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When “You Get What You Pay For” Doesn’t Apply

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"Don't mind if I do" said the broker.

“Don’t mind if I do” said the broker.

Depending on who you ask, investing can be many different things.  Talk to a young day trader, and investing is a heart wrenching, gut busting and sweat inducing race that never ends.  Ask a guy in his fifties who has been passively investing in his 401k throughout his working years, and he might tell you he checks his investments once a month.  Some people enjoy the number crunching and up to the millisecond information they can get from day trading, while others enjoy doing other things in life and let their investments grow on their own in the background.

There is one thing in common in both these scenarios, however, and it presents itself in different ways.  And that is investment fees.  Everyone knows there is a cost to do business.  When you get the dinner bill, you’re not just paying for the food.  You’re paying the restaurant employees’ salary, the rent and utilities.  The same goes for investing.  When you invest in a stock or a mutual fund, you’re not just paying for the privilege of investing.  You’re paying the company that facilitates the trade, the manager who manages the mutual fund and everyone in between.  This means that every time you make a trade, you automatically generate negative returns because your investment needs to make up the cost of your transaction just to get back to square one.

While we can’t avoid all fees, there are two types fees that we can try to minimize:

Trading fees

Any time you buy or sell a stock or mutual fund, there is a trade involved that costs you money.  Here are some ways to minimize this fee:

Trade less.  This is more or less what is known as “no-brainer.”  In order to minimize the fees racked up from each trade, try to trade a little less.  This is not feasible for some investors like our day trader friend, but for someone who is investing for the long term, it doesn’t make much sense to make frequent trades because it doesn’t give the investments time to grow and the fees will just eat at your returns.

Consider an online brokerage.  There was once a time when trades were made over the phone.  This was expensive because there was a broker involved, and anytime a middle man is involved, you gotta pay.  The vast majority of trades nowadays are done online, which makes things easier for the investor and the broker.  Scottrade, for example, is an online broker known for its low trading fees.  It costs $7 per trade when you use the internet.  Making a trade over the phone costs $32.  Almost five times as much!

Trade big.  If you buy one dollar worth of Apple shares, you will pay a flat trading fee.  If you buy $1000 worth of Apples shares, you will pay the same flat trading fee.  You want that fee to be as small of a percentage of your investment as possible.  Making 10 separate stock purchases of $100 each with a 7$ fee will cost you $70 in fees.  That’s 7% of your money already going towards fees.   Making one single purchase of $1000 will cost $7 in fees, 0.7% of your money going towards fees.  Another no-brainer.

Expense ratio

An expense ratio is what it costs a company to operate a mutual fund.  It’s usually expressed as a percentage, as in what percentage of your money the company takes.  Expense ratios vary wildly from fund to fund, and a higher expense ratio doesn’t mean you’re getting more expertise.  It just means that you’re paying more for the privilege of investing with that fund.  In fact, having a higher expense ratio just means you have to earn that much more in returns to get back to where you should be.

Here are a few ways to keep that expense ratio low:

Look at it.  It’s that simple.  As of last year, mutual funds are required to make their expense ratio front and center, not hiding behind an avalanche of fine print.  This makes it easier than ever to avoid fees.  If you’re looking for a great Target Retirement Fund, a mutual fund that shifts its asset allocation over time, you can easily see which one has the lowest expense ratio.  Recent returns may or may not give an accurate picture of the fund’s performance, but a low expense ratio can assure that more of your money will be going towards your investments.

Consider individual funds.  Many people love the aforementioned Target Retirement Funds.  They automatically shift your asset allocation towards “safer” investments as you near retirement.  This will help avoid any major aftershocks to your portfolio like the one that occurred after the 2008 crash.  Many almost retirees who were heavily invested in stocks lost a lot of money, and either had to put off retirement and continue working or try to live off of less money.  A Target Date Fund will automatically adjust your portfolio as time goes on, making it almost idiot proof.

Almost.  There are many out there who are not fans of Target Date Funds, and one reason is that they carry relatively high expense ratios.  Vanguard, which is the bastion of mutual funds with low expense ratios, has a Target Date Fund called Vanguard Target Retirement 2050.  It’s for those investors who predict they will retire in the year 2050, when flying cars will obviously be the norm.  The expense ratio for this fund is 0.18%, a very low ratio by most companies standards.  The Vanguard Total Stock Market Index Admiral fund, a fund that simply invests in the broad US stock market, has an expense ratio of 0.05%, almost four times less than the Target Fund.  The Vanguard Total Bond Market Index Admiral fund has an expense ratio of 0.08%.  Both of these funds have a much lower ratio than the Target Date Fund.

The point is, Target Date Funds are great and have relatively low expense ratios, but you can do better.  Investing in an overall stock and bond fund and adjusting your allocation yourself takes a little more work, but will save you money in fees.  Again, you can do a lot worse than a Target Date Fund, but we want to be the best don’t we???!!!

