Don’t Feed the Alligators

A Personal Finance Blog from a Small-Scale Landlord’s Perspective

Archive for July, 2008

Credit Cards Accepted

Creative Commons License photo figure credit: TheTruthAboutMortgage.com

Just about a year ago, ScrapperMom and I decided that we had reached the right end of the Credit Card Contiuum and that it was time to start earning some rewards for buying all of the things that we buy or pay for on a monthly or yearly basis anyway.  We went in search of a rewards credit card.

Rewards credit cards come in many different flavors.  There are air miles cards, new car purchase cards, free gas cards, free coffee cards, cash back cards, and even dedicated 529 earnings cards.  ScrapperMom and I decided that since we could not afford to contribute anything specifically to our daughter’s 529 plan that we would look for a card that would allow us to earn money for her account.

One might think that since we wanted rewards to fund a 529 account, that we would choose one of the 529 rewards credit cards that are available.  Unfortunately, the few 529 rewards cards out there have terms that are worse than those available from some other cards.  For example, one card we looked at has a limit of $300 in earnings per year.  Our goal was to put as many of our purchases as possible on the card, and knew that we would easily exceed the $300 limit.  Another card we looked at was linked to a specific 529 plan that did not fit our criteria for such a plan.

Instead, it made more sense for us to apply for a cash back credit card.  There are a lot of cash back cards on the market, and they all have different terms.  Using the credit card finder at Bankrate.com, we looked through many different cards.  Some, like the American Express Blue card have different rates for different spending amounts.  You have to spend a lot of money before the rates rise to a level on par with many of the other cards.  Most of these cards offer around 1% cash back on all purchases and 3%-5% on certain types of purchases, like fuel, groceries, and fast food.

Ultimately, we chose the Chase Freedom Card.  This card offers 1% cash back on all purchases as well as 3% cash back on things like groceries, fast food, and fuel purchases. You can redeem your cash whenever you accumulate $50 worth, but if you are patient then you can collect $200 and trade that for a $250 return (which brings the cash back bonus to about 1.25%). We can’t use this card for most of our big bills like our mortgage, car, and student loans, unfortunately, but we can use it on a lot of the small stuff like cell phones, satellite TV, Netflix, periodic insurance payments, etc.

In the past year, we have earned over $750 in rewards that we have applied to our daughter’s college savings.  In a typical month, we earn about 75% of our points at the 1% level and the remainder at the 3% level.  Since it only takes about 4 months to accumulate $200 worth of rewards, it’s worth our while to wait until that point to cash out the extra $50, since that’s a much better return than putting $50 per month into almost any investment.

Obviously the key to this whole plan hinges on spending within our spending plan.  We pay this card off every month with money from our checking account.  Again, we don’t use the card to spend on things that we would not otherwise have purchased.  One splurge purchase can wipe out a year’s worth of rewards in no time at all.

Many people have difficulty handling credit cards, and I understand that.  However, many others have aquired the self-discipline to be able to handle credit cards without breaking the budget.  I believe that not using a rewards credit card for things that we are going to buy anyway is just leaving free money on the table.  I have spent years giving the credit card companies my hard earned money, and now it’s time to redeem some of it.

Do you use a rewards credit card?  What kind of rewards do you get?  Do you find it worth it?

Piggy Banks

Creative Commons License photo figure credit: Jeff Kubina

Our daughter was born in early 2007. Knowing what I know about the power of compounding interest, I knew it was important to start a college savings fund early with something, even if it wasn’t much.  We definitely subscribe to the belief that saving for retirement and debt reduction come first in the savings plan and that college savings has to take a back seat to these higher priority expenses.  Still, it’s difficult to be a parent and not try to put something away for your kids.

With that in mind, we opened a 529 savings account for our daughter when she was almost a year old.  A 529 plan is very much like a Roth IRA — except it’s for kids and their family and friends who are saving for their future college expenses.  Money put into a 529 plan grows tax free, and withdrawals are tax free as well.  529 plans are administered by individual states, and some states also offer an income tax exemption on contributions made to your home state’s 529 plan.  It’s interesting to note that many states now offer more than one plan.

With so many plans available, opening a 529 plan can be a daunting task.  Luckily the folks over at SavingforCollege.com have made the task a bit more manageable with a search function to find the characteristics of a 529 plan that you want.  We started with this list of wants:

  • low fees — no point in having high fees eat up a large portion of the gains
  • a variety of investment options — age based, index funds, etc.
  • low startup costs — we wanted to be able to contribute small amounts at irregular intervals
  • state tax exemption — your gains only get better if you can deduct the contributions on your state taxes

Another great resource at the time we set up the account was Nickel who did a lot of the homework for us.  My search did seem to concur with his assessment.  We got 3 out of 4 of our wishes in this search.  Unfortunately our state does not have any kind of income tax exemption for contributions made to 529 plans.

