With the stock market continuing to under-perform, now more than ever it is important to pay attention to the fundamentals of investing.Here are five tips that will allow you to earn a bit more or spend a touch less.
Tip #1: Pay Yourself First
Its harder to spend money that you never touch. Thats why we are big believers in paying yourself first. The strategy means that the first "bill paying" check you write each month is to yourself, for your investments or cash reserve.
Trouble is, it's not always so easy to pay yourself first. It takes discipline.
So here's how to get "forced" discipline. Sign up for an automatic monthly (or weekly) savings plan. You can arrange (for free) for your local bank or brokerage firm to automatically withdraw a certain amount from your paycheck before you even get paid, and deposit it in the account of your choice. This way, your investments are already made before you even see your paycheck.
Tip #2: Talk to Your Banker
You have some money in your checking account. And you might have your emergency fundsome three to six months of pre-tax incomestashed somewhere in the same bank.
If you do, do a little bit of competitive shopping, find out who is paying the best rates, and ask your friendly banker to boost the interest you are being paid. Odds are, they will.
Tip #3: Cut Investment FeesSure, we prefer no-load index funds to just about every form of investment, but dont stop there. All else being equal, invest with the fund that charges the least. For example, if you are going to go with an S&P 500 index fund, go with the company that charges the least. By definition, all S&P 500 funds hold exactly the same things.Tip #4: Pick up the Money Laying on the FloorIf your employer offers a match for a company 401(k), check to see that you are getting the full match amount. There are two benefits. If you earn $50,000 a year and put $3,000 into a company 401 (k), you only pay taxes on $47,000 of income. The second benefit: your employer is making a contribution to your retirement account, and that can really add up.For example, if your firm adds $1 for every $2 you put in, you have a 50% return on your money, even before you decide where to invest.That leverage can be enormous, as a simple example shows. Say you put $1,000 into a company-sponsored retirement plan January 2, and your firm matches $1 for every $2 you contribute. At the close of business January 2, your account is up to $1,500. If the account grows by 10% during the year, you end up with $1,650. Thats a 65% return on your initial investment. That makes it worth checking to be sure you are getting the full match amount.Tip #5: Write it DownI wonder where the money goes, is a common refrain.There is no reason to wonder. Write down all the things you charge this week, and review the list Sunday night.Odds are you will be surprised.(But the bigger question is, will you do anything differently as a result?)