These are just two types of fees that any investor can try to minimize.  We all try to save money on things like car insurance, electricity and cable.  No one likes paying more for something if they don’t have to.  The same thing applies to investment fees.  Remember, any amount you pay in fees is money that is working for someone else and not for you.

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Filed Under: Investing

Credit Card Churning and a Free Credit Score

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Know the score

Know the score

I love samurai movies.  My favorite movie of ALL TIME is The Last Samurai.  I also love the classics like Seven Samurai.  I also really enjoy the fantasy genre.  I can’t tell you how many times I have watched Lord of the Rings and how many times I will continue to watch it.  I also really enjoy martial arts.  I have dabbled in Aikido, Taekwondo and Muay Thai, and my ultimate goal in life is to become a full time martial artist.  I greatly admire Bruce Lee and his work ethic.

So why am I giving you all the proof you need to call me a nerd?  That’s because it helps me break down things in life into a battle of good against evil.  It makes really dull subjects sound pretty darn epic.  I previously wrote about how inflation is a beast and you need to slay it.  I’ve also written about the monstrous nature of student loans and the need to keep attacking them.  Noticing a pattern?

The next beast I would like to attack is credit cards.  But this is not just simple attacking and killing it by not getting into credit card debt.  We are actually going to take this beast and make it our pet, turning it into an easy source of tax free income year after year.  How do we accomplish such sorcery?  Through credit card churning of course.

Battle plan

It is said that the battle is won even before the first strike.  This usually means that victory goes to the most prepared.  When it comes to credit card churning, I couldn’t agree more.  We want credit cards to work for us, but the fact is that most people end up working for credit cards.  This is not an easy task but all it takes is a good battle plan and good execution.

For the uninitiated, many credit card companies offer sign up bonuses with their most popular cards.  For example, one of my favorite credit cards is the Chase Ink Plus.  It gives you 5 points for every dollar spent on TV/internet bills and purchases at office supply stores.  This is a decent percentage of my monthly expenses, so it helps me to use it every month.  But the key point is the sign up bonus.  Currently, Chase is offering 50,000 Ultimate Reward points for signing up for this card and spending $5,000 in 3 months.  That seems like a lot, but it comes out to spending $1,666.67 a month for 3 months.  Some people spend that much in a week.

50,000 Ultimate Reward points translates into $500 cash back at the minimum, and can save you even more if redeemed for travel.  To keep things simple, let’s assume we’re only using the points for cash back, as redeeming for travel presents a whole other realm of possibilities.  So in essence, you got $500 for doing your normal spending.  Not a bad deal.  Now find another credit card with a sign up bonus and repeat.  This is what credit card churning essentially is.  It sounds like a dangerous game, and it really can be if you’re not careful.  But if you follow just two rules, you’ll be be able to turn this dangerous beast into your little pet puppy:

1.  Know your Credit Score

This is the most important weapon to have in your utility belt.  Having a GREAT credit score will almost ensure your approval for many of the awesome sign up bonuses out there.  Having a poor credit score will keep you out of the credit card rewards game entirely.  There are a number of factors that help in increasing your credit score, but one of the most important things is to be able to monitor your score.  You can get your score from the FICO website for $20 a pop, but that can get to be a little pricey if you want to check your score every month or so.

Credit Sesame allows you to access your free credit score anytime.  I have been using it for a couple of years and it works great.  It uses some demographic that you provide to get your score.  While it is not an “official” score, it is almost exactly the same as my real score.

I’m a skeptical person by nature, because I know companies offer sales or “free” products in order to make some money for themselves.  So what’s the catch?  The catch, if you could call it that, is that Credit Sesame makes its money by suggesting certain credit cards or accounts that may benefit you based on your information.  You certainly don’t have to accept those offers, and even if you don’t, the credit score is always free.  Pretty simple business model.

2.  DO NOT OVERSPEND

Credit card debt is one of the worst things in the world.  Credit cards charge very high interest rates and you usually have nothing to show for the debt except clothes and electronics that go stale in a few weeks.  Don’t start spending more than usual and get into debt because of it.  If you don’t want the pet dragon to turn against you, you would be wise to remember this.  Just do what you’re comfortable with.  If you only want to do one sign up bonus every 4 months, that’s fine.  If you feel confident in hitting sign up bonuses for 6 cards every 3 months, that’s fine too.  I’m somewhere in the middle, around 3 cards every 4 months or so.

Again, do what you’re comfortable with.  It’s not worth a few hundred dollars in rewards to find yourself in debt to Visa.  I find credit card churning fun, and once you start overspending, the fun is over.  That’s when you call it quits and focus on getting your spending back in order.

This post provides a very basic overview of credit card churning to get sweet, sweet sign up bonuses over and over again.  There is SO much more to the process, such as finding the best sign up bonuses and ways to meet spending requirements without actually “spending” money, but those topics will be for future posts.