We decided on the Ohio College Advantage Plan to get started.  This plan offers very low contribution amounts at $15 per contribution.  It offers a range of investment options including portfolio blends, index funds, CDs, age based funds, etc.  Most of the fees for these options are low.  The Vanguard options, for example, start with an expense ratio of 0.23%, and there are no other management fees of any kind.

One nice feature of 529 plans, however, is that you can generally switch from one plan to another with little trouble (the one great exception being after you just got a state tax exemption…). So it’s not only possible, but probably quite likely, that you may pick a plan today but change to a different plan at sometime in the future.

It took until nearly her first birthday, but we finally managed to open an account with $1,100 that we had saved over the course of her first year.  Most of this was her money in the form of gifts that she had received.  We have since made a couple of additional contributions.  Our plan for the near term is to use the cash back from our Chase Freedom Card, as well as any additional birthday, Christmas, or any other kinds of gifts she receives (at least until she’s old enough to understand money…) to fund this account.  We don’t expect it to grow like gangbusters, but we expect that every little bit that we are able to save will help.  If we get to a point where we are saving 20% or more of our income for our retirement, then we will consider contributing more towards this 529 plan as a savings plan item.

For Part II of this article, we’ll look at Pre-Paid Tuition plans.

The cost of education is already scary, and it feels good to be contributing something to help our daughter’s future, even if it eventually amounts to just a drop in the bucket.  Are you saving for your kids’ education(s)?  How are you doing with it?

07.10.2008

In the first week of June, we had the first of what could be many heat waves of the summer. A Saturday afternoon errand run resulted in a horrific discovery: the air conditioning in my 2001 Jetta was not working — at all. There had never been a problem with getting cool air out of the vents in the past. “Oh great!” I thought, “how much is this going to cost us?”

Since the Jetta for the most part is my daily driver (primarily because it gets better fuel economy and I drive further on any given day than ScrapperMom) I put the lack of A/C out of my mind and lived with it. Mornings are cool enough, and opening the sunroof was enough to keep things comfortable. In the afternoons on the way home, the hottest part of the day was behind us, and windows down, sunroof open, and 40-50 miles per hour is enough to keep me cool for all of my 20 minute commute. In fact, some days it was nice to “thaw out” after a whole day spent in the air conditioning of my office.

One day recently, however, ScrapperMom and I had to trade vehicles for the day. On that day in particular she had to drive with our two nieces and our daughter — and it was hot that day. When I got home I got the directive: “You’ve got one week to get that air conditioning fixed, or I’m not trading cars until it is.” Fair enough. It one thing to suffer through something of your own choosing, but it’s quite another to subject your daughter and nieces to the excessive heat.

As it happened, I had to get my yearly inspection sticker for the Jetta, so while I was getting that done, I asked the technician if the garage next door did air conditioning repairs. The tech said that it did, and so I went over and made an appointment for the next day. The next day I dropped the car off at 8am and 7 hours later got the call: it’s all set, come pick it up.

I didn’t dare ask on the phone how much the repair cost, but when I arrived to retrieve the car I got the bill for $117. I was expecting more, especially considering that labor rates alone today can be $50-$100 per hour. The bad news is that they didn’t actually fix anything: they pulled a vacuum on the system twice and it held steady for over an hour each time. The good news is that apparently nothing is broken or leaking. So they recharged the system and added some dye to it that will show up under a UV light should the system stop working again.

ScrapperMom and I are happy that the air conditioning is working again. However over the last week I’ve found that I got used to not having the air conditioning. On the way home from work I’ve been putting the windows down and opening the sunroof — even though it’s been 90 degrees for the last 3 days.

The whole point of this post is that the misfortune of being without A/C quickly taught me that I didn’t need A/C (most of the time). This should save me some small percentage in fuel costs this summer. But it also makes me wonder what other “recalibrations” that I or we could undergo to save money and energy, live more simply, or all three. For starters, we could probably set the A/C in our house a couple of degrees higher this summer — or forgo using it altogether whenever possible and use fans or natural cooling instead.

Have you “recalibrated” lately? Are you driving less or shopping differently? Let’s hear about it!

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Late Fees

Creative Commons License photo figure credit: josh.ev9

The other day I got an email from our cell phone provider indicating that our latest bill was available for viewing online. I logged into our account and found that we were actually a month behind on our payment and now owed two months’ worth. Not a big deal, I thought — until I saw the late fee. My lack of attention to this bill cost us $5. Not a big deal in the grand scheme of things, but $5 here and $5 there can start to add up pretty quickly, especially when you consider what we might otherwise be doing with that money.

