9 Easy Moves to Save You Time and Money
Back in the day, TVs were all basic black-and-white sets with on-off knobs and a choice of four channels. People saved money in a bank account, carried a department-store charge card, and could fit all of their important papers in the proverbial shoebox. Today's big-screen entertainment centers come with hundreds of channels and multiple remotes. Likewise, consumers are free to choose among a vast array of financial products and services. That's a boon to your finances, but it also makes life more complex and can become overwhelming. To cut through the clutter, we suggest that you think one and done: one credit card to maximize your rewards points, one manager for all of your retirement accounts, a single do-it-all mutual fund. Even if you make only one or two of our nine moves, you'll cut your stress and have more time to kick back -- and you'll save money, too.
1. Carry just one credit card in your wallet. Why tote around a clutch of credit cards for retail stores you no longer patronize or gas stations that are nowhere near your home? By consolidating your purchases on one rewards card that best matches your spending patterns, you can lighten your wallet and streamline your monthly bills; stockpile rewards points, frequent-flier miles or cash-back bonuses; and reduce the hassle if your wallet is lost or stolen. (See our slide show Find the Best Rewards Credit Card for You.)
The flip side is to get rid of the cards you don't need. Even if you keep more than one and carry a backup card when you travel, the key is to prune your accounts judiciously. Canceling credit cards outright can hurt your credit score because a big component of your score is your credit-utilization ratio. That's the amount of credit you've used expressed as a percentage of your overall credit line. You want to keep that ratio as low as possible (ideally below 30 percent or, even better, below 20 percent). Closing a number of accounts can bump up the ratio, even if you pay off your balance every month.
Start by ordering your credit reports from annualcreditreport.com. You're eligible for one free report annually from each of the three major credit bureaus. Once you have the list in hand, look for cards with low credit limits. If you have $50,000 in available credit, closing a department-store card with a $500 limit won't make a big dent in your utilization ratio. Still, if you're planning to apply for a mortgage or a car loan, it's a good idea to put off closing unwanted credit cards until after the loan has been approved, says Rod Griffin, director of public education for Experian.
Or you could simply put aside all but one of your cards in a safe place. Your utilization ratio won't suffer, and you won't be tempted to use the cards.
2. Use a single insurer. Keeping your homeowners, auto and other insurance policies with the same company will cut down on the number of bills you have to pay and may even improve the service you get. For example, if you're happy with the way your auto insurer handles claims, it makes sense to use the same company to insure your home (and possibly your life).
That's especially true if the company rewards your loyalty with a generous discount. Most major insurers offer discounts if you buy more than one policy. Purchase multiple policies from Allstate, for example, and you can save up to 20 percent on your auto insurance premiums and up to 35 percent on your homeowners policy. Liberty Mutual offers savings of up to 10 percent on its homeowners, condo or rental coverage if you bundle it with auto insurance. The company may offer a discount on the auto insurance premiums, too. Most insurers also cut you a break on auto insurance if you cover more than one vehicle. And Nationwide offers a discount of up to 50 percent on boat insurance if you have multiple policies.
Buying all of your policies from one insurer won't always deliver the best deal. For example, bundling may not lower your insurance costs if you need a nontraditional policy, such as insurance for a home built with green technology, says Jeanne Salvatore, spokeswoman for the Insurance Information Institute. But you can streamline your search by getting price quotes from an insurance agent who deals with several companies (go to www.iiaba.net to find one near you). Don't overlook insurers that sell directly to customers, such as Geico and USAA.
3. Create one master password. Hardly a week goes by without news of another massive security breach that has exposed thousands of people to identity theft. Yet despite this threat, the most common password is 123456, according to SplashData, a provider of password-management systems. The second most common password is -- wait for it -- password.
Clearly, we need to do better. But who has the time to come up with (and remember) difficult-to-decipher passwords for all of their online accounts? One solution is to use a password-management system that stores all of your passwords in a single file. All you need to remember is one master password (your dog's name is not a good choice) to access all of your other user names and passwords. Most password managers offer a free basic version; you'll need to update (and pay) to use the service on multiple devices.
Unfortunately, these programs aren't bulletproof. In June, LastPass, one of the most popular password-management systems, announced that its network had been hacked, exposing users' e-mail addresses and password reminders. The company said encrypted master passwords were not compromised, although users were prompted to change them.