Just remember to keep an eye on your credit score to make sure it’s nice and high, and absolutely do not spend more than you usually do.  With this knowledge in hand, the beast doesn’t stand a chance!  Get your credit score and get started.  Remember that you can ignore the other offers and stick to just getting your free score.

Get your free Credit Score and More

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Filed Under: Credit cards, Investing, Money Savers

The Only 2 Ways to Beat Inflation

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Run for your lives.

Run for your lives.

There’s a saying that goes, “If you’re not going forward, you’re going backwards.”  If you take it literally,it makes no sense at all.  I mean if you’re not going forward, you’re just staying still in one spot right?  So chill out what’s the problem!?  The problem is, that while you may be relaxing in your little spot, the REST OF THE WORLD is going forward.  Meaning that if you stay in your little spot, you are moving backwards relative to everyone else.

So now that this little lesson in perspective is over, how does this apply to your financial life?  It’s because inflation will make your money worth less (and eventually worthless) year after year if you don’t do something about it.  For some reason I think of inflation as a big, horrible beast.  This beast that just devours everything in its path with no regard for the carnage it leaves in its wake.  I would like to eventually convince you all to think of it in this way too, because if you’re not paying attention to it, inflation will eat you alive.

(Very) Short history lesson

In order to learn how to beat inflation, we have to know a little bit about it.  It’s a very deep topic with many economic theories pertaining to it, but in general, inflation is an increase in the price of goods and services over a period of time.  This is usually because of the diluting effect of pumping extra money into the economy.  More money available means that you need more money to purchase the same product over time.  This means your purchasing power decreases over time.

The long term average inflation rate in the US from 1913-2013 is 3.22%.  Let’s round it to 3% and assume this is the rate of inflation for every year for the rest of time so I can do math in my head.  That means if an apple cost $1, next year it will cost $1.03.  And it will keep going up 3% every year from there.  This also means that if you make $10,000 in one year, you will have to make $10,300 the next year just to maintain your standard of living.  This is why if you’re not moving forward, you’re actually moving backwards.

So how do we combat this beast that will destroy our finances?  There are only two ways available:  Make more money, or spend less money.

Making more money

This seems like an obvious bit of advice but there are many ways to diversify this.  Here are some down and dirty ways to beat the inflation monster by making more money:

Work more.  A no-brainer here.  If you’re able to work some extra days or take on some extra clients without degrading your quality of life TOO much, you can beat inflation this way.  Just working an extra day per month should be able to accomplish this.  Now of course you can’t continue to work an extra day year after year because you’ll run out of days and your spouse and kids will hate you.  So you need to find some other ways to increase your income.

Work FOR more.  Increasing the rate you get paid, by either asking for a raise or increasing your business rates is probably the best way to beat inflation when it comes to making more money.  This is because any increase on top of that will get you even more ahead of inflation!  For example, if you’re able to increase your salary by 5% each year, not only will you beat inflation every year, but each 5% increase will be compounded on top of the previous one.  So if you were able to get a 5% increase for your $10K salary, you will now make $10,500.  Another 5% increase will net you even more because it will be based on the $10,500 figure.  So your next 5% increase will get you to $11,025.  Eventually, you will leave inflation in the dust.

Getting a 5% raise every year is pretty difficult, but you should always be trying to get the highest raise you can whenever the opportunity presents itself.

Increase your investments.  Inflation needs to be battled not just year to year, but decade to decade.  Things will cost a lot more in 20 years than they do now, so you have to plan for that as well.  You can do this by increasing your contributions to your investment accounts.  If you invest wisely in the stock market with index funds you should be looking at a conservative 5-6% return on investment every year.  This will easily beat inflation, so increasing your investment contributions will increase your net worth and help ensure that you will have enough money down the road.

Spending less money

Being able to keep more of your hard earned money is another way to fight back inflation.  Using those savings to increase your investment contributions can provide a nice double whammy as well.

Frugality.  Saving money is awesome.  There are no two ways about it.  It is said that a dollar saved is a dollar earned, but remember that we get taxed TWICE when we buy stuff (first income tax and then sales tax), so saving a dollar will actually save you a little more than a dollar.  It’s important to take a detailed and thorough look at your expenses every so often and see where you can shave off some money.  Reconsider your “necessities”, because a lot of them are just wants.

It’s also important to note that if you can cut your expenses down comfortably by 10% and can keep them around the same level for most of your life, those savings will help you for a lifetime.  By being able to live on less, you are giving inflation a sucker punch that it will not recover from.

Pay less taxes.  Uncle Sam wants his fair share for every dollar we earn.  And for good reason.  There is a country to run and it takes money to run a country.  The country being run WELL is a whole other issue, but the country still needs taxes to function.  But just like we do with our real uncles, we can play some games here.  Uncle Sam has allowed us to hide some of our money from him.  This is what a 401k account essentially is.  We get to set aside some money pre-tax and invest it in what we like (or what our company chooses for us).  We will have to pay taxes on this money eventually, but the hope is that in the meantime we reduce our taxable income early on and that money grows a lot before we have to eventually give our share in taxes.

