The Pareto Principle (80% of the results come from 20% of the efforts) has been applied to many different areas including personal finance. Whether the actual percentages apply in a particular case or not is open to question. What is implied though is that significant progress toward a goal can be achieved with relatively little effort.
How does this apply to what I’m going to write in this post? A lot of times in our efforts to save money and reach financial goals we can lose sight of the little things. Below I’m going to list some ways in which a large number of people leave money on the table. In keeping with the Pareto Principle, I believe a lot of these issues can be addressed with little effort and can net you a pretty sum that you might be overlooking right now. I will focus on three areas starting with:
Are you mailing your mail in rebates? 45% of people who buy stuff with a mail in rebate forget to mail in their rebates! That’s an astounding percentage! Make sure you are not counted in that statistic. As soon as you get the item, check if it works properly and then immediately fill in and mail the rebate form. Don’t forget to take copies of everything. On more than one occasion I have been told that I didn’t submit all the required documentation or that my rebate form was “lost” in the mail. The copies are what allowed me to get my money from the rebate processing company.
Using the wrong credit card. I constantly have to remind my husband about this. We have two credit cards that we use on a daily basis. One gives us higher discounts on restaurants, gas and groceries. The other credit card is better for all other purchases. DH, most of the time forgets which card to use when. While it might not seem like much, during our year end review last year, I did a calculation and figured out that using the right card over the entire year netted us $3800 Nothing to sneeze at!
Of course if you are the type who tends to spend more if you use a credit card then no matter what the advantages of a particular card are, DO NOT CARRY ONE!
Financially induced clutter. That’s the name DH came up with for the rowing machine that has now become a clothes rack in our bedroom. We purchased it about a year and a half ago with the noble intention of using it while watching a movie, thus making maximum use of our time! I think we used it for about a week and then laziness along with a number of other inconsequential factors caused it to become a clothes hangar. We should have got rid of it a year ago at the latest because it was pretty obvious that neither of us was going to really be using it. Somehow though, every time I decided I was going to put it up on Craigslist I was confronted by the fact that I would only get back a fraction of what I paid. So I would renew my resolve to use the rowing machine. This of course doesn’t ever happen. So now it has accompanied us on two moves and only recently I got rid of it. Should have done it a long time ago.
Late fees. This can be easily avoided just by automating payments. If you do get a late fee for any reason, call the company and ask that it be waived. I was reading Ramit Sethi’s book “I will teach you to be rich” this past weekend. He has a pretty interesting script that he uses to get the fees waived. If you are the timid type you might want to give it a read. Even if you don’t use it, it will at least give you the confidence to ask for a waiver.
Comparison shopping. This is simpler than ever now if you have a smartphone. Just scan the barcode and you will get a list of geographically nearby locations and online locations for the same product along with prices. Need I say more? In addition, if you find the price to be cheaper elsewhere you can always show that to the cashier at the store where you are to try and get a price match.
Flexible spending accounts: Last year a law was passed allowing you to only obtain prescription drugs with the money you put into your FSA. But if your employer offers you a flexible spending account it is still a good area to save money with a little planning. If you spend X amount of money in prescriptions every year why not reap the tax free benefits. Be careful how much you put into it though because unused money is lost. Start with a small amount and within a year or two you will be able to fine tune your FSA contributions to maximize your savings without spending much time.
Overlooked tax breaks: Before you hand everything over to a tax preparer, just spend a little time looking up deductions that you might be eligible for. Don’t just trust the tax preparer to give you the maximum return. This is especially true if you are using the tax people at H&R Block type places. They use the same software and do not make effort to get you all the deductions. There is no substitute for doing your homework. The IRS website has a number of documents to make the tax code easier to understand. They give good examples for various situations. Yes, it does take some time to read through everything but in the end it is definitely worth the effort because you know exactly how much you owe.
Retirement and long term planning
401k match: This is a no brainer. Put at least enough into your 401k to get your full company match. Its a lot of free money that you absolutely do not want to miss out on.
Investment fees and expenses: When comparing investment vehicles don’t just look at historical returns. Look at returns minus expenses to get the true rate of return. A lot of managed funds claim they beat index funds but once you take into account the much higher expense ratios of managed funds, a lot of them don’t look better than index funds. Additionally if you are using a target date retirement fund in your 401k remember that these funds not only have expenses due to all the funds they invest in, they also tack on an additional fee for the management of the target date fund as well. So you get hit with a double expense. I’m not saying that these funds are bad. All I am saying is that you have to account for all the expenses before deciding if any particular investment vehicle is worthwhile.
Credit check: Periodically check your credit score. You can get it free once a year from each of the 3 credit bureau. So if you stagger them you can get a free report every 4 months. Comb through it to make sure there isn’t any incorrect information. If there is call the company that submitted the information and have it fixed immediately.
Most of these tasks won’t take much time at all. But the rewards are substantial. Are you leaving any money on the table?