How did this happen? Every month I get an email from the cell phone provider reminding me that our bill is due soon. This is a great first step in making sure that bills get paid on time, and I applaud the cell phone provider for offering this service — especially when the upside of a late payment is an additional fee for them. I get similar reminders from a number of our other creditors, such as our mortgage company. Somehow, though, last month’s cell phone bill slipped through the cracks. And it’s not the first time that this has happened.

Most of our bills are paid via automatic billpay through our bank. This works great for bills that have the same payment due every month. However, for the last year we have been paying for everything that we can (that’s in our spending plan of course) on our Chase Freedom cash rewards card. This card offers 1% cash back on all purchases as well as 3% cash back on things like groceries, fast food, and fuel purchases. We can’t use this card for most of our big bills like our mortgage, car, and student loans, unfortunately, but we can use it on a lot of the small stuff like cell phones, satellite TV, Netflix, periodic insurance payments, etc.

Make it Automatic. David Bach’s book The Automatic Millionaire outlines the case for automating your finances as much as possible. We generally subscribe to this philosophy, but there are a few loose ends. While paying this overdue bill, I noticed an option to set up an automatic payment. For bills that have irregular payments due each month, I generally don’t like to have them get paid automatically because I like to review the bill to make sure that all the charges are correct. However, if the choice is between reviewing something that is correct the vast majority of the time for the cost of a $5 late fee, or paying on time, I’ll choose the on time option. Besides, I still have the option of reviewing the bill and clearing things up after the fact. So I went ahead and set up an automatic payment for this bill. I have done the same for many of my other accounts, such as satellite TV and Netflix.

The great part about all of this is that I also have an e-bill for my Freedom card through my bank’s billpay function. With the e-bill, I also have three options for automatically paying my credit card bill each month:

  1. A fixed monthly payment — useful for paying down a large balance to get out of debt
  2. A minimum monthly payment — useful when you are paying down other, higher interest credit cards while getting out of debt, or for exploiting a 0% interest on purchases offer (more on that in a future article…)
  3. A payment in full — useful for most people, most of the time

With these options, I can be sure that no matter what our cell phone bill is next month, the bill will get paid on time by our Freedom card, and the Freedom card bill will get paid on time via my bank’s e-bill feature in billpay. Voila! No more late fees.

Have you automated your finances yet? What techniques do you use to be sure that your bills are paid on time?

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07.06.2008
Busy Bees

Busy Bees
photo figure credit: Chris

I’ve had a busy couple of weeks of traveling for work and getting ready to host an Independence Day cookout. I’m still trying to catch up on creating some new posts as well as dispensing with the backlog in my RSS Reader.

I managed to find some time to participate in one Carnival this week at the Military Finance Network. The theme of this Carnival of Financial Goals was Financial Independence. I submitted my article on Financial Independence Day. The rest of the carnival entries can be seen here.

I also enjoyed a number of other peoples’ articles this week:

  • Nickel writes about the difference between Cheap and Frugal. This segues nicely into –
  • Glbl’s entry on Walmart: There is a Price for Cheap. This article is primarily about the inconvenience of shopping at Walmart. However a number of readers point out all of the rest of the things that are wrong with Walmart.
  • The Boston Globe published a book review about Spend ’til the End. This review is about the latest offering from Boston University economics professor Laurence J. Kotlikoff who argues that most people are saving too much for retirement at the risk of not enjoying themselves enough while they’re young. While I doubt this assertion is true, Kotlikoff really seems to be advocating that each individual or family create a sustainable lifestyle now that will carry them into retirement on a modest budget. Sounds pretty common sense to me. My take on it is that it’s always going to be worse to have too little money in retirement than too much. After all, if you save too much money, you always have the option of retiring early.

Two parent oriented articles (though written by economists…) that I found interesting this week were:

  • Steven Levitt of Freakonomics fame claims that a speech he gave a few years ago for TED bombed. The speech presented his analysis on the efficacy of child restraint systems versus adult seat belts for children over the age of 2. I thought that the speech was great, as did a number of his other readers. I think that we need more of this kind of science influencing lawmakers who are just as likely to enact “feel good legislation” that costs everyone a lot of money, makes everyone feel better for it, but accomplishes little or nothing.
  • Joshua at Game Theorist writes about the “war” he and and his wife have been waging against child #3 in their household. This certainly brings new meaning to the terms “shock and awe” and “the surge.”

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