7 Shortcuts For Major Money Hassles

 

Major Money HasslesBy Tristan Ellis, Staff Writer

One: Ace Your Retirement

By the time you're 65, you'll need to have socked away about $25 for every dollar you expect to withdraw annually. That means that throughout your working life you must save. And save. And save. Oh, and don't forget picking investments and managing your portfolio year in, year out. Yet with one simple act, you can take care of all of that work.

The Easy Way: Buy a target-retirement fund in your 401(k)

A 401(k) is nothing if not easy: Contributions come out of your paycheck before you can spend them. You don't owe taxes on the money you invest, and earnings grow tax deferred. Sign up and aim to save 10% to 15% of your salary (including the company match).

Target-retirement funds, which are becoming one of the most popular 401(k) choices, are the ultimate in hands-off investing. You simply pick a fund with a date that matches the year you plan to retire - 2010, 2020, 2030 - and you get a completely diversified mix of stocks and bonds that's appropriate for you. This no-brainer fund automatically shifts stock assets into bonds each year, becoming more conservative as you age.

A target-retirement fund is a case in which simpler is actually better. Sure, you can come up with a smart allocation and pick top funds, but 401(k) investors often do a lousy job at that. What these funds give you is a disciplined plan, the key to retirement success.

Two: Invest (Almost) Like a Pro

You can put your investing strategy on autopilot with a target-retirement fund. But perhaps you want to manage your own portfolio. All it takes is a few hours a year with this two-step plan.

Step 1: Pick a mix

First decide how you'll divvy up your money between stocks and bonds. You can use online tools to fine-tune a mix for your age and appetite for risk. But the easy way to decide how much you should devote to stocks is to subtract your age from 120. So if you're 40, put 80% of your long-term savings in stocks and 20% in bonds. If nothing else, this simple rule of thumb ensures that you'll own an ample amount of stock when you're young and can take more risk. Every year, subtract your age from 120 again and adjust the mix as needed.

Step 2: Buy index funds

For an investment that doesn't require constant vigilance, the clear choice is an index fund. With a single fund, you can own virtually the entire stock or bond market.

No index fund will ever top the charts, but history suggests that over the long run they'll earn a better than average return. You can build a perfectly adequate portfolio with just two funds: a total stock market index fund and a total bond market index fund.

Three: Cruise into College

Want to make college savings easy? Piece of cake. Use a state 529 savings plan. No need to select stocks, bonds or funds on your own and then deftly manage the money until your child enters school. Just pick a single age-based fund in a 529, and your work is pretty much done. This fund of funds will shift gradually from stocks to bonds as your kid nears school. Relax about taxes too. In a 529, earnings are tax-free as long as the money is used for college costs such as tuition or room and board. You don't need to remember to save either. Most 529s let you set up an automatic investment plan. The only decision is which 529 to choose.

The Utah plan

If you don't have the time or inclination to sort through 529s, go straight to the Utah Educational Savings Plan (800-418-2551; uesp.org). With its selection of Vanguard index funds, it gives you age-based choices at rock-bottom prices. You'll have to select one of five different stock and bond allocations. If in doubt, stick with option two. One drawback: You may be giving up valuable state tax breaks.

Research your state plan

In 28 states, you're entitled to a tax deduction or credit for money you put into your local 529. For your state's tax breaks and plan options, visit Savingforcollege.com. Stay with your state plan if you earn a generous tax break, you don't have to pay a sales charge to invest, and the plan's annual expenses are no more than 1% a year. If not, Utah's 529 remains your best bet.

Four: Disaster Proof Your Family

Life throws you a curveball sometimes: cutbacks on the job, a roof that needs to be replaced. You can't completely insulate yourself from such shocks, but three straightforward steps will protect you against 90% of problems.

Build an emergency fund

Put aside at least three months' worth of living expenses in cash so you can get through a rough patch without having to borrow or dip into retirement savings (make that six months if your family relies on one wage earner).