You can also pay less taxes by making sure you take all of the deductions you are eligible for.  You can read up on these on your own or get your taxes done by a reputable professional.  Most online tax programs like TurboTax will do their best to make sure you get what you’re eligible for also.

There are still some steps to take even if you are wildly successful in saving money and making money.  If you make more money and end up spending it, you have done nothing to beat inflation.  If you save some money but just let it sit there in your checking account, it’s serving as a nice buffer but it can be doing so much more.  The key to bring it all together is to put your savings and extra income to good use by increasing your contributions to your emergency fund, decrease debt and increase investments.  Inflation will never know what hit it.

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Filed Under: Investing, Student Loans

Football and Your Finances

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catching football

Well it was inevitable.  Given my love for football and personal finance, I have written up some similarities I’ve noticed between the two.  I’m surprised it took so long actually.  I always thought that sports really transcend what you’re actually seeing on the field and that there are some life lessons to be had if you really look into them (Check out what running and soccer can teach you about your finances).  Football especially has these characteristics as each game is a blend of athleticism, history, philosophy and art.  Non sports fans probably think I’m crazy, but it’s there trust me.  You just don’t see it.

There are lots of lessons to be learned financially if we give a critical eye to football.  Football is a pretty unique sport in that it is only really played in North America and has a rabid following at the high school, college and professional levels.  It can also help you get your finances into shape if you really pay attention to the game.  I specifically enjoy watching the NFL and, videotaped displays of domestic violence notwithstanding, it has been a fun week of football as usual.  It would have been better if the Giants could actually win a season opening game, but there are still many games to be played.  Without further ado, here is what football can teach you about your finances:

Think Long Term

If there is one thing that nearly all the Super Bowl champions have in common, it’s that they took a look at the big picture to get where they are.  Football is the ultimate team sport, and it takes a combination of shrewd moves on the part of management and hard work and dedication on the part of the players to make a championship team.  This means you have to hire the right personnel, draft the right players and make sure they stay motivated.  This takes years of implementing a plan and executing it to its perfection.  Football is one sport where you can’t just sign a star player or two and expect to have success.  Teams have tried this in the past and fell flat on their faces (ahem Washington Redskins).

Thinking long term is important for your finances as well.  It is actually essential for your finances.  Your short term savings, retirement planning, college investments and income potential all need to be in order to have success.  This takes time and can not be fixed overnight.  While there can be emergencies that crop up such as emergency medical bills and job loss, those are usually temporary and if you have your long term financial picture in mind, you should have enough savings to weather the storm.  One great way to measure your financial success is to track your net worth.  If your net worth is going up over time, you’re generally doing well.  If not, changes need to be made.

Diversify!

Football has has 3 main phases:  offense, defense and special teams.  To define them simply, offense is in charge of scoring points, defense is in charge of stopping the opponent from scoring points and special teams scores some points but mainly tries to put the offense and defense in a good position.  Most teams that have continued success do well in all 3 phases.  There are some teams that have won the championship by having one overly dominant aspect, but that usually doesn’t last.  NFL coaches and players are too smart and work too hard to be fooled by the same thing every time.  In order to be successful in football, you need to keep the other team on their toes all the time by having a good offense and defense.  Being well balanced also allows you to overcome injuries.  If a team only relies on offense and has a poor defense, an injury to their star quarterback will all but spell their doom.

Diversification is needed for success in personal finance as well.  Diversification is usually talked about in the sphere of investing because putting all your eggs in one investment basket can be a very risky venture.  This is most definitely an important point to remember, but diversification can also apply to your personal finances as a whole.  I like to think of your income as your offense, expenses as your defense and investments as special teams.  Most people get the majority of their income from their day job, which is great if you have a great paying and stable job that will be around forever.  But if you are at a risk for job loss, which everyone is to some degree, it’s important to have other diverse streams of income.  This can be in the form of a side business.  While it may not net you as much as your day job, it is still something to expand upon in case you do suffer a job loss.  Keeping expenses low is also important because if you spend as much as you earn, you’re not going anywhere.  So just like football, income, expenses and investments must all be in good shape.

Plan for the worst

One thing that is unfortunately ever present in the game of football is injuries.  Football is a brutal game, with huge athletic men running into each other at full speed.  No amount of pads or protection can fully protect the players from damage.  Injuries will happen and need to be factored into the long term plan for any team.  This means that you need great reserve players who know their assigned role and will be able to fulfill it.  These reserves need to be found ahead of time because teams will be hard pressed to find a quality emergency player just sitting around and waiting.

