It’s interesting to me how even small amounts of money can be used to make more money. Here’s what im doing so that I can save more money without cutting down on avocado toast or my travel plans. I try to ensure that all of my idle money is put to work as much as possible while limiting my exposure to risk and keeping it readily available for when I have high unexpected expenses.

Account Types

I group accounts into several broad categories based on how I use them.

Credit Cards

Per credit card transaction I try to net 3-5% back in rewards or cash back. This adds up fairly quickly and occasionally pays for some of my flights.

Warning: Before you get over your head in debt, make sure you have a good grasp of how much you are spending, regularly check your statement and make sure you can always pay it off.

If you always pay them off, credit cards are a super easy way to get back money. The easiest way to do this is with a simple card that gives a flat % in cash back which can usually be 1-2%. If you learn the rules and get the right cards you can get upwards of 5% back on most transactions.

How many credit cards are ok?

Credit cards over the long term improve your credit score however they will cause a dip when you apply and if you close them. Therefore it’s important to open cards that you can keep open.

What should I look for in a card?

  • Avoid fees. Or the ability to transition the account to a fee free account without closing the account. Verify that you are able to use enough of the perks to make up for the fee or the card will wind up costing more then it’s worth.
  • Use caution with rotating categories since that can be unpredictable.

Cash

I try to earn 2-2.25% APY or higher on my cash reserves.

Anything that can be accessed within days, including checking, debit, savings, and money market accounts I consider cash. This is on-hand money for emergencies, rent payments, and credit cards payments, and other bills.

How much cash should be held?

More is obviously better but 12 months of rent and other bills is my usual safety net.

How are multiple cash accounts divvied up?

  • Paychecks and bills both go to a lower interest checking account, this account has a bit of padding of about 2 months rent + any large expected expenses to make sure nothing gets overdrawn.
  • Anything more I transfer off to a higher interest account and it only comes back to checking if I become aware of an unexpected expense.

Short term savings

Anything past the safety net I try to earn at least 2.75% APY or higher. However these funds are less accessible.

Short term investments up to 18 months. Generally CDs or unusual promotions of other account types. Periodically when my cash reserve gets well above what I need for a safety net I’ll shave off a hefty chunk and open a CD.

Investments

Investments are long term commitments that I don’t plan on using anytime soon. However I expect these to earn upwards of 6% or more each year once averaged out.

These are Mostly stocks, investment, and retirement accounts. I automatically deposit into these accounts from my checking either each pay period or monthly.

Deals & Promotions

Financial institutions are constantly trying to get you to switch, this is in your favor because it gives you incentives to switch around.

In general companies that don’t offer 1-time promotions have higher long term yields and the ones that do have promotions have higher fees and/or lower yields. Be very selective about the promotions you sign-up for and review the terms closely, if it seems too good to be true it certainly is.

For Example: A promo that says “Get a $200 Sign-up Bonus for opening a new Saving Account” might require you to hold $15,000 in the account for at least 90 days. Here’s a comparison how this might play out with a real promotion I found vs my other strategies.

  Account A (Bonus + Low Interest 0.01%) Account B (High Interest 2.75%) Account C (Investment 6%)
90 Days $15200 $15103 $15226
180 Days $15201 $15207 $15456

After those first 90 days on the promotional account you don’t earn hardly anything and would want to withdraw the funds asap which banks sometimes make challenging. Sign-up for this account would have been easy via their website, but from what I read it sounds like closing it requires a phone call, a physical letter, or a branch visit. At that point is it worth your time? Do the people you need to speak with even work hours you can call?

Loans

My limited experience has been with Student Loans which were directly subsidized by the government. If you are in a situation where you are receiving a loan READ THE TERMS IN FULL to unnecessary or unexpected costs.

To give a personal example: I was surprised by this in 2015 when I paid off my student loans. In my case I received two very small loans which typicall have a 6 month grace period after graduating college. One in 2011, and one in 2012. These were both Direct Subsidized Loans from the department of education, named the same way and received year after year. So you might think may be the same, and it turns out if I had received this loan on different dates, they would have been the same.

Surprise: This was not the case. The differences are clearly stated on the student aid website now…

Note: If you received a Direct Subsidized Loan that was first disbursed between July 1, 2012, and July 1, 2014, you will be responsible for paying any interest that accrues during your grace period. If you choose not to pay the interest that accrues during your grace period, the interest will be added to your principal balance.

This was quite unclear in 2015 though. When I called to ask my loan provider why one loan had accrued interest and the other had not they didn’t know why and only after quite a lot of research I eventually discovered why on page 317/487 in the CONSOLIDATED APPROPRIATIONS ACT, 2012.

(d) TEMPORARY ELIMINATION OF INTEREST SUBSIDY DURING STU-DENT LOAN GRACE PERIOD. — Section 428(a)(3)(A)(i)(I) of the HEA (20 U.S.C. 1078(a)(3)(A)(i)(I)) is amended to read as follows: ‘‘(I) which accrues prior to the date the student ceases to carry at least one half the normal fulltime academic workload (as determined by the institution), or’’. (2) The amendment made by paragraph (1) shall apply to new Federal Direct Stafford Loans made on or after July 1, 2012 and before July 1, 2014.

In my case it was a small loan, with a relatively low rate, and a short period of accrual so it cost me less then $100. The point of this is that you should know what you are getting into and you shouldn’t sign if you don’t fully understand the terms.