Buy life insurance

With insurance, the simplest choice is also the best. In almost every case, term insurance gives you the biggest death benefit for your premium. All you need to decide is how much and for how long. Buy life insurance equal to five to 10 times your annual salary. The more children you have, the more debt you carry and the longer your family will need help (until your kids are out of college, say), the closer you should be to the top end of that range. You can lock in your payment for 10 to 30 years, but for most new insurance buyers 20 years is about right.

You also need disability insurance, which typically pays up to 60% of your salary if you can't work. But this policy virtually defies simplification. If you don't get adequate coverage on the job, you'll have to confer with an agent.

Write a will

You should have a will that, at minimum, appoints a guardian for your minor children, outlines how you want to divvy up your assets and names an executor. If you have an estate worth less than $2 million and you're leaving almost everything to your spouse and kids, you can write it yourself. If your situation is complicated, spend about $1,000 on a lawyer.

Five: Protect Your Identity

There's no shortage of products promising to fend off identity theft. The easiest solution: Follow these three steps to lock up your data and keep tabs on your credit.

Dry up junk mail

Thieves use your pre-approved credit-card offers to open accounts in your name, which is the hardest type of ID theft to detect. Opt out of receiving the junk mail by calling 888-567-8688, a service run by the credit bureaus. Select option three to permanently remove your name from marketing lists (you can always opt in later).

Go paperless

Shredding will eliminate your paper trail. Even easier is to receive and pay bills online, which ensures that info can't be lifted from stolen mail. Plus, with 24-hour account access, you'll see an unauthorized charge on your card right away.

Watch over your credit

It's easy to request a free report from one of the big three bureaus every four months at AnnualCreditReport.com. Want more oversight? For $5 a month, TripleAlert.com will monitor your credit and alert you to any changes. Even better is a credit freeze, but just 25 states allow it, in some cases only for ID theft victims.

Six: Shop Smart for a Car

Buying a car can seem like a huge hassle, from figuring out what price you should pay to handling the hard sell on the dealer's lot. You can avoid the work in one of two ways.

Hire a car buyer

If you are willing to spend an extra $400 to $800, you can reduce the entire car buying experience to a couple of phone calls and one visit to the dealer to pick up the keys. Car buying services such as AutoAdvisor.com and CarQ.com will find the model you want, negotiate a competitive price and loan terms with the dealer and, in many cases, set up a test drive.

Buy online

If you want to save as much money as you can, do it yourself. Even that doesn't have to be hard if you tap the Net. First go to Edmunds.com and use the True Market Value (TMV) tool to find out what people in your area are paying to drive your desired model off the lot. Aim to pay this price or less. You may also want to get pre-approved for a bank loan and ignore dealer financing until you have settled on a price.

Next solicit dealer offers online. At Edmunds.com (or Autobytel.com), you enter the model you want, your contact info and your zip code (or nearby ones), and within a few hours you'll get quotes by e-mail or phone. You should have an easier time haggling because the dealership's Internet department makes commissions based on volume, not the price. They won't waste time wheeling and dealing you.

Seven: Simplify Your Credit Life

Credit-card issuers relentlessly tempt you with new offers, even as they keep changing the terms of the cards you carry. All that makes it easy to end up with a wallet full of cards. While it's always good to have a backup for an emergency, sticking to one card will minimize the number of bills you pay and maximize your card rewards.

If you carry a balance: Get a low rate that lasts

You'll find it easier to chip away at a balance if your interest rate is well below today's 14.1% average. A 0%-balance-transfer teaser is tempting, but you can owe fees as high as 4% of the balance. And if you can't pay it off within six or 12 months, you'll be left with the hassle of chasing the next offer. Skip the promo and opt for a low ongoing rate.

If you pay in full: Get a rewards card you can really use

If you don't carry a balance, make your No. 1 card a rewards card. You're squandering your spending power, though, if you earn miles when you rarely fly or you flit between two or three cards.