This couldn’t be more true in the world of personal finance.  Finances can be brutal at times as well, and bills can come fast and hit hard.  This highlights the importance of having short term money in reserve.  Call it an emergency fund, tranquility fund or whatever you want, the name doesn’t matter.  What matters is that you need a stash of money that you can access in a pinch, because emergencies happen to everyone at some point.  You just have to be ready for them.  It can be the difference between paying an unexpected medical bill and not losing a beat to having to get into credit card debt and set yourself back for years.

I firmly believe that there are life lessons to be found in almost anything, but especially so in football.  If you’re not a football fan now after reading this, then I can’t help you anymore.  And if you want a team to start rooting for, pick the New York Giants.

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Filed Under: Investing

The 3 Letter Word You Need to Know to Get Ahead

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There are cliches abound when one tries to find ways to get ahead in the workplace or in their business.  “Work smarter, not harder” is a frequent one.  “Keep it simple, stupid” is another famous one.  In the hyper consumer culture that we live in, it is generally frowned upon if someone takes days off of work and does not to give 110% at what they’re doing.  We need to be working as hard as we can whenever we can, often to the detriment of other important things in our life.  In my work experience, however, I’ve noticed there is one powerful thing that will nearly always get you on the fast track to success.  I have noticed this working as an optometrist and even the jobs I’ve worked before I became a professional.

What is this magical method to success?  It’s actually pretty simple.  One word.  ASK.

You heard it here first.  ASK.  That is the path to success in any field.  And this is because when you work, be it as an employee or self-employed, you’re working to prove something to someone else.  As an employee of a company, you most likely have a supervisor or someone that will want to know how you’re progressing.  As someone who is self-employed, you are working to gain customer satisfaction, not only to bring in new customers but to keep the people coming back.

Most people usually try guess what their boss wants and hope it sticks.  As an employee, many people will make it a point to work hard and hope that the powers that be will notice that hard work and keep rewarding you.  This may work in certain positions where everything is based on numbers, but even then hard work alone won’t differentiate you from the others.  The best thing to do is just ask.  Ask your supervisor what is most important to them and find ways to make their job easier.  Ask if there are any extra projects you can work on.  If you’re looking to get promoted to the next position, just ask what it will take and do what you can to get there.  If you make a habit of this and make a habit of succeeding, you will fast track your way to success.

For those who are self-employed, the customer is king.  It might take a little more work to find out what customers want because you can’t just go around and ask people random questions.  That will annoy them.  Set up some type of survey on your website or give the customers the ability to leave feedback after their experience.  After a while, you will notice some trends and you can adjust your business practices along the way.

I can personally attest that simply asking worked for me recently at the workplace.  About a year ago I had a conversation with one of the more seasoned doctors in the company.  I just asked him what the next positions available are int he ladder and how to get them.  He mentioned what it would take but did say all those positions are filled in my area.  A few months ago, one of those positions opened up and in a discussion about who should get the new spot he mentioned my previous interest to the higher ups and it went from there.  It was not necessarily because of hard work that they asked me, though I’m sure working hard didn’t hurt, but simply because I asked at one point.  That’s all it took.

And asking just shouldn’t be used to help yourself get ahead.  It can be used to help others and make things easier for everybody in general.  If you see a co-worker struggling or just in need of some help, ask them what you can do to help.  There doesn’t have to be anything you receive in return right away, but it can give you the reputation as someone who can be counted on to help when times are tough, which is definitely a good reputation to have.

Part of getting ahead in the workplace is being able to showcase yourself and your talents.  If everyone just worked hard at the task they’re given, it would be very difficult to see who should get a promotion or a raise.  Managers look for those who are proactive, and simply asking a supervisor what they are looking for can be the first step to get your foot in the door to getting some recognition.

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Filed Under: Self Building

Get Rewards for Buying your Stuff

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I enjoy writing about credit card sign up bonuses.  And for good reason.  They’re awesome.  They allow you to get a nice pile of bonus cash (or points or miles) for buying stuff on your credit card that you normally do.  If you can get past the silly temptation to use your cards more than you need, you can easily get at least a few hundred dollars worth of rewards in a year without much effort.  Put some effort into the sign up bonus game and you can get rewards in the thousands.  But what about those times you’re not chasing a bonus?  Should you just use any card for any type of purchase?

The answer is, of course, no!  There are certain cards that are very good for certain categories and some that are good for everyday spending.  I always say there should be a reason you pull out a certain credit card for a certain purchase.  Just using a card for no reason is selling yourself short.  After a while using the best credit card for your particular purchase will become second nature.  Here are what I think are some of the best current cards to use for different categories:

(By the way, none of these are affiliate links so I don’t get any commission if you sign up for these cards.  These are my honest to goodness recommendations from the bottom of my heart).

