Optimizing your finances is a great goal. But it’s something very few people I come across have done well. Optimizing is about using the options at your disposal to maximize the dollars you have. So many people leave free money on the table. Don’t let this be you.
Let’s take a look at some of the most missed opportunties I see:
1. Your 401(K) Match
A 401(k) match is about as free as free money gets. Let’s say you make $100,000 a year and are offered a 401(k) with a 100% match up to 6%. That means if you put in 6%, you get $6,000 matched. $6,000… That is a lot of money.
I don’t care what is going on, take the free money. Choosing to not do this to use the money elsewhere is really costly. Missing that $6,000 from your employer invested over 30 years at 8% is the difference of $680,000. Be smart and take the match.
2. Holding Savings In A High Yield Savings Account
I see so many people miss out on this one. I have people come in my door holding $100,000-$500,000 in cash getting .0005%. This is pointless. You have Ally, Marcus, Sofi, etc. where you can get 3.5%-4.25%. That is the difference of at least $3,500 per $100,000 you have in cash. That is a ton of added money you would not have by leaving it in a garbage savings account. I have clients who pay for vacations just on this.
3. Pay Off That High Interest Debt
We all love how compound interest works for us, but forget that it can also can kill us with debt. Holding onto credit card balances in the 20%+ range is throwing away money. I get we all want a cash reserve, but if you have one, use a portion to get rid of the debt. Either do that or use surplus to attack it quickly. $10,000 on a credit card at 25% is throwing away $2,500 a year. You can optimize your finances by not wasting money.
4. Change Various Fees From Monthly To Yearly
Whether it’s insurances, subscriptions, etc. moving from monthly to yearly can save you a bunch of dollars. I went through this with a client and they were able to save almost $1,000 a year just by doing this.
When I bring this idea up, many get worried that those 1 time expenses and how hard they are to plan for? Here’s a trick, just save for it monthly.
Let’s say car insurance was $100/month but switching to annual gets you to $1,000 a year Save $1,000/12 a month into an account for this and pay it off from there when renewal comes. Take the savings.
5. Negotiate Your Bills
Whether it is cable, internet, phone, etc. you can go and negotiate these bills. They typically want you to stay at all costs and will let you negotiate down to the new offers they have. This can leads to plenty of savings every year just by a phone call.
6. Using Tax Advantaged Accounts
The goal of tax planning is to make sure you pay the least in taxes over your lifetime. And there are ways to do this and pay for expenses you currently have. Whether that is day care, medical expenses, etc it can make a lot of sense.
Let’s say you have a kid who goes to daycare and it is going to cost $12,000 a year. Well knowing this you could use a dependent care FSA, max it out at $5,000 year, take the $5k tax deduction, then use tax free on child care. For high income earners in 37% bracket, that would lead to $5,000 x .37 = $1,850 in tax savings.
If you use that, FSA/HSA, 529 plans (for states it makes sense), etc. You can really optimize the dollars you have.
I also have not even gotten into Roth vs Traditional yet, but this also applies there. Doing the math, understanding current marginal taxes vs future effective taxes, etc. can lead to you utilizing the right one’s at the right times and paying less in tax which optimizes your dollars.
7. Taking Advantage of Company Benefits
Whether it’s using company sponsored disability insurance, maximizing the health plan, taking the free estate planning, etc. There are lots of ways to maximize your employer benefits to get your full pay. Take the time to do so.
8. Use Credit Cards To Maximize Benefits
I get not everyone wants to have or use credit cards, and I think that is good, not everyone is responsible enough to use them. But for those that are, they can provide great benefits. Take this a step further and use the cards correctly. The card that gets 5% cash back on dining, use for dining. The one that gets 5% on travel, use for travel. About to have a big spending year for a wedding, get a new card and maximize the early bonuses. This can leads to thousands in rewards a year.
I have a business owner client who does this and he gets close to $50,000 in cash back rewards a year. Imagine if he chose to just use cash vs that. Would be a wasted opportunity!
Im sure there are others that I have missed, but these are the top ones’ that come to my mind as it relates to optimizing your finances.
Thanks for reading!
Disclaimer: None of this should be seen as advice. This is all for informational purposes. Consult your legal, tax , and financial team before making any changes to your financial plan.