What's In Your Financial Diet?
Starting from next Monday, USA Today will run a six-week series "Financial Diet." The goal? Allow Americans to follow some easy steps to achieve better financial health. I have no doubt that USA Today will be able to deliver it -- I am always an admirer of the newspaper's down-to-earth style.
Take a look of what's ahead:
Week 1: Start by cutting the little expenses
Week 2: Make (and stick to) a budget
Week 3: How to cut credit debt
Week 4: Basic retirement planning
Week 5: Saving for college
Week 6: How did we do on our diet?
Now let's discuss how to cut the little expenses. As a starter, USA Today gave a quick lesson on "latte factor": if you save $3 by skipping a cup of latte every day, and sweep your savings to an retirement account that earns 10% every year, your savings will be worth $1.6M in 50 years, thanks to the power of compouding. (I'm not a coffee person, but I do understand to some people, it's intolerable cruelty to miss latte for 50 straight years.)
Where can you squeeze a few bucks from your daily expenses? While we are waiting for USA Today's Monday issue, let me share a few painless ways to save:
1. Get a (really good) reward card. Don't settle for 1% cashback. If you can get a credit card like Citi Driver's Edge (5% rebate on everything in the first 9 months), or Citi Dividend Platinum (5% cashback on gas, grocery and drugstore purchases, 1% on everything else), you can easily shave $100 off every $2,000 monthly credit card purchase.
2. Mortgage comparison shopping. If you haven't refinanced in the last two years, this is the sure-bet to cut your expenses in one shot for the next several years. Take a look at PFBlog's review on Bankrate vs LendingTree.
3. Insurance comparison shopping. If you haven't done this before, look beyond your current insurer and make sure you are paying a reasonable premium. Plus, get away from whole life insurance -- stick to term life insurance and invest your money elsewhere.
The above steps actually saves month without even requiring you to say good bye to your daily shot(s) of expresso. Sounds good?
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My wife and I went on a financial diet 20 years ago, and retired at age 54 due to good financial planning. We approached it differently. We knew how much we spent - all of it. We just had to pick spending priorities. We set up a budget checking account, completely separate from our main checking account. We went through our past bills and listed the annual expenses of the 'necessities':
Mortgage, insurance, taxes, electricity, water, telephone, car payment, day care, school fees, etc. We divided this by 24; I was paid every 2 weeks. We wrote a check every payday to the budget account for this amount. Then paid the bills from the budget account, the money was always there.
We then had to prioritize how to spend the remainder. We eventually added savings to the budget. Everything else was variable. Yes, even food is variable; you don't 'need' pop, candy, cookies, etc. You don't 'need' cable TV. You must live within your income or forget this excerise. If you serious about a budget, you have to be realistic. It's like stopping smoking. The best way is cold turkey. You have to 'stop', not cut down, spending on things you can't afford. Then the credit card balance will start to decrease.
It worked for us.
J Adams