Groceries

Money spent on groceries is a huge expense for everyone so I think getting a good rewards card for groceries should be the first thing on everyone’s list.  And not just because of food.  You can buy household stuff, greeting cards and gift cards and get the same great cash back as you would on food.  My favorite card for this is the Blue Cash Preferred from American Express.  This card gives you 6% cash back on grocery store purchases on the first $6,000 you spend on groceries in a calendar year.  That’s $360 cash back for the year right there.  The card does have a $75 annual fee which eats into that, but that’s still a decent amount of cash back for making your regular purchases.  You also get 3% cash back on gas with no yearly limit which is nice as well.  If you search around on Google you should be able to find a deal with a good sign up bonus.  I got one with a $150 sign up bonus but your results may vary.

Gas

Gas is another expense that many people incur regularly, so you might as well get some cash back for it.  As I just mentioned, the Blue Cash Preferred is probably the best gas card as well since it gives you an unlimited 3% cash back on gas purchases.  The Chase Freedom gives you 5% cash back on gas, but only during certain months of the year.  This year, for example, there are 2 quarters where 5% back on gas is offered.  The Freedom is a good card to have in general so I recommend it because it gives 5% cash on other categories throughout the year as well such as movie theaters and Amazon.  It also has no annual fee so it’s a nice card to keep around to help improve your credit score over time.

Wireless

Driving around the other day I came to one of those intersections that attract panhandlers.  Before pretending I dropped something on the car floor and needed 3 minutes to look for it, I noticed one of the panhandlers was on his cell phone.  An iPhone no less.  This shows how ubiquitous cell phones are in our society nowadays.  And that can come with a price tag of course.  While I haven’t really found any good personal credit cards that give cash back on wireless purchases, there is a great business credit card from Chase called Ink Cash.  It gives you 5% cash back on your wireless bill as well as your cable bill.  It gives you 5% cash back on office supply stores as well.  The card also has no annual fee.  You can currently sign up and get a $200 bonus when you spend $3,000 in 3 months.

And most people actually do qualify to get a business card.  If you dabble in something on the side or sell things on eBay or Amazon, that’s technically a business.  (Here’s a great step by step guide to a business card application from Million Mile Secrets).

Everyday spending

There are a lot of times when you have to buy things that don’t fall under a certain category.  Random stuff like parking garage fees, medications etc. crop up from time to time.  For things like these it’s best to have a good everyday spend card.  My card of choice is the Fidelity Investment Rewards card.  It gives you 2% cash back on every purchase with no annual fee.  There are some hoops to jump through to get this card which I have already written about.  But if you’re able to get it, it will serve you well.

The Fidelity card is an American Express card, which means it won’t be welcome everywhere.  In that case, an alternative card to have for everyday spending is the Barclaycard Arrival Plus card.  While this could technically be considered a travel card, if you make any type of travel purchase throughout the year (like plane tickets, rental cars etc.), this card can serve as your everyday spend card.  It gives 2 “miles” on every dollar you spend and you can use those “miles” to get rebates on your travel purchases.  It is essentially a 2% cash back card used towards your travel purchases.  It has a great sign up bonus of 40,000 miles as well.  You do need a pretty good credit score to get approved for a Barclaycard credit card, so make sure you have all that sorted out before hand.  And this card also has an annual fee of $89 after the first year so it might not be worth it for some people after a year.

For people that hardly ever travel, the next best everyday spend card will be the Capital One Quicksilver.  The one Samuel L. Jackson really wants us to get.  It gives you 1.5% cash back on everything with no annual fee.  No frills and pretty simple.

Those are my picks for best credit cards.  I have all the cards that are mentioned here and they all work very well for their intended use.  It’s always important to remember that if you’re in credit card debt or would like to get into it sometime soon, reward cards are not for you.  You first need to not incur debt and then possibly switch to a low interest card via a balance transfer.  Most reward cards have very high interest rates so you don’t want to get into debt with those.  And remember to keep an eye on your credit score.  A great credit score will not only allow you to sign up for these great cards, but will give you the best interest rates for any type of loan you may have to take in the future.

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Filed Under: Credit cards

Diamonds in the Rough Roundup 6/30/14

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Been a crazy week with changes at work and job offers from other companies.  And a chance to strike out on my own.  I’ve never really been the entrepreneurial type, but am definitely considering it.  The first post of this week’s roundup reflects that.  Enjoy:

–Quit Your Job and Die Alone by Financial Samurai:  Though the examples in this post don’t apply so much in the field of optometry, the message is clear:  it is tougher to make a lot of money on your own than on the job and it’s tougher than most people make it seem.  There is a ton of work that goes on behind the scenes in any successful business.  Very thought provoking article.

–Save Thousands on Credit Card Debt with Balance Transfers by Broke Millennial:  Balance transfers can be useful especially for those with credit card debt, but they come with a pretty big risk.

–Proof Banks Caused the Financial Crash by Financial Samurai:  I’m a firm believer that it was the greed and incompetence of banks that played the major role in causing the financial meltdown.  This is another great post giving an inside look into the behind the scene workings of the mortgage industry.

