The 50 Smartest Things to Do with Your Money
by David Futrelle, George Mannes and Cybele Weisser

July 2005

How to earn more, save more, invest better, spend wisely and protect your family--now

What is the smartest money move you ever made? Was it buying a home or switching jobs? Perhaps you picked a winning stock or market-beating mutual fund. You know now that it was smart because it made you money, saved you money--or kept you out of money trouble. But by necessity, much of what we do with our money is educated guesswork. We don't know which stocks will perform best during the next year, for example, but we take our chances. It doesn't always have to be that way. The 50 smart money moves identified in this story are as close to sure things as you can get. Some are tried and true--like funding a 401(k)--while others are tips for smart spending, career management and financial planning that you may never have thought of. None will make you rich all by itself, of course. But each offers a high probability of success and a low risk of failure. Good payoff, low risk: the definition of smart.

Make it a habit
These financial moves should be second nature

1. Make your house count Do: Open a home-equity line of credit and use it for the right reasons: to tap as a rainy-day fund, to finance college for your kids or yourself, or to pay down credit-card debt. Don't: Raid your home's equity to fund vacations, plasma TVs or that Beemer you can't afford.

2. Stop thinking And start automating your financial life. Call your mutual fund or broker to have monthly investments routed from your bank. Do the same for your monthly utility, cell-phone and cable payments. You'll find it easier to budget, and you'll never pay a late fee again.

3. Crank it to the max Put as much as you possibly can into your 401(k). Assuming a 7% return and a 50% match, upping your annual contribution by a grand and maintaining that level for 30 years will add $153,110 (not a misprint) to your nest egg. You can stash away a maximum of $14,000 this year (a thousand more than last year), or as much as $18,000 if you're 50 or older.

4. Reduce your income Taxable income, that is, by funding a flexible spending account at work. Your boss deducts pretax money from your paycheck, which you then use to pay for medical expenses ranging from insurance deductibles to aspirin to acupuncture. Every $1,000 you put in (the max is $5,000 a year) cuts your tax bill by about $300. Don't miss the annual sign-up, usually in the fall.

5. Save on a schedule Invest the same amount in a mutual fund every month. That ensures you'll buy more shares when they're cheap and fewer when they're expensive. T. Rowe Price's Automatic Asset Builder program, for one, lets you contribute as little as $50 a month to nearly any of its funds--and limbo under the usual $2,500 minimum initial investment (800-638-5660; troweprice.com).

6. Be a cheapskate Look for mutual funds that have expenses below 1.33% for stock funds and 0.89% for bond funds. Study after study shows that keeping investment costs low is the best way to increase your odds of earning a high return. Cheapest of the cheap are index funds from Vanguard (800-851-4999; vanguard.com) or Fidelity (800-343-3548; fidelity.com).

7. Lunch your career Meet a former colleague once a month for a bite to eat. A regular $30 out-of-the office lunch will reward you with a fat, up-to-date Rolodex the next time you're in the job market.

8. Go mad, but not crazy If you really want to own the next big thing, set aside no more than 5% to 10% of your portfolio for those "swing for the fences" choices. You'll get your thrill--but won't do yourself too much harm if (as is more common) the stock doesn't live up to its hype.

9. Own the world Diversify your portfolio beyond our shores and you'll reduce risk and have a shot at higher returns. Put at least 20% of your money overseas. Start with two MONEY 50 funds: Artisan International (artix) for stocks, and American Century International Bond (begbx) for bonds.

10. Celebrate rebalancing day Every Aug. 1 (or pick your own day), return your portfolio to its ideal allocation by trimming investments that have grown and adding to those that have lagged (use our Asset Allocator at money.com/tools). Do this once a year and you automatically sell high, buy low and, studies show, add measurably to your final return. Or put your money in a fund that allocates for you, such as Fidelity's Freedom Funds (800-343-3548; fidelity.com).

11. Know when to fold 'em Sell a stinky stock or fund. In a taxable account, your losses can offset capital gains and cut your taxes, thus converting a dumb investment into a smart tax break. If you change your mind, you can always buy the asset back after 30 days.

12. Don't spend a penny Or a nickel or a dime. At six-month intervals, find a bank with a coin sorter and deposit your change in a savings account. (One MONEY staffer's family saved $1,000 in stray coins last year.)

Get in on the secret
Savvy consumers know these tricks pay off

13. Fill 'er up with regular Never pay for premium gas. High test won't extend the life of your engine or improve fuel efficiency, and it's not required by your warranty. It will, however, cost the average driver about $120 a year.

14. Splurge with your miles Use your frequent-flier miles to buy a business- or first-class seat. Coach seats on domestic flights are so cheap that they're rarely the best use of your miles--and those reward seats are scarce to boot. You'll spend 25,000 miles for a free seat worth $150 on a coast-to-coast flight, whereas 100,000 miles gets you a $3,000 business class seat to Europe and a shot at a good night's sleep.

15. Face down credit-card fees Ask your issuer to waive that $30-to-$70 annual fee. The ability to take your business elsewhere confers great power. Use it. Many issuers will blink if they think you'll walk. Missed a payment just once? Cite your on-time record and ask them to kill the late fee.

16. Pay to replace your stuff When you insure your home, make sure your policy includes replacement-cost coverage, not the default coverage, called actual cash value. It'll cost about 10% more but will pick up the full price of rebuilding and refurnishing your home.

17. Dicker with the doctor For routine and scheduled procedures like orthodontics, MRIs, colonoscopies or medically prescribed physical therapy, call your insurer and find out what it considers a "reasonable and customary amount" for the treatment. Then see if your doctor can match it. He or she probably will. Patients who ask get a lower price about half the time.

18. Drive like it's 2002 Buy a used car instead a new one, and let someone else pay for the depreciation. In a car's first year, the value lost averages 30%, according to Edmunds.com. What that means: For about $25,000, you can buy either a new Toyota Camry or a 2004 Lexus IS 300. What's smarter?

19. Spend yourself into poverty Or at least into college financial aid eligibility. If you think your kid might qualify for aid, selectively spending down your assets and your child's can increase your chances of getting help. A year or two before your kid's junior year in high school, use any extra cash to pay off credit cards. If your child has an UGMA or UTMA custodial account, spend it on other education expenses, such as SAT tutoring or a computer for him or her.

20. Share your shares Donate stock, not cash, to charity. Not only will you help those in need, you'll forever avoid taxes on any gains on the stock--and you can deduct the full value of the shares on your tax return. Your charity will be happy to help you with the paperwork.

21. Don't leave skidmarks On your next car, get electronic stability control, a safety feature that helps prevent skids and spins. A government study found it reduces SUV single-vehicle crashes by 67%. It's standard on cars ranging from the Audi A3 to the BMW Z4, and a $500 option on others. For a list of ESC-equipped vehicles, go to esceducation.org.

22. Sleep with the concierge Book a room on the hotel's concierge floor. It'll cost $20 to $40 more than the same digs on another floor, but consider the freebies: drinks, hors d'oeuvres, dry cleaning, shoe shining and help with reservations.

23. Say no to oenophilia Never spend more than $20 on a bottle of wine (special occasions excluded). True aficionados know that some of the wine world's greatest pleasures can be found at the lower end of the wine list. If your snobby friends look askance at you for bypassing some overrated white Bordeaux in favor of an unpretentious but inexpensive pinot noir with a lovely fruity nose, get new friends.

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