If you're uncomfortable storing your passwords in the cloud, there are alternatives. KeePass stores all of your passwords in an encrypted file on your computer. As is the case with the cloud-based systems, you use a master password to access the file. Just make sure your computer is protected from hackers with strong antivirus software, or you'll lose the benefits of storing your passwords locally. (For more advice on protecting yourself against data breaches, see our Guide to Preventing and Overcoming 5 Types of Identity Theft.)
4. Store your files in one place. Among the mountains of paper in your home office are a number of documents that you should save forever: birth certificates, passports, Social Security cards, education records, life insurance policies, marriage license, divorce decree and record of military service. Hold on to home-purchase documents and records of improvements for as long as you own the property. The same goes for the titles to your vehicles.
In addition, the IRS generally has three years from the tax-filing deadline to audit your return, so keep your return and supporting documents for at least that long. Some experts recommend, though, that you hold on to your tax returns indefinitely because they can be useful for other purposes, such as applying for disability insurance or a mortgage. Starting with tax year 2014, you're also required to keep records that show you and your family had health insurance, along with records of any subsidies you received to cover health insurance premiums.
Once you've stored all of those documents in a bank or a couple of file drawers at home, feel free to toss, toss, toss. After you've paid your credit card bill, shred the monthly statement unless you need it to claim tax deductions. Monthly bank statements can also go into the shredder unless you need them for tax purposes. Shred pay stubs after you've received your Form W-2 and checked it for errors. You can dispose of brokerage statements once you receive your annual statement, unless they show a gain or loss that you'll need to report on your tax return. Hold on to statements that show the cost basis for an investment you still own.
You can also harness technology to reduce paperwork. The IRS accepts digital copies of supporting tax documents, so you can scan documents you'll need, such as letters from charities, and convert them to digital files. Back up the files with an external hard drive or flash drive.
Or store scanned documents on the Internet, using free cloud-based services such as Apple iCloud Drive, Dropbox, Google Drive or Microsoft OneDrive (see our story The Mysteries of Cloud Storage Explained).
5. Get your bank to pay your bills. Why waste time paying your bills when your bank or credit union probably offers an electronic bill-payment program, most likely at no charge? Even if one of your accounts doesn't accept e-payments, the bank will send a paper check.
You can set up e-mail or text reminders of due dates, which will reduce the risk you'll incur late-payment fees. Or arrange for recurring payments to be made automatically every month before the due date.
Although auto-pay can be a godsend for busy people, there are downsides, too. Changing banks can be a hassle because you must unwind all of your auto-payment plans before closing your old account (most banks and credit unions provide switch kits that help you with this process). If you're hit with an erroneous charge, you'll be out the money while you dispute the payment. Even when bills are accurate, you need to make sure there's enough money in your account to cover the automatic payment. Otherwise, you'll be hit with hefty overdraft fees.
One way to avoid that problem is to put your savings on autopilot, too. Have your paycheck deposited electronically in your bank account and, if your employer permits it, consider having a portion of your check deposited in a savings account set up for emergencies. You can arrange for your bank to withdraw money automatically from your savings whenever there's a shortfall in your checking account.
6. Consolidate retirement accounts. Over the course of your working life, you may have accumulated a raft of 401(k) plans from former employers and individual retirement accounts at various financial-services firms. You can reduce paperwork, lower fees and make sure your portfolio is appropriately diversified by rounding up these accounts under one umbrella.
For IRAs, consolidating with one firm will help you avoid low-balance fees that could eat into your returns. As long as mutual funds in your IRA are included in the financial institution's funds network, you won't have to sell your funds when you consolidate. You can combine the same types of IRAs (such as traditional IRAs) in a single account, which makes it easier to keep track of your portfolio.
Increasing the size of your account could also make you eligible for perks, such as a discount on tax software or a free portfolio review by a financial planner. Changing and updating beneficiaries is also easier when all of your IRAs are in the same place. And when you retire, taking withdrawals from your IRAs will be easier if you have all of your accounts with the same firm.
Your IRA provider will happily help you roll over old 401(k) plans into your account, too, but that's not always in your best interest. Some large-company 401(k) plans offer institutional-class mutual funds with lower fees than retail funds offered by IRAs. Many also offer stable-value funds, which are attractive low-risk alternatives to money market funds and are only available in employer-sponsored retirement plans.
