There’s no shortage of financial advice to be found on the internet, social media, the 24 hour news, and even from your friends & family. We’re bombarded with new opportunities to save, invest, and yes, even lose money. FOMO, YOLO, crypto, repeat.
Surrounded by all the noise, a lot of folks simply don’t do anything. Ironically, in many cases, doing nothing is often the best course of action. As Jack Bogle famously said, “Don’t do something, just stand there! ”
But there are a few things we can all do before we just stand there to make sure we’re not leaking money from our financial ship. What are they?
Only pay for what you use. Sounds obvious, right? My mom is a member of the Greatest Generation. She’ll be 91 in October, and she still saves every receipt and checks them off against her credit card statements each month. She’s a Depression kid, so not a penny gets spent without purpose. She’s also not on the internet subscribing to all sorts of sites, software packages, streaming entertainment, etc., so she has a small advantage, but aside from the most dedicated folks I know in the FIRE community, let’s be honest, few of us check our credit card & bank statements that closely every month.
I’m a pragmatist, so I’m not saying you need to become like my mom & keep every scrap of paper to double check, but at least once a year - I recommend around tax time or the new year, check those statements for expenses you don’t need anymore, or maybe never even needed in the first place. I’m as guilty as anyone of letting stuff like this slip. A few years ago I finally looked closer into a monthly charge on my Amex bill which turned out to be from my old sushi business, which I’d sold two years before that! These companies are clever, and they give the charges generic names, which can look like something else you might otherwise be buying, so as not to raise any flags & lead you to cancel the service. Last year I even found the craziest bit of fraud on one of my credit cards. Someone was using my credit card to pay for, “fraud protection,” from one of the credit agencies.
A few phone calls solved each of these mysteries & added $30 & $50 back into my bank account every month. It’s true that the companies often make you jump through hoops to cancel, but it’s tough to think of easier money to put back in your pocket.
Take a look at your investment accounts. Another obvious suggestion? Maybe, but much more important and overlooked than you might think. In my experience, many folks get their investment statements in the mail & just pile them in the junk drawer or throw them in a pile in the home office. What’s in there? Do you really know?
Maybe you know what’s in your taxable brokerage account, if you’re into the stock market & fancy yourself an active investor. (That’s a subject for another blog post.) But what about your 401(k)? Or the IRA you opened twenty years ago when you got your first job? What are the chances that the investment options you selected years ago are still the right ones for you today? A lot has changed in the last decade or so. Did you know to look for low cost index funds back in 1998? Even if you did, there’s a good chance that they may not have been part of the investment menu back then.
I’ve seen plenty of legacy 401(k)s and IRAs stuffed with high fee mutual funds and even company stock that people never bothered selling after moving on to different jobs. One client ended up saving over 1% in annual fees after moving into index funds. One percent added to you investment returns every year, year after year. People pay investment managers good money to add less than that to their investment performance and they’re happy to do it. Pay yourself that money.
Set it & forget it. One of the best things anyone can do to prepare for the future is to save & invest. But there are a lot of demands placed on our money, and it’s super easy to, spend it if you’ve got it, to paraphrase the saying. In the old days, which really wasn’t that long ago, you might have had to write a check, or multiple checks, each month into your different savings & investment accounts. Nowadays, it’s so much easier to set up automated savings and investing that in my opinion it’s the only way to go. If you’re not doing this already, or if you think it’s too basic, please think again. Start small if you have to, but begin to populate those savings accounts. Once you have your automated savings set up, and stop leaking money by spending before you save, unlike the old investment accounts I wrote about above, you can ignore them most of the time.