Photo: Robert Trachtenberg
1. Beware of the Balance Transfer Blunder
In the past, it was a no-brainer to transfer a balance to a new card with a promotional low (or zero) introductory rate, usually for a fee of up to $75. But now, as you'll learn by inspecting the promo terms, the fee is often 3 percent of the amount being transferred. For example, you could owe an additional $750 if you blindly transferred $25,000 to a new low-rate card.
2. Refuse to Play the Credit Card Company's Game
Pay more than the minimum, even if it's just an extra $20 a month. Otherwise you're playing right into the card company's hands—the less you pay per month, the longer you're indebted to them.
3. Curb your Appetite for a Sale
A deal that reduces the tab at a favorite restaurant or halves the price of a pair of designer shoes can still be a huge mistake. Yet people get so seduced by the amount of money they're "saving," they overlook the fact that they're still spending. This needs to stop. Spending a cent on any "want" when your long-term needs are being ignored or shortchanged is irresponsible. A discount can be a disaster if it keeps you from focusing on what's important.
4. Stop Thinking of Financial Windfalls as "Splurge Money"
Saving money before it ever lands in your checking account is infinitely easier than promising yourself you won't spend it. What I see all too often is a tendency for people to almost mindlessly use up a windfall like a work bonus, raise or unexpected gift. Instead, commit to saving 75 percent of every bit of unexpected money that comes your way, no ifs, ands or buts. The other 25 percent? Feel free to spend it. (But if you want to save that, too, you get my serious approval.) Staying on a plan that's all about denial is nearly impossible; a balanced, moderate approach is more sustainable. So giving yourself permission to spend 25 percent of the money can actually be the key to saving the other 75 percent.
5. Think Short-Term When Buying a House...
Use an online mortgage calculator (Bankrate.com has a good one) to compare the monthly cost of a 30-year and a 15-year mortgage at their current interest rates—which are 3.4 and 2.8 percent, respectively, as of December 2012—and see if the latter fits your budget. It's better to shop for a lower-priced home instead of settling for a 30-year mortgage; a 15-year mortgage will have roughly the same monthly cost if you reduce your price by about a third. This might require house hunting in a different neighborhood, but consider the future—15 fewer years with mortgage debt, and tens to hundreds of thousands of dollars in interest savings.
If you can't afford a 15-year mortgage, make extra payments on your 30-year mortgage; you can still significantly shorten the life of your debt. One additional principal payment per year reduces your mortgage term by four years. Two extra payments can get that debt paid in 23 years; three extra, in 21 years.
6. ...Except When You Plan on Selling It
If you're not sure you'll stay in your home for the long haul, I see no need to speed up your mortgage payments. Just keep saving as much as you can for your future. You have to prepare for decades of retirement. Don't get too wound up in what the markets are doing this quarter or that year; stay focused on the need to save for the long term. If you have a 401(k)—and an employer that offers a matching contribution—I recommend contributing enough to get that match. Funding an IRA is also a good strategy.
If in the coming years you decide you do want to stay put in your current home, then you can accelerate your mortgage payments. Once your 401(k) and IRA commitments are taken care of, paying off a mortgage can be an incredibly smart retirement move. Think about it: Yes, you will have less saved up in retirement accounts, but you will also have much lower monthly expenses. The trick here is balance.
Next: Suze discusses saving for college, when renting is better than buying, and more