If you're still working, there's a one-step alternative: Roll your former employer's plan (or plans) into your current employer's 401(k). Most large companies allow plan-to-plan rollovers. You'll streamline your retirement savings accounts without sacrificing the benefits offered by a 401(k).
7. Pick one broker or fund firm. It's also a good idea to put taxable investment accounts under one roof: You can see what you have at a glance, compare your asset allocation to your target mix of investments, and reduce the amount of paperwork you have to contend with at tax time.
All of the big fund companies, such as Fidelity, T. Rowe Price and Vanguard, have brokerage arms, so you can transfer both individual securities and mutual funds to them. Big brokerage firms, such as Charles Schwab and TD Ameritrade, let you buy and sell funds as easily as stocks. Know, too, that you usually don't have to sell an investment to transfer it. Just stipulate that you want to transfer it "in kind" and your current brokerage will transfer your securities without triggering a potentially taxable gain.
Going simple won't only make your life easier, it could also improve your results, partly because you'll find your portfolio easier to understand. That cuts down on shocks that can lead to poor, emotionally driven decisions, says Ben Carlson, author of the book "A Wealth of Common Sense: Why Simplicity Trumps Complexity in Any Investment Plan."
To see if your investment mix is well diversified, make a stop at the portfolio "Instant X-ray" tool at Morningstar.com, a free service that lets you plug in your investments and get a snapshot of your portfolio's composition. Among other things, the tool tells you the degree to which your investments overlap and what percentage of your assets are in broad investment categories, such as big U.S. growth companies or investment-grade corporate bonds, as well as industry sectors, such as technology or financial services. For advice on making changes, you can upgrade to Morningstar's premium membership ($199 a year).
8. Invest in an 'all-in-one' fund. If you'd rather let someone else pick your tax-deferred or taxable investments and make sure they stay in proper balance, you're a candidate for an all-in-one fund. They come in three main flavors: Balanced funds typically hold 60 to 70 percent of their assets in stocks and the rest in bonds. Lifestyle funds assemble a mix of investments geared to your tolerance for risk. A conservative lifestyle fund might have 40 percent of its assets in stocks, while an aggressive one might have 80 percent in stocks. Asset allocations in both balanced and lifestyle funds tend to remain fairly constant over time.
The asset allocation in target-date funds, by contrast, changes as the fund ages. The idea is to pick a fund, such as Fidelity Freedom 2050, whose target date matches your particular goal -- usually retirement, but the funds may also be used to save for college or other purposes. A fund with a target year far into the future typically has a high percentage of stocks. Over time, the fund gradually trims its allotment to stocks and adds more bonds and cash. Note, however, that this so-called glide path can vary dramatically from one fund sponsor to another.
Which type of all-in-one-fund should you choose? A balanced or lifestyle fund is fine for investors who want to temper the risk of an all-stock portfolio. But for goals with a clear estimated date of arrival, such as college or retirement, a target fund is just the ticket, says Christopher Philips, a senior manager in Vanguard's Institutional Investor Services Group. "It's globally diversified, it's professionally managed, it's regularly rebalanced, and it gets more conservative as you age. For someone who wants to keep things really simple, that's a good option."
9. Sign up once and forget it. To procrastinate is human. To automate is divine. "Humans, by their very nature, fail to follow through," says Philips. "They may want to do something, but something else comes up and they just never execute. Automatic investment plans are a great way to overcome human nature."
You may have already automated an aspect of your finances by signing up for a 401(k) plan or direct deposit of your paycheck. You can do the same thing with your investment accounts. Every major brokerage firm, fund company and bank offers automatic savings programs that allow you to establish a timetable designating how much you want to save and how often, the account that should be tapped to make the contributions, and where you want the money to go.
You can specify a money market fund if you're saving for a short-term goal, or even a state 529 savings plan for college bills. No immediate goal? Then set up the savings to go into a balanced fund; Dodge & Cox Balanced (DODBX) and T. Rowe Price Balanced (RPBAX) are solid choices. "Automate as many decisions as you can," Ben Carlson advises. "It makes things simpler and keeps you from making decisions on the fly."