Ten Financial Tricks and Treats

Updated October 2008Do you have trouble making ends meet? Keeping your spending under control? Finding money to save or invest? Often the path to financial success doesn't come from sheer discipline or money savvy but from tricking yourself into saving more and spending less.

You know, for example, you need to pay off your credit cards, but before you know it you've either racked up more debt or run out money that month before you could make an extra payment. You know you need to start saving for your future -- but you can barely make ends meet. Sound familiar? Have no fear. No matter how scary your finances, we've got ten tricks that'll bring you some pretty sweet treats.

TRICK #1: Give up your daily latte.

Don't think you have enough money to invest or make ends meet each month? Nearly everybody has some fat they can trim from their spending. Forgoing your $4 latte every day, for example, would save you about $120 a month. Investing that money every month for ten years into an account earning 10% annually would net you nearly $25,000. Keep it up until retirement, and you'd have more than $765,000 in 40 years.

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In his book The Automatic Millionaire, David Bach calls this the "latte factor." But it really isn't about coffee at all. Rather, he says, it's about identifying those small purchases that dribble your money away -- whatever they may be -- so you can save big over the long term. Use our calculator to see how quickly small investments can add up. Then check out Save Money on Practically Everything for dozens of ideas on how to save money every day.

TRICK #2: Put your credit card on ice -- literally.

When you're trying to pay down your credit card debt, you'll whittle away at it much faster if you avoid making any more charges in the meantime. To resist the temptation, think "out of sight, out of mind." Take your credit cards out of your wallet entirely. Stash them in the bottom of your sock drawer, or entrust them to a friend or relative for safekeeping. You could even place them in a bag of water and throw it in the freezer -- you'd have to wait for it to melt before you could use it, which would hopefully be long enough for your impulse to pass.

TRICK #3: Use cash for all your expenses.

Looking for a foolproof way to keep your spending under control? Try stashing cash in envelopes according to categories so you can see how much you're actually spending. For example, use one envelope for groceries, another envelope for gas and transportation, another envelope for eating out or entertainment, etc. Then when you run out of money in each envelope, you simply don't spend any more until next month. The so-called "envelope system" may sound corny or a little old fashioned, but it could be just the trick to keep you disciplined.

TRICK #4: Pay your bills automatically.

You forgot to write the check. You couldn't find postage. You lost the pre-printed envelope that came with your bill. There are a lot of excuses for forgetting to make a payment or paying a bill late, but they all result in the same negative effect on your credit rating. Thankfully, many banks will allow you to sign up to have all your bills taken directly out of your checking account, including your credit card, cell phone, utility and cable bills. Some banks may charge a monthly fee for the service. Or, you can probably make individual arrangements with each biller to take the money directly out of your checking account. This requires a little initial legwork on your part, but once you set it up, you can forget about it.

Using an automatic bill pay service for your credit cards specifically is also a good way to whittle away your balance faster. You can arrange, for example, to pay off your balance in full each month. Or arrange for a fixed amount to be paid off without having to lift a finger. Learn more in Put Your Finances on Autopilot.

TRICK #5: Ask for a lower interest rate on your credit card.

It sounds almost too easy, but this little trick is amazingly effective. A five-minute call to your lender could save you hundreds of dollars on interest charges and help you pay off your debts sooner. In 2002, the U.S. Public Interest Research Group asked 50 consumers of varying credit backgrounds to call their lenders and ask for lower rates. The strategy worked for more than half the group, with the average rate reduction going from 16% to 10.5%. That big of a rate chop on a $2,000 balance would save you nearly $200 over 2 1/2 years. Credit card companies spend hundreds of dollars trying to acquire new customers, so they may be willing to negotiate to keep your business, says Howard Dvorkin, founder of Consolidated Credit Counseling Services. It certainly doesn't hurt to ask. Find out more tricks to get out of debt faster.

TRICK #6: Put your savings on autopilot.

What could be sweeter than always having enough money for your savings, never forgetting to make a contribution and eventually retiring a millionaire? All you need to do is sign up to have a fixed amount automatically taken out of your paycheck to go directly into savings or investments. When you pay yourself first, you won't even miss the money after it's gone.

An employer-sponsored 401(k) is a great choice, especially if your company offers a free match on the money you put in. You also could arrange with a broker or mutual fund company to have a set dollar amount transferred from your checking account each month into a Roth IRA. You won't have to remember to mail in a check, so you won't inadvertently derail your path to riches. All it would take for a 25-year-old to retire a millionaire is $158 per month invested in an account earning 10% annually. Use this calculator to see how far your investments can take you over time.

TRICK #7: Save regularly for recurring expenses, too.

This is a trick that helped me break my habit of relying on my credit cards or raiding my savings account whenever a big annual or semi-annual expense came up. I set up several high-yield savings accounts with one online bank and arranged for automatic deposits into those accounts on a regular basis. For example, I have a car insurance fund, a holiday gift fund and a vacation fund. (HSBCdirect.com, EmigrantDirect.com or INGDirect.com are good online bank choices.) Each account is linked to my checking account at my regular brick-and-mortar bank and I can transfer money in and out easily online for free.

If you automatically save a little money on a regular basis, it doesn't take much to build up a good stash for when your big expenses come due. For example, if you arrange for a mere $25 a month to transfer from your checking account into your holiday gift fund each month, that's much easier to manage than coming up with $300 all at once come December.

TRICK #8: Set long-term goals with a buddy.

One of our biggest enemies when it comes to making financial decisions is our short-term memory. We get impatient when our investment balances don't grow as quickly as we'd like, or our friends seem to be having more financial success than we are. Or we just get tired of scrimping and saving and get the overwhelming urge for a splurge. I swear, for example, that all my friends either already own a home or are buying one right now while I'm stuck renting. But instead of letting the pressure lead me to make an impulsive decision, my husband and I regularly sit down to discuss our finances. This helps to keep our long-term goals in focus. We defined our goals early on -- such as saving for a down payment, starting a retirement fund and taking an annual vacation. Then we set up plans to reach them, and now we discuss our progress regularly. Having that accountability with someone (a spouse, best friend, family member, etc.) helps motivate you to stay on track. See Get a Money Buddy for more.

TRICK #9: Ignore your annual raise or year-end bonus.

Expecting a raise this year? Pretend you're not. By keeping your standard of living the same and not increasing your spending with each bump in pay, you can pocket the extra money and use it to reach your goals. The same goes for that year-end bonus or tax refund. If you're making $40,000 and you get a 3% raise, that's an extra $100 per month before taxes are taken out. Even after Uncle Sam takes his share, you'll have plenty left to do some good. For example, it only takes a few extra bucks to start your emergency savings, begin investing or pay extra toward your credit card debt. You could even use the money for something fun. Start stashing it in a vacation savings fund so you can afford to have a real travel adventure next year instead of the old crash-on-Mom's-couch getaway.

TRICK #10: Give yourself a raise.

Not getting a raise this year? Take matters into your own hands. You could get hundreds of dollars added to your take-home pay each year simply by telling Uncle Sam not to take so many taxes out. Most of us give the government too much upfront -- that's why we get tax refunds in the spring. Take back your money and use it throughout the year instead to help you make ends meet, boost your emergency savings or start investing for your future. All you need to do is file a new W-4 form with your employer to adjust your "withholding." See Do-It-Yourself Pay Raise for more information and try our Easy Withholding Calculator to make filling out your new W-4 a snap.

This story was updated in October 2008.