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Congress: Here’s How to Stimulate the Economy

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What "stimulating the economy" really means.

What “stimulating the economy” really means.

All politicians love talking about certain issues over and over.  Be they Republican or Democrat, they all want to “stimulate the economy”, “create jobs” and “find ways to screw the citizens over as long as our political donors and friends make out like bandits.”  You might not hear that last one spoken in public but just videotape Mitt Romney secretly and you’ll eventually get it.  In any case, they make all of these platitudes and have their own party line ways of solving them.  Increase regulations on big businesses (while others say decrease).  Increase the minimum wage (while others say decrease).  Close tax loopholes (while others say make more).  But there is one area nearly all politicians don’t want to fix but would definitely help solve a lot of the problems the economy suffers from:  student loan debt.

A few days ago I heard a little factoid on the news which stated that home ownership among those under the age of 35 is at its lowest point of ALL TIME.  Think about that for a second.  There are a decent amount of people under the age of 35 in this country, yet most of them aren’t owning homes.  It would seem that by 35 most people would have their act together and be able to swing a modest mortgage.  After doing some hard core research (Google) to find some real numbers, this article by NPR laid it out nicely.  It states that while the housing market as a whole is improving, the home ownership rate for those under 35 is steadily declining.  They state that the home ownership rate for those under 35 is 36%, when just 10 years ago it was 43.6%.  This seems like a huge difference in just one decade.

The article goes on to list 4 main reasons why this may be happening: it’s tough to find jobs, people are getting married later, low credit scores, and, my bitter enemy, student loan debt.  I would argue that student loan debt actually causes the other reasons, and that should be the focus of any action by Congress to stimulate the economy.  When the housing market’s bubble burst, Congress was in a frenzy, ordered a bailout of all the greedy companies which caused all the trouble, and then tightened the standards to get a mortgage.  With the effect that student loan debt is having on the economy, it is astonishing to see that Congress is not in a similar frenzy (though if you recall the previous statement about friends making out like out like bandits, you can understand why).

You would think that with reports like the NPR there would be more of a push for reform.  If people under 35 aren’t buying houses because of student loan debt, they’re not buying other things that can stimulate this consumer based economy.  And people under 35 like buying stuff, trust me.  Personally I would use the extra money to pay off more student loans or increase my savings rate, but most people would buy more stuff which is what the economy wants.  If a report came out that talked about the effects that student loan debt is having on all the different economic sectors (aka how companies could make more money off of young people with money), maybe big reforms would be on the horizon.

Big reforms along the lines of limiting the amount college tuition can increase or a substantial decrease in student loan interest rates.  Not only do we see nothing of the sort, we see bills like the one President Obama signed recently which allows more people to be eligible for the “Pay as You Earn” program which says that student loan payments can’t be more than 10% of one’s income.  I appreciate that this president is at least trying to make some effort when it comes to student loan debt, but this measure will help a small subset of borrowers, and will be a small help at that.  Unfortunately the only thing that motivates the lawmakers in this country to action is a disaster.  I don’t predict any real change until student loan borrowers simply stop making their payments in droves similar to what happened in the housing market.  And that time may be sooner than most think as the latest student loan default rate stands at about 10%.

Well to repeat the question most Americans eventually end up asking themselves, what can I do about this situation since Congress is doing nothing?  The only person that cares about your financial health is you.  Lawmakers don’t, and this is not a surprise to anyone.  If you’re thinking about applying to college, find ways to lessen your student loan burden either by working part time or even delaying college.  Yes, I think it has gotten bad enough where people should consider delaying going to college in order to be in better financial shape in the future.  If you already have a mountain of student loan debt, start paying it off by throwing what you can at your highest interest rate loan and work your way down.  This means cutting back on useless expenses and concentrating on getting rid of that debt.  Hopefully by being diligent and recognizing student loan debt for the disease it is, we can open the path to financial freedom a little quicker.

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Filed Under: Self Building, Student Loans

Diamonds in the Rough Roundup 4/11/14

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The sun is finally shining and the cherry blossoms are blooming.  I’m enjoying these temps in the 70’s and looks like we’re finally out of winter.  Check out some of these equally refreshing articles I came across.

–A Realistic Look at Ideal Days in Our Future Financially Independent Life by RichmondSavers:  Great thought provoking post on how we would spend our days if finances weren’t an issue.  It’s something we need to think about as we all only have a limited amount of time on this planet.

–How to Recover from a Financial Mistake by Stefanie O’Connell:  Everybody makes a dumb financial move here and there.  It’s important not to beat yourself about it, learn from it and move on.

–Should I say Something?  A PF Enthusiast’s Dilemma by Cash Cow Couple:  It’s always tough to see or hear a loved one about to make a not so smart financial move.  Is it always smart to tell them or is there another way?  A thought provoking situation.

