7 simple solutions for managing your money

By Kiplinger's Personal Finance Magazine

1. Trick yourself into saving

Don't know where your money goes? Simple solution: Trick yourself into spending less and saving more. Lynne Koplitz does stand-up comedy for a living, but her finances are no laughing matter. The showbiz life can be feast or famine, so Koplitz has to make her money last between gigs.

That's particularly challenging when you live in a high-cost city like New York. So Koplitz has come up with a whole repertoire of simple yet effective ways to manage her money. Each month, for example, she has her accountants give her a cash allowance, a throwback to habits she acquired while earning tips as a waitress. Then she divides her expenses into categories -- for clothes, for fun, even for her dog -- and puts money for each into an envelope.

Koplitz also tells her accountants to stash 5% of her income in a secret account. "I don't even want them to show me the money," she says. "When it's crunch time, I know it's there."

The more you make, the more you tend to spend, so Koplitz's savings tricks are appropriate even if your income is higher and less erratic. Not only does she toss spare change into jars -- keeping quarters separate from the smaller stuff to use in parking meters -- but she also puts dollar bills into a drawer. "Then you can grab a few singles to pay for takeout instead of breaking a bigger bill, which is the road to disaster," says Koplitz, who makes it a habit never to break a Benjamin.

To control her credit card debt, Koplitz carries just two cards -- one of them is American Express, which she must pay off each month -- and uses a "buddy system" by keeping other cards with her accountants. "If I want to use one, I have to tell them what I want to spend the money on, and they can ask if I really want to do this."

Koplitz also jots down expenses in a notebook and tallies them at the end of each week to see if she's over or under her budget estimates. She builds in more than she needs so that she has a cushion. (Read "10 easy ways to stash away thousands" for more tricks readers play.)

Tracking your spending might sound like work, but you don't have to do it forever. Nor do you have to record every penny. The 60% solution is a simplified budget system you can try. Or use your monthly credit and debit card statements to see where your money goes. Then you can plug the one or two areas where you're leaking cash and probably come up with an extra $20 or more per week in savings. That's $1,000 a year -- and a grand is real money.

Other tricks to add to your own savings routine:

• Have your paycheck deposited directly to savings rather than to your checking account. You can transfer money to pay your bills, but you'll think twice about withdrawing additional cash.

• Make just one ATM withdrawal a week.

• Subtract credit card purchases immediately from your checking account so you're not surprised when the bill arrives.

• When you pay off a loan or credit-card balance, add the amount to payments you're making to the next lender on your list, or send the money to a savings or investment account earmarked for a house, a vacation or a new car.

2. Retire hassle-free

Frustrated because you're not saving enough for retirement? Simple solution: let someone else do it for you. Like many employees, Amy Sadaune, vice president of human resources for First Community Credit Union, in Houston, has her employer deposit a portion of her income into a 401(k) plan so she captures her company's generous matching contribution. But Sadaune doesn't stop there. She also takes advantage of the credit union's new Step Ahead program to boost her contribution by one percentage point a year automatically until she hits the legal maximum (which is $15,500 this year for people under age 50, an amount that will continue to rise). "I don't have to think about it," says Sadaune, 37, who hopes to retire in about 20 years.

Programs like Step Ahead, offered by Principal Financial, help employees overcome the twin nemeses of retirement saving: inertia and procrastination. Unlike traditional 401(k) plans, which rely on workers to make their own decisions, autopilot 401(k)s make all the critical choices. Eligible employees are enrolled in a plan automatically, and they automatically contribute a higher portion of their income each year. The money is invested for them in a diversified portfolio, such as a life-cycle fund or a target-date retirement fund, unless employees choose otherwise. Find out more in "7 hot 401(k) trends."

If your company's retirement plan doesn't offer an autopilot option, you can still take some simple steps to make the most of your retirement savings:

• Sign up. Nearly one in four eligible workers fail to participate in their company's 401(k) plan. (That should change as more companies institute automatic enrollment for new employees.)

• Capture the match. Contribute at least enough to get your employer's matching contribution. The usual match is 50 cents on the dollar on the first 6% of your salary, but many employees kick in less, leaving free money on the table. See "7 ways to mess up your 401(k)."

• Keep it simple. Consider investing in a target-date retirement fund. You can research them here. The closer your anticipated retirement, the more conservative the investments offered.

• Roll it over. With an account balance of at least $5,000, you have two choices if you quit or retire: Leave your money in your employer's plan or roll it into an IRA. In either case, your money will continue to grow. Balances of less than $5,000 will be rolled over automatically to an IRA. You won't be hit with a tax bill and an early-withdrawal penalty (if you're younger than 59½). If you're changing jobs, you can transfer the funds to your new employer's plan and continue contributing.

• Max out. Contribute the maximum amount to your 401(k) and you'll be among an elite group that includes only about 10% of workers.

• Play catch-up. If you are 50 or older, you can contribute an additional $5,000 to your 401(k) this year, for a maximum of $20,500. Starting in 2009, contribution increases for all workers will be indexed to inflation.

Continued: Invest the easy way

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