4 ways to get free money from spending and saving

Free money does exist, but you need to know where to look for it and how to get it.   Free Money is available when you save by compounding savings and through employer-sponsored matching of retirement savings.  For spending, you can get access to Free Money through cash back credit card programs and federal grants for college. Technically, these methods are not entirely “free” in the true sense of the word since you need to give something to get something, but I consider using these methods like getting Free Money since you need to spend and save any way

Free Money Generated from Saving

(1) Compounding of savings. Although there are questions about Albert Einstein’s public interest in compounding, there is no question about its relative importance (pun intended). In the spirit of Mr. Einstein, let’s start with a definition:  Investopedia defines compounding as the ability of an asset to generate earnings, which are then reinvested in order to generate their own earnings.

Most people think about compounding relative to interest collected in bank accounts, but it applies to any savings vehicle that produces income that can be reinvested.  This includes brokerage/retirement savings accounts that pay dividends, capital gains, or interest that can (and should) be automatically reinvested.  Even if Einstein never said those words, compounding is undeniably one of the most important concepts to understand, and a cornerstone of financial literacy.

As you can see from the exhibit below, the additional value derived from compounding is based on your savings amount, time, rate and frequency. The longer you save, the more Free Money you get from compounding (as seen by comparing the effective rate to the interest rate/yield in the table below). Just let time do the work for you.

(2) Employer-sponsored matching of retirement savings. While the theory of “compounding” is universally available as Free Money to anyone saving under any method, this one is only available to employees that work for companies that offer it. If you work for a company that provides matching of your contribution to a 401k retirement account, take full advantage of it.  If the company you work for offers to match a percentage of your contribution, say 6%, then save at least 6% of your salary.  Failing to do so means you’re missing out on Free Money.  As an example, if you make $60,000 a year in salary and save 6% that is $3,600.  If a company matches 50% of that amount, then it will add another $1,800 to your retirement account.   A “no-brainer”:  Save 6%, and get all the Free Money available.  Combine matching with compounding and you will be supercharging your retirement savings.

Free Money Generated from Spending

(3) Cash back credit card programs. Credit card companies have been offering cash back programs in various forms for years, and cash back is now the most popular reward, per creditcards.com. The good news is that this popularity has fostered competition among card issuers, making these programs more lucrative for consumers, with higher percentages and fewer restrictions.  I use a cash back credit card that offers me a phenomenal 2% back on all purchases.  Let’s say I spend on average $3,000 per month on my card; the issuer will give me $60 of Free Money each month.  That’s $720 annually if I spent that amount every month.  Take your cash back as a statement credit to offset other expenditures or put it in your emergency savings fund, but pay off the full bill from your card issuer every month or your interest charges will make those rewards far less valuable.

(4) Federal grants for college. If you have a child in college now or going soon, then you know the importance of finding ways to reduce costs associated with getting that diploma.  One place where Free Money is available is college grants and scholarships, but often these gifts are not pursued by applicants.   NerdWallet reported in 2015 that students missed out on over $2.9B in free college money from Pell Grants.  This works out to about $3,600 per student, but awards can be higher depending on need.  In order to qualify for these grants, students must complete the Free Application for Federal Student Aid, or FAFSA. In addition to grant money, scholarship money is also available to help students reduce the cost.  Use the Department of Labor’s search engine to access more than 7,500 scholarships, fellowships, grants, and other financial aid award opportunities.

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