The low-hanging fruit of personal finance

On Friday I wrote about how people making payments in excess of the minimum to student loans need to make sure their student loan servicers have instructions to credit the excess payments to their highest-interest-rate loans first. It’s the kind of simple measure you can take to save money on student loan interest, and all it takes is a single letter to put the appropriate instructions in place.

It’s also the kind of simple measure I’m confident virtually no student loan borrower takes.

That got me to thinking: what are the other low-hanging fruit of personal finance? What are the simplest things you can do to improve your financial well-being, broadly considered?

Here are a few more that I came up with.

Maximize the interest your cash earns

I love cash. I don’t think you need to justify holding cash by calling it an “emergency fund” or pretending to save for a house down payment or car repairs or whatever. Cash is great and it doesn’t need any excuses. But if you’re going to hold cash, you should want to earn the highest possible return on it. That means ignoring the “high-interest” savings accounts offered by Discover, American Express, or your local bank and going straight to the highest-interest checking accounts, like the Consumers Credit Union Free Rewards Checking account.

You can earn 3.09% APY on up to $10,000 by buying 12 $0.50 Amazon credit reloads each month with your Consumers Credit Union debit card.

If you want to earn even more interest on even more money, you can sign up for one of the Consumers Credit Union Visa credit cards and earn 4.59% APY on up to $20,000 by making the same 12 Amazon credit reloads and spending $1,000 on the credit card each month.

The Amazon credit reloads take 5-7 minutes on the first of each month. How’s that for low-hanging?

Be fully invested (in something)

When it comes to investment accounts, particularly accounts that feature tax-free or tax-deferred growth, you will probably be ill-served leaving large amounts of cash in your account’s default settlement fund. Even if you don’t want to invest in equities at their current or future valuations, you can direct contributions to a short-term inflation-protected bond fund, or even just a money market fund offering slightly higher yields than your brokerage’s default settlement fund. As with student loan interest, it’s the kind of small election that has the ability to earn you much higher returns with virtually no effort.

Use the right credit cards

My other blogging project is dedicated to the very high-hanging fruit of maximizing credit card rewards, but that is a hobby that consumes an enormous amount of time and attention. If you don’t want to do that, you don’t have to. Instead, you can use these simple rules to pluck the lowest-hanging credit card fruit:

• Earn at least 2% cash back on all your purchases.
• Don’t pay foreign transaction fees.
• Don’t pay annual fees.
• Use balance transfer offers to minimize the interest you pay on ongoing credit card balances.
• Use introductory financing offers to minimize the interest you pay on new credit card balances.

Debt moralizers will tell you that credit card rewards, balance transfer offers, and introductory financing offers are traps to get you to fall into debt. Maybe they’re right!

But I don’t care whether you’re in debt or not, I care whether you’re paying interest on your debt or not, and my concern is that most people, most of the time, are paying too much in credit card interest.

Make good behavior easy and bad behavior hard

Behavioral economics is all the rage these days, and the economists are hard at work testing all sorts of rules and defaults to get people to save more, eat better, smoke less, and whatever else they think is best for us. Good luck to them, I suppose.

But in your own life, you don’t need a marionettist to pull your strings: you can pull your own strings, by automating as much as possible the behavior that you, personally, recognize as good and necessary, and staying out of your own way.

Set up automatic contributions to investment accounts. Reinvest automatically. Rebalance quarterly at the most frequent; annually is probably fine. Delete your investment accounts from Mint, Personal Capital, and any other tools you use to track your finances. If seeing your balances bounce up and down is making you exhibit behavior you know to be bad, the answer is as simple as not seeing your balances bounce up and down.

If you’re a compulsive gambler like me, give yourself a small amount of cash to gamble with using a free trading app like Robinhood. Treat the money as gone as soon as you invest it, and then have fun buying and selling stocks as much as you’d like — especially when you get the temptation to mess with your actual investment portfolio.

Open a solo 401(k) if you have self-employment income

A solo 401(k) is an important tool for self-employed people for a few big reasons:

• You can make pre-tax employee contributions if your employer doesn’t offer a 401(k) at your day job, or if their 401(k) provider offers inferior investment options.
• You can make pre-tax employer contributions even if you’ve already maxed out your employee contributions at your day job.
• You can make post-tax employee Roth contributions if your employer doesn’t allow them at your day job.
• You can choose your own 401(k) custodian if the custodian your employer uses at your day job is terrible.

Now, I agree this may not seem like “low-hanging fruit,” but if your small business is an unincorporated sole proprietorship you don’t have to actually do anything throughout the year once your solo 401(k) is up and running. While you’re calculating your taxes, just figure out how much you need to contribute to your solo 401(k) to get your income where you want it to be, and make the appropriate combination of pre-tax employer and post-tax employee Roth contributions.

Things are somewhat more complicated for small business that have made an “S corporation” election, which is one reason I’m more skeptical of S corporation elections than some small business owners.

Trigger your employer’s matching 401(k) contributions

This is the most boring of my low-hanging fruit suggestions (which is why it’s last), but it’s still good advice: if your employer matches any part of your elective 401(k) contributions, make at least the minimum required elective contribution to maximize the employer’s match.

I don’t think much of employer-sponsored 401(k) plans as a rule due to the high-cost, conflicted investment options they frequently offer.

On the other hand, I think very highly of free money. If you make at least the contribution necessary to maximize your employer’s match, you can leave the money in cash and still walk away with a guaranteed tax-deferred rate of return that’s difficult to imagine getting elsewhere.

Conclusion

What’s your favorite low-hanging fruit of personal finance, and just how low-hanging do you think it is?

I think people have a natural tendency to treat the things they think of as fun and easy as intrinsically fun and easy. It’s a tendency that, as you get older, you hopefully start to realize has no connection to reality.

So which of my suggestions do you think is preposterously complicated and which is so simple it doesn’t even bear mentioning?