Nov. 5 marks the end of Daylight Savings time when most Americans “fall back” into Standard Time. Some of us find the feeling disorienting and you may get the sense that everything is running oddly ahead of schedule.
But consider embracing that sensation when it comes to managing your money. If you make running ahead of schedule part of your financial goals, you may learn to love the feeling. And your pocketbook and credit profile may reward you as well. Here are four easy ways to get ahead by staying ahead of schedule:
Get a head start on college savings.
When it comes to saving and investing for the future, an early start can literally pay big dividends. If you start putting even a modest amount into a 529 college savings plan for your child soon after he or she is born, and keep up contributions—ideally increasing them over the years as your income allows—your child’s education nest egg can grow significantly.
Jump-start your kids’ retirement savings.
If your child is old enough to earn some money of their own, you can open a Roth Individual Retirement Account (IRA) in their name, and sock away as much money as they earn every year for their retirement (up to the annual legal limit, which is currently $5,500). Contributions cannot exceed the amount the child earns outside the home (allowances don’t count), and the child may have to file a federal income tax return (though the tax liability is likely to be negligible). Investments started in the tween or teen years have plenty of time to grow by the time the child reaches retirement age, (and perhaps a decade’s head start on their full-time working years). The gift of a Roth IRA can be a great head-start on lifetime savings. (See also: What is a Roth IRA?)
Pay your credit card bill before the reporting date.
Most credit card users are aware of two milestone dates each month—the statement date, when your monthly bill is issued, and the due date, by which a minimum payment must be made. If you’d like to keep your credit scores in tip-top shape, there’s another date you should be aware of each month—the reporting date, when your card issuer records the outstanding balance it shares with the national credit bureaus (Experian, Equifax and TransUnion).
Knowing that date is important because nearly a third of your FICO® Score is based on your credit utilization—the percentage of your available spending limit represented by your outstanding card balances. It’s possible to pay your credit card statement balance in full every month, but still have significant utilization reported to the credit bureaus: Imagine you’ve got a brand-new credit card with a $10,000 limit and a payment-due date of the first of the month. If you make a $500 charge on the second of the month, it will appear on your statement on, say, the 15th. If you pay that balance in full on the first of the following month, you might expect to have zero percent utilization. But if the lender’s reporting date is, say, the 21st of the month, your credit scores will actually reflect a utilization level of 5% ($500/$10,000)—even higher if you make any additional charges before the 21st.
The trick to minimizing your utilization is to find out the reporting date (it’ll likely be different for each card), and make your payments before that date, instead of on the payment-due date. (See also: Understanding FICO Scoring Ranges)
Pay off loans early and save.
There’s a reason “Time is money,” is a truism, and interest charges on loans are a perfect example. With mortgages, car loans, student loans, or other installment loans with fixed monthly payments, much of what you pay for in interest is the luxury of stretching repayment out over a period of months or years.
The flip-side of that is that you can often save on interest charges if you manage to pay off the loan ahead of schedule. As long as your loan terms include no prepayment penalty (which you should always avoid when shopping for loans), each payment you shave off your payback period will mean savings. Just how much you save will depend on the size of the loan, interest rate, and the number of payments left on the loan. To get a more specific idea how much you can save, try typing “loan prepayment calculator” into your favorite search engine, along with the type of loan in question (“auto,” “student,” “mortgage,” etc.).
Strategies for prepayment include:
- Increase each payment by an increment or percentage over the minimum due.
- Put your income tax return or other “windfall” income as a bonus loan payment.
- Add a thirteenth payment every year, a fourth payment every quarter, or an extra payment whenever you reset the clocks and change smoke-alarm batteries.
We “gain” an hour at the end of Daylight Savings time, which can feel like a bonus for those crunched for time. Resetting your financial timing to get and stay ahead of schedule can bring even bigger rewards.