Money Magazine came up with 25 “rules of thumb” that will help your grow rich, albeit very slowly. Rules of thumb are often appropriate only for a fictional “average person,” but they can be good starting points for determining what is the right choice for any individual. I’ve looked at the first fifteen so far, and here are the next five:
16. When you buy insurance, choose the highest deductible you can afford. It’s the easiest way to lower your premium. You shouldn’t have to go into debt to pay a deductible, so you need to be prepared to pay what is necessary by tapping only your savings.
I do this buy setting aside extra money each paycheck to keep a savings account specifically for car emergencies until it’s funded up to the deductible. This is coming in handy at the moment, thanks to my recent accident.
17. The best credit card is a no-fee rewards card that you pay in full every month. But if you carry a balance, high-interest rates will wipe out the benefits. If you need to carry a balance, get a card with the lowest APR, and keep it low. If you don’t carry a balance, get a card with the best rewards that suit your spending or traveling habits. There’s no one “best card” because everyone’s needs are different.
I still use my Citi Platinum Dividend Select for the cash back. I’ll hit my yearly rebate limit soon, so I’ll be switching to another rebate card for the rest of the year. The only reason reward cards work for me is because I pay the balance off every month.
18. The best way to improve your credit score is to pay bills on time and to borrow no more than 30% of your available credit. It’s hard to determine the exact ratio that credit card companies like to see. The algorithm to generate an official credit score is proprietary, and Fair Isaac Co. doesn’t just give away their secrets.
Due to this, the credit reporting agencies have started building their own calculations, and I predict we’ll see increasingly differing formulas depending on who is looking at your credit. Good habits, like paying bills on time, are hard to argue with. The theory of using not more than 30% of available credit is more of a guess. Some credit cards don’t report the full amount of available credit to the agencies, and there’s very little you can do.
19. Anyone who calls or e-mails you asking for your Social Security number or information about your bank or credit card account is a scam artist. It’s easy to say that this falls under the “common sense” category, but scammers are good at convincing people they are legitimately working for who they say they are. Always ask for a number to call back if a bank or credit card company calls. Verify the number or call the bank’s official number and try to reach someone else in the department who could validate the issue.
20. The best way to save money on a car is to buy a late-model used car and drive it until it’s junk. A car loses 30% of its value in the first year. This depends on your driving needs. If you have a long commute, and your job performance depends on your timeliness, you don’t want to continue to driving a car that is getting closer to “junk” status. Buying a car that is just a few years used is a good option for most, but driving until it breaks down is not safe.
Only five more “rules,” so stay tuned if you’re interested in my thoughts. So far, these are decent rules of thumb, but the headline claiming that they’ll make someone rich is pretty misleading. You’ll save some money, but it’s not going to be significant over a lifetime. The money you save can be put to better use, however.