3 Personal Finance Tips to Keep You on the Right Track

A little bit of financial planning—such as setting a budget, developing an investment plan and staying on top of tax issues—always pays off, usually in the form of peace of mind and freed-up money and time.

Giving you the personal finance tips you need to make the most of your investments is an important part of what we do at Investing Daily. One place where our analysts share this nuts-and-bolts advice is—as the name suggests—in our Personal Finance newsletter.

One of the advisory’s regular features is a section that offers personal finance tips for beginning to expert investors. We call it “On the Money.” Topics range from protecting yourself from identity theft to retirement planning and include less-discussed subjects like how to protect your finances in the event of a spouse’s death.

Here are three personal finance tips we’ve recently explored in “On the Money”:

Know your credit score: This is one of the most elementary—and overlooked—personal finance tips. According to data from the Consumer Federation of America (CFA) and VantageScore Solutions, 40% of U.S. adults know very little about their scores.

That translates into higher costs. “Low credit scores will often cost car buyers more than $5,000 in additional finance charges and cost home purchasers tens of thousands of dollars in additional mortgage loan costs,” says CFA executive director Stephen Brobeck.

In an “On the Money” article in our October 23 Personal Finance issue, Investing Daily analyst Brian O’Connell looked at various personal finance tips for protecting your credit score, many of which defy conventional wisdom. For example, most consumers don’t know that keeping a low credit card balance—and applying for multiple cards—helps their credit.

To take it further, closing a credit card account can weaken your standing. “Lenders would much rather see a credit card with a low balance than a credit card that’s shut down completely,” O’Connell writes. “That’s because lenders look at the duration of a user’s credit—and the longer you keep a card open, the higher your score will be.” Real estate reality check: When you hire a real estate agent, you’re paying for valuable expertise—a good agent is highly informed on the worth of your house, the state of the market and even the buyer’s frame of mind. But your agent’s interests don’t always dovetail with yours.

“It’s in a real estate agent’s interest to move your house as quickly as possible, without waiting for a better price,” wrote Investing Daily Editorial Director John Persinos in our September 25 issue. “That extra $10,000 on the selling price may make a big difference to you, but the additional commission your agent earns is negligible.”

“That means your agent may prompt you to settle for a lower price. However, studies have shown that when real estate agents sell their own property, they keep their house on the market an average of 10 days longer and sell it for an extra 3%.”

The key is to do your homework. Today, you can access information about home sales in your neighborhood through websites like www.zillow.com. Persinos also recommends interviewing a number of agents before settling on one, and always remember that you alone make the final decision to sell.

Go clubbing: Investment clubs are a fast-growing phenomenon, largely driven by the burgeoning ranks of Americans with self-directed retirement plans. They let members share ideas, build their investment skills and pool their resources so they can take bigger positions in securities.

As Persinos wrote in an article in our April 24 issue, joining a club can be a profitable—and entertaining—move. But as always in investing, due diligence is crucial.

“Always make sure the club’s portfolio strategy mirrors your own goals,” he writes. “You’d be poorly served by a club that emphasizes rapid capital appreciation when you’re an income investor who’s primarily interested in healthy dividends.”

Typically, clubs operate more efficiently with no more than 20 members. Most are set up as general partnerships, because it’s cheap and easy. No lawyer is required. As well, all partnership income is taxed only once, to individual partners.

The club’s money is deposited in an account with a broker chosen by members. Since the idea is to make informed decisions based on independent research, it’s better to use a discount broker, which won’t charge for unnecessary handholding like a full-service broker would.

A final tip? “Don’t put all your eggs in one bas­ket! You should maintain a separate, private portfolio to make investments that you like but the club rejects,” writes Persinos.

We Want to Hear from You

Do you have a personal finance tip that’s guided you particularly well in the past? If so, please share it by leaving a comment in the “Stock Talk” section below.