–The power of profit margin by Get Rich Slowly:  Being in charge of your finances is like being in charge of a business.  If you start thinking of your transactions as personal profit or loss, it can put a new spin on spending recklessly.

–How Much Do I Have To Make As An Entrepreneur To Replace My Day Job Income by Financial Samurai:  Really fascinating post comparing the different aspects of being employed to being self employed.

Big shout out to Daraius at Million Mile Secretes for including me in his Interview Series.  Check it out here.

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Why you need to collect Points and Miles

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I’ve talked before about some great rewards you can get from credit card spending.  I’ve also talked about the importance of having a great credit score and the benefits one can reap over a lifetime just by having a great score.  With these two things in mind, the next step is to maximize your credit card rewards.  And I mean MAXIMIZE.  As in sign up for a few cards every 3-4 months , also known as a churn.  Contrary to popular belief, this does not hurt your credit score much, and actually will make it more solid in the long run as you will have higher and higher credit limits and lower and lower credit utilization ratios.  So there should be no fear of getting the most credit card rewards possible.

But if you are the type who racks up credit card purchases like there’s no tomorrow, forgets to pay on time here and there or is okay with carrying interest month to month, don’t even think about getting credit card rewards.  Actually, you should re-think your life and your use of credit cards at all.  They are a tool, but only in the hands of those who know how to wield it.  Willingly and knowingly carrying a credit card balance is one of the most foolhardy things one can do financially.  If you are one of those people, maximizing rewards is not for you.  If you try it, the only thing you will be maximizing will be your pain.

Now that we got THOSE people out of the way, let me show you a few reasons why getting lots of credit card rewards is awesome.  The first thing that comes to mind is that miles and points are TAX FREE.  There apparently is no way for the IRS to quantify how much a “point” is worth, especially since they can be worth different amounts in different programs.  And let’s hope it stays this way.  We work hard for our money, and being citizens of a country, we have to pay taxes.  This is reasonable and necessary as taxes allow the maintenance of the roads we drive on and the libraries we frequent.  But if there is a legal way to avoid taxes, I’m all for it.  Miles used effectively, for example, can turn a first class ticket normally costing $5,000 into a $50 out of your pocket expense to cover the taxes.  That’s $4,500 saved.  Tax free.  Now granted, most people don’t buy $5,000 plane tickets, but money saved is money saved.  You can compare that $50 out of pocket expense to a $300 coach ticket you’d probably buy.  That’s still a $250 savings.  But in a lot more style sitting in first class.

A common complaint about collecting miles is that people say they don’t travel much and there’s no need to collect so many miles.  In my experience, everyone has to travel somewhere at some point in their lives.  Be it for a wedding, funeral, visiting family or for business, everyone gets on a plane at some point in their lives.  And having miles ready for that day can be very lucrative.  From a single credit card sign up, a person can easily get a round trip domestic ticket to anywhere in the country along with no checked bag fees.  That is incredible piece of mind.  Also, some of the more flexible programs such as Chase Ultimate Rewards and AMEX Membership Rewards allow you to redeem points for cash or gift cards.  So if you know you’re not going to be flying anywhere soon, just trade those points for some cold hard (tax free) cash which you can use to pay down your debt or bolster your savings.  Did I mention it’s tax free?

Another reason to get into the world of credit card reward maximization?  It will help you spend less.  Yes, you heard that right.  The common refrain from credit card haters is that they make you spend more that if you use cash.  In my experience, that’s only if you are not conscious of your spending.  As long as you have a budget or  some type of spending plan and realize that getting 5% cash back is peanuts compared to not buying the thing at all, you will not spend more with a credit card.  On the contrary, I have found times where I want to spend less, just to maximize rewards.  If I see something that catches my eye in the mall, I don’t buy it right away because I know i won’t get maximum cash back like that.  I can use an online shopping portal like the Ultimate Rewards Mall or Bigcrumbs.  I’ll probably forget to check it when I get home, or I’ll realize it’s not worth the effort so I just won’t buy it.  If you look at every purchase you make in the frame of maximizing credit card rewards, you will want to buy less things.

And finally, if those reasons didn’t sway you, here’s the real reason you should get in on the credit card rewards game:  it’s fun.  It’s fun finding an awesome credit card sign up bonus, being approved for the card, and knowing it will cover a fun trip for you and your family.  It’s fun to find ways to maximize your cash back, such as buying gift cards at grocery stores, to take full advantage of the many great grocery cash back cards out there.  And it’s fun to kind of stick it to the big credit card companies, using their rewards to produce things of value for you which you might not have gotten otherwise.  It’s not exactly Fight Club, but it feels good to use their money to enrich ourselves for a change.

What maximizing rewards will eventually cause...I think

What maximizing rewards will eventually cause…I think

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Filed Under: Credit cards, Money Savers
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