
If your employer offers to match your contributions, contribute as much as you have to in order to get that full match. This is free money from your employer that you don’t have to pay taxes on until retirement. Take it if they’re giving it to you!
If you’re worried that your paycheck can’t take a 5 percent or 10 percent hit, don’t worry—a 10 percent contribution won’t actually reduce your paycheck that much. This money comes out before taxes, meaning that the percentage of your check that goes toward income taxes right now will actually go down. If you start contributing 5 percent of your check, for example, you’ll only actually see a 3 ½ to 4 percent drop in your actual take-home pay.
58. U
SE A
S
IMPLE
M
ETHOD TO
C
HOOSE
I
NVESTMENT
O
PTIONS
When signing up for a retirement account, the choices can be overwhelming. Keep it simple; here’s what you need to know to get started now (you can always learn more later on).
If you have the option of choosing a plan that targets a specific retirement date (often called something like Target 2040), choose the one that comes closest to the year you expect to retire and put everything into that one fund.
If you don’t have such an option available, take your estimated retirement age (if you don’t know, use 70), subtract your current age from that, and multiply that by two. Put that percentage in the stock fund with the best returns and the rest in a bond fund with the best returns (ask for help if you don’t know). For example, if you’re 30 and you want to retire at 70, you should put 80 percent into stocks and 20 percent into bonds. If you’re 50, you should put 40 percent into stocks and 60 percent into bonds. Then, every five years, adjust the amounts by refiguring how your split should go. This is a simple rule of thumb that will put you on the safe side.
59. C
ONTRIBUTE
R
EGULARLY TO
T
HAT
R
ETIREMENT
A
CCOUNT
When you first sign up, you’ll be asked to put down a percentage contribution. Choose a realistic amount. Don’t pledge more than you think you can easily swallow. When you’ve signed up, don’t interrupt the contributions. The little sacrifices you make now to keep the contributions going will enable you to have a happy life in retirement instead of having to scrape by on a small Social Security check.
60. A
UTOMATICALLY
B
UILD AN
E
MERGENCY
F
UND
At some point in your life, disaster will strike. Your car will break down. You’ll need a medical procedure. Someone will break into your house. These can be bad news, and financially costly, too, especially if you have to use a credit card to get through it. During those times, you need to have some extra cash on hand. The solution is pretty simple: Start an emergency fund to help you resolve these types of problems. Simply instruct your bank to automatically take a tiny amount out of your checking account each week (say, $20) and put it into a savings account for you. Let the money sit in that account; then, when the going gets rough, you have that cash available to you. It’s probably earned a bit of interest, too, which is a bonus. Planning ahead just a little bit right now can make an enormous difference later on.
61. I
F
Y
OU
H
AVE AN
U
NEXPECTED
W
INDFALL
, P
UT
I
T
I
NTO A
CD
If you’re in a situation where you have a significant amount of cash on hand—winnings, a settlement, an inheritance, or anything like that—don’t touch it at first. Give yourself time to carefully consider what to do with that cash. A smart thing to do is put it into a certificate of deposit at the bank for six months. It’ll earn some significant interest there and also give you the hands-off time you need to carefully come up with a plan for your newfound money. Spending it immediately is usually the worst option, particularly if you’re not using it to eliminate debt or build your personal wealth.
62. I
GNORE
F
REEBIES
G
IVEN
J
UST FOR
S
IGNING
U
P FOR
F
INANCIAL
A
CCOUNTS
One tactic that many banks like to use to entice you to switch to their bank is the free gift. “Sign up with us and you’ll get a free blender!” “Switch to our ‘free’ checking and you’ll get a $75 signup bonus!” Those initial freebies are often hiding something about the account, something that will help them earn their money back over the long haul. Look very carefully at the account they’re offering you with that bonus. Often, there are clauses like minimum balances, hefty overdraft fees, no interest at all, a poor ATM network, or other “features” that will cost you more in the long run. If you’re going to switch to a new bank, switch because the account itself is good, not because of a welcoming prize. You’ll be better off in the long run.
C
HEAP
T
ACTIC
$
FOR
C
HILDREN AND
F
AMILIES
63 Start Saving for College as Early as Possible—Even Before the Child Is Born
66 Shop Yard Sales for Young Children’s Clothing
67 Take Advantage of Hand-Me-Downs
68 Buy Fewer, Higher-Quality Childhood Toys
69 Focus on Buying Open-Ended Toys
70 Participate in Baby-Sitting Exchanges Instead of Hiring a Babysitter
71 Encourage Art Skills with an End Roll of Newspaper
72 Extend the Life and Value of Crayons
74 Turn Supplies You Have on Hand into Toys
78 Utilize Community Resources
80 Share the Thought Process Behind Your Purchases
81 Resist the Temptations of Soda and Fast Food
82 Involve Children in Frugal Projects, Like Gardening
63. S
TART
S
AVING FOR
C
OLLEGE AS
E
ARLY AS
P
OSSIBLE
—E
VEN
B
EFORE THE
C
HILD IS
B
ORN
If you’re not saving for your child’s college education now, get started right away. The amount of money your family will save over the long haul by socking a few twenties away each month starting now can be tremendous. Here are some options to consider:
Make the savings automatic. Set things up so that even a small amount is put into a separate account for your child. Even $10 a month, started at birth and earning just a 5 percent annual return, adds up to $3376 for your child’s college education. That amount can make a huge difference if your child attends a local school or a state institution.
Look into a 529 savings plan. These plans allow you to earn a good return on your savings, allow you to automatically put away a specific amount each month, and protect your savings from taxes. Use Google to find out about the 529 plan available in your state or other 529 plans available to you.