Pimp Your Finances

Bankrate.com recently published a list of 16 ways that real people grow their wealth.  Some are good ideas.  Others, not so much.  The key take away is that anybody can do these things.

Here is their list, along with my comments.  Their list is in bold, and my thoughts are underneath.

1. Grow your own food

While I’ll grant that its very satisfying to grow your own food, for most people this is not a good way to build wealth.  It may save some money, but in most cases it won’t be very much.

2. Set limits and stick to them

Yes!  Part of budgeting is to make a plan and stick to it.  The trick it to set limits right when you get paid – this allows you to pay yourself first.

3. Buy savings bonds

They suggest taking 10% of every paycheck – which I like – and investing it in savings bonds – which I don’t.

Putting away 10% is a great idea, but there are better options than savings bonds.  Yes, they offer a guaranteed return, but it comes at a cost.  Because there is little risk, the return will be much lower than other investments.

4. Redirect your raises

Another great idea!  A great way to “accidentally” get rich is to always keep your take home pay the same.  Any time you get a raise or a bonus, save or invest it.  If you never see it, you can never miss it – or spend it.

5. Split raises in half

This is just a watered down version of #4.  Instead of saving/investing all of your raises, this one suggests that you keep half, and save/invest the rest.  Still a good way to get ahead, but not as good as #4.

6. Track spending

One of my favorites!  I’m convinced that if you track your spending, you’ll spend less.  If you know exactly where your money goes, you’ll start finding better uses for it.

7. Spend less by budgeting

Plan your monthly budget in advance, and pay yourself first.  Regardless of if you’re trying to pay down debt, save for a vacation, or save for retirement, you’re more likely do accomplish it if you make a point to do it first, before spending any money.

I actually plan my budgets at least two months in advance.  That way, nothing sneaks up on me.

8. Save by Using Credit

It’s dangerous, but using credit wisely can save you a lot of money.  The article suggests using credit cards for all purchases, but you have to pay them off on a monthly basis.  That way, you earn reward points while you make interest on your cash.

Another way to use credit to save cash is to take advantage of 0% interest balance transfers.

Again, its dangerous, but if you’re responsible and committed, you can save a great deal of money.

9. Take advantage of rewards

This ties into #8.  If you can earn cash back or free rewards for the things you already do, you’d be a fool to not take advantage of them.   Again, just make sure you pay off all credit cards in full each month.

10. Save with coupons

You can save a lot of money by using coupons or just buying what’s on sale.  Take the time to look through ads before you hit the stores.

11. Use direct deposit

This is similar to #4.  If you automatically transfer money to savings accounts right after you get paid, you can’t be tempted to spend it.  Also, it you automate it, you can’t forget about it.

12. Leverage automatic savings

This builds off of the last one.  If you use direct deposit or automatic transfers to take money out of your checking account, you pay yourself first and ensure it goes to your savings.  If you want until the end of the month to put money in savings, you’ll inevitably end up spending it all.

13. Don’t touch the money

Putting money in savings is only half the battle.  You have to leave it there if you want it to grow.

14. Pay attention to progress

They suggest tracking your debts and assets, and watching how your debt goes down and turns into a positive net worth.

I think it’s a great idea, but looking at your 401K or net worth every day is too much, and can actually be bad for your finances.

Tracking your accounts and progress is great, but micromanaging them is not.  Maybe check it on a weekly or monthly basis, but not every day.

15. Save a little [more] every week

If there is a goal you’re saving for, start with a small amount, and increase it over time.  Eventually, you’ll adjust to the lower income, and your savings will grow pain-free.  Making the transition gradually will be easier, and more likely to stick.

16. Check grocery store ads

Nothing shocking here.  If you check store circulars and go to the store that has the lowest prices, you can save a lot of money.

My favorites

The list is simple and repetitive, but contains solid advice for getting ahead in your finances.  Here are my favorites:

• Redirect your raises - if you keep your take home pay the same and put the remainder into savings/retirement, you’ll build wealth very quickly.
• Track your spending/set a budget – if you set a plan, you’ll spend less, and use it for better purposes.
• Don’t touch the money – you should be saving/investing for the long run.  To get rich, your money must continually build in value and take advantage of compound interest
• Pay attention to progress – you should always be aware of how much money you have or owe on all your accounts.  It helps prevent identity theft, and it’s also a strong motivational factor.